When we invest in stocks, we usually start by looking for
equities with strong growth prospects. Capital gains are the apple of our eye.
As we grow older our focus usually shifts to dividend stocks. Fixed income
securities become more appealing because they throw off a regular income, which
is what we look for in retirement.
Real estate offers the best of
both worlds. Investing early in real estate provides for real capital
appreciation, particularly because the tenant pays off most of the investment,
but you own all of it. And, as you hold your real estate investment over
time, its cash flow potential increases. The reason for this is that the rents
usually increase over time, while the mortgage payments go increasingly toward
paying off the principal. When the mortgage is fully paid off, the bulk of the
rent then goes directly to the owner in the form of income cash flow.
Usually our clients set up mortgages that range from 15 to 25 years. If
a person is buying properties at age 45, by the time they reach retirement age
the mortgage will be paid off and they will have a steady income from the
property - maybe for as long as they live. If they have used this proven system
for real estate investing, they may have an income that exceeds the income they
had during their working career. And, they always have the option of selling the
property and realizing the gains available to them.
I believe that
real estate is a powerful wealth-building tool because it offers the best of
both worlds - strong capital appreciation potential and a powerful income stream
over time that lasts as long as the investor wants it to.