Real Estate: Buy it and Keep it – What Race are You Running?

We all know the story about The Great Race between the Turtle and the Hare. The Hare is a shoe-in as the winner before the race even starts yet the Turtle agrees to a seemingly unfair match. What kind of race are you in? Hares are like flips. You let your guard down, take a little rest and the next thing you know, the race is still on and you’re left eating Turtle dust. Turtles are like long term holds. The Turtle just plods along: slow and steady; uneventful; boring, even. This makes Real Estate the perfect Turtle win. It is my belief that only long term real estate investments are the perfect vehicle for creating passive income and true financial freedom. Remember: the Turtle always wins. So why is it that few people employ Turtle methodology? It comes down to mapping out your plan and sticking to your plan no matter what. Hares come and go. They’re off chasing the next deal. There is an element of speculation and high risk when you’re playing their game and the pay-off can be very lucrative. It can be very tempting to wander off the path towards that vacation property in Costa Rica or Panama; the pre-sale development that’s sure to double in price before it’s finished. The downside to this strategy is the lump sum cash and capital gains. Plus there’s no ongoing passive income. Once the deal is done, Hares are off looking for the next race because eventually their cash runs out. Excitement of this nature is seductive. It’s like gambling. You’re going from one high to the next and eventually it’ll crash. It’s called the real estate cycle and is generally between 7 to 10 years long. Real estate is a race that requires patience. And like all races, there is a strategy you need to formulate before you begin. There are seven profit centers of real estate that allow you to use leverage to multiply your return. Consider these strategies to leverage your money:? Buy Equity Day One o (always buy under appraised value so that when you take possession of your investment you have an instant gain on your net worth statement)? Leverage – Front End o (use other people’s money for the down payment and closing costs to leverage your return on investment)? Appreciation o (properties generally go up in value an average of 3% per year and this increase is reflected in your net worth statement at market value)? Principle Reduction o (tenants are paying your mortgage and this equates to approximately 3% to 5% per year and this decrease is reflected in the liability section of your net worth statement)? Positive Cash Flow o (this is the continuous flow of money over and above expenses and debt service that is deposited into your account every month just like a pay cheque)? Tax Benefits o (you can defer paying taxes through depreciation on building and chattels but the only drawback to this strategy is recapture of these monies upon the sale of the property, if you ever plan to sell)? Leverage – Back End o (invest the equity in your property into other investments and make your interest payments tax deductible)Although physically inferior to Hare in the speed category, Turtle’s mental game kept him in the race. Use these passive income strategies to set yourself up for long term success. See you at the finish line.

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This entry was posted on Wednesday, June 30th, 2010 at 9:31 pm and is filed under costa rica map. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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