There are many benefits to real estate investing such as passive income, tax incentives, asset appreciation, etc. The one benefit that most people are not aware of is how much money is controlled versus how much money was invested. Once I learned this, I became fully invested in the idea of real estate.
My first example I am going to make is buying a primary residence. This is a typical transaction that most non-real estate professionals should be aware of. When buying a home, you are required to come up with a down payment. With some loan structures, this could be as low as 3.5% of the total cost of the home. In Maryland, where we invest, the average home price is $291,000, and 3.5% of that is $10,185. So, this means with just over ten thousand dollars invested, you are controlling an asset worth $291,000. This example is extreme because in order to only put down 3.5% you are limited to an FHA style loan which has many rules and regulations.
Traditionally, when buying investment properties, you are required to pay 20% as a downpayment. Let's assume the investment property you want to buy is priced at $100,000, which is around the cost of most of our properties. So, with a purchase price of $100,000, you are required to put down $20,000. As long as you don't miss payments and foreclose, you control an asset worth five times as much money as you invested.
When comparing this to other forms of investing, there is nothing else that I am aware of which gives you this kind of power. For example, when investing in stocks, you are limited to controlling the exact amount of shares you have the capital to buy. For example, if you have $20,000 to invest and you choose to invest in stocks, you will receive $20,000 worth of stocks in hopes that the stock price will increase.
Many people will make poor excuses for why they are heavily invested in the stock market instead of real estate. I am hoping this article can help guide people towards real estate investing and reaching our goal of financial freedom.