Owning real estate is an excellent choice for those who want to create wealth. For Americans, it is the most critical driver in wealth creation. The median net worth of homeowners is 80 times more than renters. There was a time when investors in real estate had to withstand the racial restrictions imposed on investment that reduced investment opportunities for the colored investors, thereby creating a racial wealth gap. Since then, the gaps and discriminatory practices are now gone mostly due to policy changes over time. It has helped investors to create more opportunities for developing strategies that help to create and preserve wealth. For more clarity about how to build smarter portfolios of cash flowing assets, log on to https://www.graycapitalllc.com/.
The strategies discussed in this article should help inexperienced investors meet their investment goals, whether they are first-time investors or existing ones who want to scale up the portfolio.
Use your own house to start earning
The trick to building wealth by using real estate is to know how to maximize the asset’s earning potential. Your first strategy in wealth building is to explore the possibility of renting out a part of your house if you live in a 1-4 residential unit. The community of investors calls this strategy a house hack, and you can even live rent-free as the other residents pay for the expenses and mortgage. Those who own 2-4 apartments can rent out the other units except for the one they use. Such properties qualify for FHA loans involving a down payment of only 3.5%, and you need to pay only $7,000 to own a property worth $200,000.
To protect your gains from eroding by avoiding payment of capital gain tax, you can defer tax payment by availing of a 1031 exchange that allows you to channelize your equity from an investment property into a similar investment. It is identical to trade up from a house to a hotel in the Monopoly game. By exchanging a property, you can scale up your portfolio while avoiding payment of capital gain tax. You can stick to the strategy until you die, and your heirs who inherit the property are given a new cost basis, thereby resetting the capital gain to zero.
Invest in real estate without buying any property
Although it might seem like wishful thought, indeed, you need not buy any physical property to invest in real estate. Take to note investing, which comprises buying existing mortgages. Note investors buy loans from lenders and become the new loan holder that they notify the borrowers. The borrowers then start paying the note investor instead of paying the erstwhile lender. In this investment method, the loan’s payment status is one of the main driving factors that determine the value of the investment. People term it as Mail-box money for its simplicity of use by sending out invoices very moth and collecting money.
Even without a large capital, investors can still engage in real estate deals through crowdfunding. In recent years, real estate crowdfunding has grown in popularity due to its convenience and affordability. With $5,000 or less, investors can get access to many real estate deals through crowdfunding platforms and sponsors.
Finding the right platform or sponsor, however, requires the investors to do their due diligence. That is what crowdfunding review platforms such as CrowdDD are for. Visit this site to get first-hand information on crowdfunding platforms and sponsors from former and current investors.
The depreciation of the property generates a revenue stream, which is another not-so-visible benefit of real estate investment.