good real estate investor

Real Estate Investors Are Masters of Leverage….

Everybody wants to be a good real estate investor. Before I started learning about real estate investing, I was just an old-fashioned stock investor. I followed the greats like Warren Buffet and Charlie Munger. It’s a wonderful way to approach investing. Finding stocks at a discount, holding them for several years or more, and experiencing above average returns just as the masters have.

But what I realized is that I’m a little bit impatient. I know that emulating master investors like Warren would make me financially free in a couple of decades. But I always wondered how some people managed to do it faster.

Every time I researched the topic, I always ran into real estate investing as the primary way to grow rich quickly. Real Estate accounts for over 90% of the self-made millionaires in the U.S.A., and you always hear about that person around the block who hit big by getting into real estate.

good real estate investor

Comparing Real Estate to Stocks….

If you compare the growth of the U.S. Real Estate Market against the growth of the U.S. Stock Market, it’s the stock market that has reigned supreme. Over a 30 year look back period, the Stock Market as grown about six times faster compared to the Real Estate Market. So how are all these real estate investors getting so rich?

The stock market is great for people who can regularly invest small sums of capital passively. Over time, the major indexes like the S&P500 has shown to grow even a modest nest egg substantially. But most investor who participate in the stock market acquire their investment at market price, and they use their own money to do it.

In comparison, real estate investors never try to buy properties at market price. They look for scenarios where they can buy a property at a steep discount. And they use other people’s money to buy it. This is where the real growth comes from.

 

Contracts and Leverage…

Real estate investors have a greater chance of growing rich compared to their stock investor counterparts for two very simple reasons. They know how to use contracts to lock in far better terms. And they know how to borrow or leverage other people’s money to finance those deals.

Let’s say you are just as good at picking stocks as Warren Buffet. If all goes well, you’ll make an average annual return of around 25%.

Let’s say a real estate investor can find a house that’s only likely to increase in value about 3% this year. That’s quite alright for a savvy investor. The first place they’ll start enhancing the deal is with negotiations. They will provide some other type of value like being able to take on renovations, or closing quick with a cash offer. This value potentially allows the investor to buy the property at a 20% discount. In other words, they have carved out a 20% profit margin after all numbers are factored in.

Next, they will go out to find a lender who will finance 90% of their deal. They may have to pay high lending costs that knocks the profit margin down to 15%. But that’s 15% at 90% leverage, which creates approximately a 150% cash on cash return.

So there’s no wonder why real estate makes more millionaires than any other type of investing.

 

Combining the two….

It’s pretty amazing that so few people know about how to use the same exact strategies in other types of investments. Real Estate investors succeed simply because they understand how to use contracts and leverage. But believe it or not, contracts and leverage are just as readily available in other publicly traded assets like stocks, real estate, gold, oil, and more. Unfortunately, the financial industry has created so much fear and confusion around these tools that the masses are still largely in the dark. Even many investors who use them don’t think about them the same way real estate investors do.

That’s our mission. We want to help people understand that strategic investment opportunities are just as readily available in major exchanges, as they are in real estate. You just have to know what to look for.

So if you like the sound of using contracts and leverage, but like the simplicity of investing in the stock market, take a look at our unique approach to combining the best of both worlds.

About The Author

herbertkoehler

I am a college drop out who found my passion as an investor. I love the many facets of finance, investing, and business. But even more than that, I love sharing what I learn with others.

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