EP # 13 - Is Real Estate Still a Good Investment in 2024?
Feb 07, 2024Episode 13
Jacob Sandoval & Michael Magno
In this solo episode, Jacob outlines five key reasons why real estate investment remains a lucrative avenue for building long-term wealth and achieving financial freedom, covering aspects such as the housing shortage, passive income potential, leverage advantages, diversification benefits, and its historical track record of creating millionaires. With a blend of practical insights and motivational encouragement, the episode aims to inspire beginners to explore real estate investing as a path towards financial independence.
In this solo episode, Jacob outlines five key reasons why real estate investment remains a lucrative avenue for building long-term wealth and achieving financial freedom, covering aspects such as the housing shortage, passive income potential, leverage advantages, diversification benefits, and its historical track record of creating millionaires. With a blend of practical insights and motivational encouragement, the episode aims to inspire beginners to explore real estate investing as a path towards financial independence.
If you clicked on this video, you're probably on the fence about real estate investing. You've heard that it could be a good investment and that people that made a lot of money doing it, you might even know a few people. That have been successful at real estate investing, but you're wondering if that is possible for you. With interest rates being so high and prices being out of control. You're wondering if maybe it's too late, maybe all the opportunities gone and there's actually no money to be made in real estate investing anymore. And unfortunately you be absolutely right. There's absolutely no money to be made in real estate investing anymore, especially for people like you and me. All the money's gone. There's no more good deals. Only a small select special group of investors are able to make any money in real estate whatsoever. So you and I basically shouldn't even try. We should just stay on the eternal hamster wheel that is corporate America. We should just faithfully put money to our 401ks, wait for another 40 years and then maybe, maybe we'll achieve financial freedom. That's 100% false. I'm obviously joking. There are plenty of opportunity left in the real estate market. And I still believe that it's one of the best investments to build longterm wealth and to achieve financial freedom. In this video, we're going to break down the five reasons why real estate is still a good investment, even in today's environment. Let's hop into it. The first reason is there is a massive housing shortage. When the housing market crash in 2008, it wiped a lot of homebuilders out. They were just gone. They just stopped the building for years. And even as the population grew and generations like millennials became into peak home buying age builders, just weren't building. And so what created was this massive housing shortage of two to 6 million homes that we currently have today? We're not building fast enough to meet the demand. if we take it back to basic economics, 1 0 1. If the supply of something remains low and the demand remains high, then prices are going to stay elevated. And that's exactly what we're seeing in housing today. This is also a reason why we're not going to have the housing market crash, because there just aren't enough homes for the prices of housing to crash. We need an influx in over supply of homes, that's actually what happened in 2008. We had the opposite scenario. Now we have too few homes and we have too many people that want those homes and that's causing prices. To continue to appreciate which is what we've seen for the past 10 to 15 years. the housing shortage still exists today. It's going to prove to be long-term tailwinds. For housing in general, and it's going to continue to benefit the people that already own real estate. Reason number two ways you need to build a secondary income source. You and I, if we're working in corporate America or you have a nine to five, We are trading our time for money. We are on the eternal hamster wheel And if we, for whatever reason, Get off that hamster wheel, maybe we get laid off. Maybe we don't want to work anymore. Maybe we can't work anymore. And what happens? The income stops coming. And then what do you do? How do you pay your expenses? How do you pay your bills? If you don't have that secondary income stream, you are forever bound to your W2 job. You are forever going to be trading your time for money. And the only way that you can actually stop doing that is if you have a secondary income stream, a passive income stream that is not directly tied to you, trading your time for money. In the case of real estate. You are. Renting out the place to tenants and the tenants are paying you for that service in the form of rent. And the tenants have to pay that rent, regardless of whatever I'm doing with my time. Or whether or not I'm at my desk working in corporate America. That income that comes from real estate is not tied. To my activity necessarily. Now real estate is not completely passive. There's going to be work involved in you as the hopeful investors should understand that there's going to be work involved. But it is much more passive than your W2 job. And as the rents increase over time and your biggest expense, your mortgage stays fixed, then your cash flow continues to grow. And if you're rolling that into more properties, building a portfolio over time, that cashflow starts to get pretty significant. And the aim is that the cash flow from your real estate investments will be enough to cover some or the majority of your living expenses. So even if you decided to step away from work or to take a pay cut, or to take a break, The cashflow from your rental property portfolio would assist you in that transition. And everybody should do that because at a certain point in time, we all need to stop working. The average retirement in the United States is somewhere around 60 years old, but the average life expectancy. Is like 77. So you're telling me that I'm going to work. 40 plus years of my life, just to enjoy the last little bits of it. And I'm going to be old. I'm not going to have my energy, my health. I'm probably not going to have. Enough money saved up because. All the data comes out and shows that people don't have enough saved for retirement. that's the trade-off. That's the deal that we make with corporate America. That's the deal we make with the system. That's a terrible deal. That deal should make you super mad. You should walk away from that deal. We should all walk away from that deal, but we're not, that's the deal that we're actively participating in. A lot of people don't understand that this is our path. This is our destiny. If we don't do anything about it, if we don't invest in real estate, if we don't invest in stocks, if we're not mindful about our financial future, this is the fate of everyone. And this should make you mad. It makes me mad. And that's why I'm making this video because I don't want that to be the fate of everyone. If they can help it. And so we should pivot. We should get educated. We should invest in real estate. We should. Chart a new path. And that's what I'm so passionate about. The third great thing about real estate is you can use other people's money to invest in real estate. It's what we call leverage. what do we mean by leverage? I can borrow. Typically 75 to 80%, sometimes more. Of the money from a bank to purchase the real estate. And I have to put. 20 to 25% down again, sometimes less. And so we are using other people's money OPM to invest in real estate. But the beautiful thing is that even though we borrow money, To purchase the asset. We are the sole owner of the asset. Now of course you have to make payments to the bank, but if the asset, for example, appreciates in value. A hundred percent of the benefit goes to you, the owner. So even if you put a portion of the money to acquire the property, you get a hundred percent of the benefit. So let's say for example, you bought a$250,000 property and you put 20% down. So you put down$50,000. If that property appreciates 10%. That property is now worth$275,000,$25,000. More than when you bought it. That 10% appreciation that$25,000 gain is actually a 50% return. On your initial down payment of$50,000. So even though the property only appreciated 10% relative to the money that you put in. That's a 50% return. So this is what we mean when we say. Leverage amplifies returns real estate is one of the most advantageous asset classes because of the component of leverage. There's not many asset classes. At all that you can. Borrow. This amount of money to invest in the asset. And the reason why is because. Banks view real estate as an incredibly safe investment for their part. And that should give you a lot of confidence as the investor as well. Why would a bank lending this much money? To help you. Invest in real estate. Well, one, they're going to make a lot of money in interest, but two they're very confident in the asset class as a whole, because even if you the investor. For closes. Or defaults on their loan. They are still pretty confident that they can turn around, sell it, at least get all their money back. So. This is kind of getting down to tangent, but. Leverage amplifies returns, but it also amplifies losses as well. So even though it's really beneficial in instances where your property value is increasing, if the property value is decreasing. That's a very bad situation and leverage makes that situation worse. So even though leverage is a very powerful tool in real estate investing, you have to be careful and you have to be mindful of how you're using leverage as a whole. The fourth reason is diversification. Now, if you're like most people, you have been putting your money into your 401k. That's the traditional financial freedom. Strategy. And if that's all you're doing, then all your eggs are in one basket now. I don't think anything's wrong with the sock market. I think the stock market's a great investment vehicle, but you have to be diversified. You have to have it in alternative place where you're putting your money. Just in case something goes wrong. Well, what happens if the stock market tanks and that's unfortunately happened to a lot of people where their sole retirement was sitting in the stock market and all of a sudden the stock market drops 20 to 30% and they have to work another. Five 10 years because they don't have enough money to retire. So diversification from the stock market is good. And the good thing is, is real estate and stocks. Aren't very correlated. They don't always move in the same direction. The reason is is because the stock market is very liquid investment. You can hop on your Robin hood app or whatever trading app. You use press a few buttons and boom, you've either sold or bought a stock. It's very easy to do. And because it's so easy, that creates for a lot of volatility in the market because millions of people all over the world are buying and selling stock. Stocks at any given moment in time while the markets are open now. It's not very easy to buy and sell real estate. You have to get a real estate agent. You have to negotiate. You have to do inspections. It's not a very liquid. Asset. And as a result, it creates for a much more stable asset price. There's not a lot of volatility when it comes to real estate in relation to stocks. So when you think about having both stocks and real estate, because they're not correlated in investments, having them both makes for an overall more balanced portfolio, which is exactly what you want when you're on the road to financial freedom. Last, but not least reason. Number five real estate has created a lot of millionaires. Andrew Carnegie is quoted with saying 90% of the world's millionaires are created through real estate. Now. I don't know if he actually said that. I don't know if the status still true today, but what I do know is that real estate has been in the playbook of the wealthy for generations. So don't reinvent the wheel. In the next video, we're going to talk about the four ways that real estate makes you rich. So make sure to hit that like and subscribe button so you can catch the next one. Also I have a bunch of free investing tools and resources that I've created for you guys. Rental property calculator, free market analysis guide. And more stuff. So if you're interested in that go ahead and check that out in the link in the description below and yeah, I'll see you guys for the next video. Peace