Alex P Williams
Commercial Real Estate Investment Specialist
Building Wealth by Investing in Real Estate
There are more ways to build wealth than one can count. But one of the most common ways in the history of our country to do so has been through savvy (and sometimes lucky) investments in real estate. The goal of any investment is to produce a return, and as large a return as possible. One of the allures that attracts so many investors to commercial and investment real estate is its unique ability to produce a return in three separate ways. These different types of return on investment are cash flow, principal paydown, and appreciation.
One of the main benefits of commercial and investment real estate is the cash flow produced by the asset. Cash flow in investment real estate is generated by the total amount of rent collected by the tenant or tenants occupying the real estate. Investors look for opportunities where this revenue is over and above all carrying costs for the property, including loan payments, property taxes, insurance, repairs, maintenance, and so on. Any revenue left over after these carrying costs are paid is the cash flow benefit to the investor. The investor’s goal is to maximize cash flow as much as possible by pushing rents to what the market can bear while at the same time keeping carrying costs as low as possible.
One of the great benefits of owning commercial and investment real estate is the ability to finance a portion, typically a major portion, of the property through a loan. This allows investors to use the power of leverage to their advantage. If the property you invest in is financed, each monthly payment made will be split between principal paydown and interest. Using the revenue from the rental payments by the property’s tenants to pay down this loan in part also goes towards paying down the principal balance on your loan. More simply, your tenant’s rental payments are paying for you to add equity into your investment!
You’ve probably heard the term that “real estate values always go up, never down” or some variation of this sentiment. As millions of people can tell you from recent experience following the financial market collapse of 2008, this is certainly not the case. However, that doesn’t mean that historically property values haven’t risen as a whole. While there isn’t a lot of reliable data to give a blanket historical appreciation figure for real estate like there is for other investment types like stocks and bonds, we do know that home prices have generally increased by around 3% annually over the past 100+ years, despite some periods of much higher fluctuation. It would probably be pretty safe to assume that this amount is probably somewhat close to the real estate market as a whole over the same period. As with any investment, real estate is no different in that investors are always looking to time the market by buying at a point in time to where the property will appreciate in value over time. Those investors who have been able to correctly time the market on this are the ones who have typically been able to make arbitrage profits and build substantial wealth from their real estate investments.
It’s important to build your own wealth. The returns on investment from investing in real estate make this very much possible. Whether maximizing cash flow, utilizing rents to pay of the principal while adding equity to your investment, or by simply letting your property’s value appreciate, you can build up your own wealth. Alex P. Williams and KW Commercial Real Estate has plenty of properties available to assist you in this. From retail, to multi-family, warehouse and everything in between. We are here to help you. Visit Us At GetPropVal.com
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Alex P Williams