The Top 6 Reasons why I Invest in Real Estate!

What's up, you guys? Scram here. So, this is a topic I get asked even more often than how to become a real estate agent, and it's on the topic of investing in real estate.

So, everyone always wants to know how to invest in real estate, what I look for when I find a property, is it better to flip something or rent it. The most common question I always get asked is: how can I buy a property as a teenager with zero money down? So, I'm going to be answering all of these in great detail.

I mean, it would be impossible for me to answer all of these topics in detail in one video, so I'm going to be doing it in separate videos over the course of the next month or two. So, if you haven't already, click subscribe to stay up to date when I upload these videos. But until then, I'm going to be starting with the why and the benefits of investing in real estate, and that's going to be the topic of this video.

So, why real estate investing? I want to mean investing in this video. I don't mean wholesaling, and I don't mean flipping. I mean buying something as an investment, reaping the benefits of either cash flow or adding value through remodeling and making money that way. I'll be covering flipping and wholesaling and all that other good stuff in other videos.

One of the biggest advantages of real estate is using leverage, which is borrowing other people's money to fund your own investment. This is usually done at a pretty low-interest rate that's tax-deductible and a write-off against your rental income. You can use leverage to increase your cash flow and increase the return that you get.

So, let's take an example here. Let's say you buy a property for $100,000 and you put twenty thousand dollars down, which is twenty percent. If the property goes up in value ten percent, that means that the property is now worth 110 thousand dollars, so you profited ten thousand dollars in equity.

Now, keep in mind you only put twenty thousand dollars down, but when you make ten thousand dollars from $20,000, that means you made a fifty percent return on your investment. So, let's take another example and say you just bought that home outright. You invested $100,000 and you bought a hundred thousand dollar house.

Well, if that house goes up in value 10 percent, you've made 10% on $100,000 versus 50% on twenty thousand dollars. You can see the power of leverage, and when you start to leverage your money, your returns just increase dramatically.

So, I don't get blamed in the comments section. Yes, you can also lose a significant portion of your money because you're using a lot of leverage. If the market goes down, that same upswing can also impact you negatively. If the market goes down 10%, that will significantly impact you, but you could significantly mitigate this risk by the second advantage of real estate, which is adding value by remodeling.

This is my favorite part about real estate because you have total control over your investment. You can decide if you want to add more square footage, if you want to remodel a kitchen, if you want to do some landscaping, if you want to do some painting. If you do things that will increase the property value, these are the best benefits of owning real estate.

All of these upgrades that you can do just increase the value of your property. So, that same example that I just gave you also applies in terms of adding value in remodeling. So, let's say you bought that hundred thousand dollar home and you put twenty thousand dollars down. Well, let's now assume that you spent another twenty thousand dollars remodeling that house.

So now you have forty thousand dollars invested. Let's assume now the home is worth a hundred and sixty thousand dollars. You've invested $40,000 of your own money, which means that you doubled your investment. The house is a hundred thousand dollars, you put $20,000 down, spent twenty thousand remodeling, and you profit the difference between being in one hundred and twenty thousand dollars versus the home's worth of one hundred and sixty thousand dollars.

So again, you spent $40,000 of your own money, and you've doubled. You made another forty thousand dollars in equity, and this applies to a lot in real estate. Let's just say you own the home outright. You want a hundred thousand dollar home outright, you spend another $20,000 remodeling it, and the home is worth 160. Well, that twenty thousand dollars you invested just made you forty thousand dollars in equity.

So now, I'm going to give you a real-world example. I bought a home last year for about eight hundred thousand dollars. I spent another 50 thousand dollars remodeling that house. Now it's worth a little bit over a million dollars, and that means I've made over a hundred and fifty thousand dollars in equity from my down payment and spending fifty thousand dollars on upgrades.

Adding value, in my opinion, is one of the safest real estate investments that you can make, and I recommend everybody do it. I don't care if you're buying a primary residence, I don't care if you're buying a condo. If you're buying anything real estate related, the best thing that you can do is buy something that needs some work and do that work. It just adds value, and like I said, it also mitigates your risk.

So, even with my example, friends, I'm in at about eight hundred and fifty thousand dollars. Even if the market goes down ten percent and now it's worth $900,000, I don't really care because I've still made fifty thousand dollars in equity. Even if it goes down fifteen percent, again, I don't really care because at that point I've just broken even anyway.

So for me, it doesn't really matter with a lot of these properties. Even if the market goes down, chances are you could still break even if you've done the proper work in the proper remodeling and invested in the property, bringing up its value.

From the way I see it, the best-case scenario is you make a ton of equity. The worst-case scenario, you usually just end up breaking even anyway. So, I don't really see too much of a downside by buying something that needs some work and doing some smart upgrades to it.

The third advantage of owning real estate is the cash flow. Ideally, if you buy these properties correctly, your cash flow should be enough to pay off your mortgage, your property taxes, your insurance, the miscellaneous repairs, and hopefully bring you a little bit of profit as well.

Almost always, you could significantly increase your cash flow by adding value and remodeling the property. The fourth advantage I see of investing in real estate is appreciation. Now, this isn't something you have much control over. There are so many things and so many factors that have a big impact on how much appreciation you get for your property.

But from what I've seen long-term, at the very minimum, it tends to keep pace with inflation, which is about two and a half to three percent. Now, of course, generally, you're going to be paying more than that in your mortgage interest rate, but every now and then, something will happen with the economy, and the property will rise in value without you doing anything.

Now, this isn't something I rely on, but if it happens, great. I think it's something definitely worth considering. Now, I can't always accurately predict which area is going to shoot up in value and which isn't, but from what I've seen, I like to pick areas that are close by to other areas which have shot up in value.

My personal thinking is that most people get outpriced in a certain area and begin slowly moving outwards. So, I like to pick an area with about five to ten minutes of another area that's booming, and usually, you could save about thirty to fifty percent on a property's value just by driving an extra ten minutes outwards.

So, I personally prefer to do that to pick other areas which haven't seen the economic growth that a nearby city has. Those are the cities I'm betting the most on. In Los Angeles, I like the areas of Jefferson Park, West Adams, and Mount Washington. Feel free to look into those areas or not, but those are the areas that I think are going to be doing really well over the next five to ten years.

So, catching one of these areas before bigger businesses start moving in, before people start moving in, in my opinion, is crucial to getting the best value. The fifth benefit of owning real estate is all the tax benefits and all the tax deductions. There are so many tax deductions with real estate. You can depreciate the entire property over twenty-seven and a half years.

You can use cost segregation to heavily depreciate certain items in the house over a very short amount of time, having a huge loss upfront and essentially collecting a lot of rent without paying taxes on it. Every expense you have in any rental property is a total tax deduction. All the interest you pay is a tax deduction, all your property taxes are a tax deduction.

There is very little in real estate that's not a tax deduction. This is what's great about owning rental properties is that yes, you get rent every single month, but on paper, you could actually be at a loss when you factor in depreciation in all of your expenses, and that cancels out all of your tax obligations of getting rental income.

And it doesn't even need to be an investment for you to realize all of these advantages. Even as a primary residence, you can deduct up to a million dollars of your mortgage interest against your own income. So, this means if you're paying about four percent interest and you're in a 25% tax bracket, the four percent is fully tax-deductible, which means it actually becomes more like a three percent interest rate after all of your tax deductions.

Now, 3% is absurdly low, but it actually gets better than that because let's factor in inflation. Because let's face it, you probably have a twenty or thirty-year term on a mortgage. So, when you factor in inflation of let's call it two percent, that means you're actually paying only one percent interest after all of your tax deductions and after inflation. That is absurdly low, and that's also why I recommend people pay off their mortgage as slow as possible when they have a low-interest rate.

Because I guarantee you, you will make more than one percent on your money investing it anywhere else than trying to pay down the mortgage early. I think all the tax deductions of real estate are worth an entire video, and I can nerd out and talk about real estate tax deductions forever.

I don't want to bore you right now with a whole bunch of great, exciting, best-ever tax deduction strategies for real estate, but I will make a future video about this because it is so important. The sixth thing I like about investing in real estate is that you can do it part-time and you could still have a day job or a normal work schedule while still investing in real estate.

For me, my real estate properties are a fairly low time commitment. I maybe spend a few hours on them per month, but for the most part, they run on autopilot. I have everything set up so that if something breaks, it's fixed immediately. If something happens, it's taken care of quickly, and it's a very low time commitment for me, besides cashing checks, making sure all the bills are paid, and keeping track of all the expenses.

In the beginning, it's definitely going to be a lot more time-consuming, though, because you have to do your research, find the deal, do the renovations, find the tenant, get everything up and running. That does take time, but from what I've seen, once it gets up and running, it's not a huge time commitment for you to have other things going on in your life and still invest in real estate on the side.

I actually recommend everyone keep your normal day job while investing in real estate because this is money that you can continue to make, save, and invest in more real estate, and the bank will see that you have income coming in and will feel more confident giving you a loan when you buy even more rental properties.

So, for me, those are the six biggest benefits of investing in real estate. Now, I know I am totally biased about real estate because it's all I really know. It's all I've been doing. I'm really excited about it; I can talk for hours about real estate.

So, my recommendation is to do your research and then find out what works best with you. For some people, they prefer stocks; for some people, it's real estate; for other people, it's Bitcoin. So, definitely find out what works the best with you, but as far as real estate is concerned, it's the topic that I'm just like obviously the most excited about talking about.

There's definitely going to be making a lot more videos about the subject, and I'm just going to get really in-depth and really detailed about each aspect of real estate investing. So, if you haven't already, click subscribe to stay up to date and see what I'm uploading these videos so you don't miss out on that.

If you haven't already, you can add me on Instagram and Snapchat. I pretty much post there daily, so if you want to be a part of it, feel free to add me there. Thank you again so much for watching. I really hope you enjoy this. If you have any questions or topics for other upcoming videos, comment down below, let me know. I read every single comment, and I try to respond as much as I can.

So, that's it. Thank you again for watching, and until next time! Oh, and one more thing: I don't have anything to tell you. I don't have some like online course, some PDF book, or some online webinar I want you to sign up for. I don't have any of that.

Nothing I'm trying to pitch you guys with. I just really like talking about real estate, and apparently, I like recording myself talking about real estate and then uploading it to YouTube so other people interested in real estate can see it and then comment. I thought we can all talk about real estate.

Listen, I just like nerding out when it comes to anything real estate investment, finance-related. I'd nerd out, and apparently, what I do is I record myself, and I put myself on YouTube, and I just enjoy the whole process. So, that's why I'm doing this. I don't have anything to pitch you; nothing you know, crazy spooky. I'm not trying to take your money, you guys.

So anyway, that's it. Thanks again for watching!