Building Wealth Through Real Estate: Hacks, Tricks, and Tips

BY: - 1 Sep '17 | Money

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Last week we revealed the formula for true wealth formation:

Income – Expenses = Capital (seed money) left over to invest in wealth building assets.

Unfortunately, too many of us believe that investing in our primary residence is the surest path to wealth creation. Now don’t get me wrong. I am a strong advocate of home ownership. But owning a home is about having a place over your head. Your home, however, is not a good wealth building investment.

Consider this for instance: Adjusting for inflation, from 1900 to 2000, the average rate of appreciation for a home in the US was only 0.2%. As Wharton professor Todd Sinai explains in an interview with Business Insider, “Housing is a consumption decision, not an investment decision.” There are more efficient ways to build wealth with your housing dollars.

Hack

Build wealth through equity house hacking

Perhaps you’re just not into being a landlord, despite the economic benefits. You can still squeeze wealth out of your housing dollars. Consider equity house hacking. This strategy involves purchasing a home that either needs some fixing up or one you can easily add value to (adding a garage, turning a part of the home into an additional bedroom, improving the landscaping, etc).

The key is that the home must be livable so that you can reside in it while making improvements. When the improvements are done you’ve created instant equity which you can tap into by flipping the home. Alternatively, you can simply enjoy the home you’ve improved knowing that you’ve increased its value.

Tricks

Convert living space into rental space

One of my favorite shows is HGTV’s Income Property in which homeowners are provided help turning unused space into money making rentals. A basement transforms into a two bedroom rental. A garage blossoms into a one bedroom income suite. Not only does converting existing space into rental property create cash flow, it also adds immediate value to the existing home.

There are more efficient ways to build wealth with your housing dollars.

Play it smart through duplex living

My brother recently had his heart set on a beautiful five bedroom single family home with a large yard. But after running the numbers he realized that the wiser financial decision was to purchase a nearby duplex. He plans to live in one unit while a tenant lives in the other.

After all is said and down my brother will end up paying around $275 a month to live in a $250,000 piece of property. All the while his tenant pays for the lion’s share of the duplex’s mortgage, property tax, and insurance by way of rent. After living this way for four or five years my brother will be in a much better position to purchase the house of his dreams, while still owning an income producing rental property.

Tip

Increase wealth through rental property.

After purchasing a modest home, consider purchasing rental property. There are four principle advantages of real estate investing.

You create immediate cashflow: If you do your homework and pay attention to your numbers, you’ll earn a profit on your rental every month because your tenant’s monthly rent should exceed your monthly rental expenses (mortgage, property taxes, maintenance, etc). This extra cash flows directly into your pockets.

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Your renter pays down your mortgage. Each month someone else pays down the mortgage on your rental property as you simple sit back and cash the checks.

You earn tax benefits that put more money in your pocket. Landlords are simply entitled to a slew of tax deductions unavailable to the rest of us. These include tax deductions for interest, depreciation, repairs, travel, home office expenses, contractor expenses, insurance, as well as legal and professional fees.

Your rental property will appreciate: Like primary residences, your rental property will appreciate in value. But remember, as with a primary residence this may not be the source of a significant portion of your rental wealth, rather it is often icing on the cake.

Your housing costs represent one of your biggest expenses, but the money most people spend on their homes will seldom create extraordinary wealth. Yet, if you’re willing to be a little untraditional, and play your cards right, you can turn your housing dollars into new wealth building income streams.

BMWK, do you have other untraditional ways to build wealth through real estate?

About the author

Alonzo Peters wrote 298 articles on this blog.

Alonzo Peters is founder of MochaMoney.com, a personal finance website dedicated to helping Black America achieve financial independence.

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Fix These Top 10 Areas of Wasteful Spending to Reduce Debt and Build Wealth

BY: - 7 Sep '17 | Money

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When it comes to money, it seems we’re all wasteful. According to a recent Hloom poll, more than 8 out 10 Americans admit to squandering money. At the top of the list of wasteful spending is eating out, with 68.9% of survey participants admitting to spending too much money on meals away from home.

The US Department of Labor estimates the average US family spends nearly $3000 a year dining out. For the first time ever, the amount of money spent on meals outside the home has surpassed the amount of money we spend at home. Unfortunately, because restaurants mark-up their food by 200% to 300%, most American families waste between $1500 to $2000 a year eating away from home.

Those who truly understand the path to financial freedom, however, understand that it begins with the willingness to do what others won’t.

But why exactly is eliminating waste like this so important? As you know, my favorite formula for building wealth is:

Income – Expenses = Capital (seed money) left over to invest in wealth building assets.

Now, if you have significant debt, especially high interest debt (ie. credit cards), the formula should be modified to focus on paying off your debt before working on wealth creation:

Income – Expenses = Money left over to pay down debt

Either way, cutting out waste reduces the expenses side of the equation leaving more money for debt reduction or wealth creation.

Now, the fact that we waste money should come as no surprise. What is shocking is that the Hloom survey uncovered areas of wasteful spending that we admit to, but simply do not want to address.

Top Ten Wasteful Areas

1. Uneaten or expired food
2. Grocery items
3. Hobbies and activities
4. Entertainment expenses
5. Streaming services
6. Cable or digital TV
7. Cell phone services
8. Tech gadgets
9. Cars and gas
10. Bottled water

A family of four throws away between $1350 to $2275 worth of food each and every year? Simply by menu planning, monitoring your trash, using the FIFO system, and creatively using left-overs, you can instantly put more money in your pocket.

Likewise, becoming a better grocery shopper reaps huge dividends. Consider becoming a grocery store surfer, plan your meals around store sales, cut out impulse purchases and use coupons efficiently. In this way you can cut your grocery bills by as much as 30 to 40%.

Unfortunately, as the Hloom survey highlights, few people are willing to do this. Financial freedom may just not be that important to them.

Those who truly understand the path to financial freedom, however, understand that it begins with the willingness to do what others won’t. Jerry Rice once stated, “Today, I will do what others won’t so tomorrow I can do what others can’t.” By addressing your wasteful spending today, you’ll put yourself in a position to pay off debt and collect true wealth building assets in the future.

BMWK, are you willing to do what it takes to achieve financial freedom?

About the author

Alonzo Peters wrote 298 articles on this blog.

Alonzo Peters is founder of MochaMoney.com, a personal finance website dedicated to helping Black America achieve financial independence.

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