People get a job to eventually buy a house. That’s the only real estate investment they’d ever make. And if you ask me, that’s not even a real investment.
Although there are valid reasons to go buy one, it’s not always the best decision. For one, there are a lot of hidden costs involved in buying a house such as maintenance, property taxes, and insurance.
Because of how huge these hidden costs are, it’s so rare for people to actually take the plunge and get into truly investing in real estate.
Yes, it takes thousands of pounds and years of regular payments. But if you want to massively improve your passive income stream, this is the next logical step.
If you’re not investing in real estate, you’re missing out.
There’s a reason why for most of recorded history, everyone put so much into expanding empires. The more land under your control, the more power you have.
Look, I’m not saying that you should go Genghis Khan in your city. But you should invest in real estate because:
1 – It’s timeless. People will always need to live somewhere. This means that unless the city becomes a ghost town overnight, you can reliably expect relatively consistent profits from real estate.
2 – Mortgage rates are normally low. It’s a big loan. Lenders would be competing to get your business, thus driving the rates down. Right now, the rates are high but real estate is a long term game and the central banks of the world really do want to bring rates back over the next few years.
3 – It’s flexible. You can choose to put a small down payment or go all-in on your investment. There are many types of real estate investments that you can use to balance your profile of profitability and stability, depending on how you price your rental.
In short, real estate compounds wealth. Your net income will increase over time. And after you work out all the bugs with the first rental house, you can continue the process to increase your income.
You don’t have to get an expensive house to get started. I didn’t. That’s for five to 10 years down the line. I started with a £60,000 house, then bought more from there. And my projections are looking good. My net income should be around £200,000 by 2030.
The most important thing is to purchase your first.
Why is buying a rental house the real deal?
Financial independence buys you time to strengthen family bonds, cross things off your bucket list, and enjoy life.
And with this type of investment, you get closer to that goal more quickly because the returns are so great. Here’s why investing in rentals makes sense:
1 – You can keep using mortgages for leverage
If you’re eyeing a £100,000 property, you don’t need to have that much to close the deal. All you need is the down payment, and you can pay back the rest in a more manageable payment schedule.
So once you have that in order, you’ll have your rental income going in to cover your mortgage payments. Everything after what you paid for the property is pure profit.
Plus, you can always renegotiate with the bank to get a better rate so you can earn even more.
2 – Everyone understands real estate to some degree
One of the biggest problems of people who are struggling to earn passive income is their mindset. They seem to think that you need to go through some initiation before earning lots of money.
And almost everyone falls into this trap, including me.
Before I got into real estate, I regularly read to study the market before finalizing my stock picks. This took so much of my time that it almost felt like another job.
Don’t get me wrong. Many people got rich through the stock market. But if there’s a relatively easier alternative, wouldn’t you go for it?
To become a real estate investor, you don’t need a fancy finance degree. And the fact that you’re reading this means you understand enough: you buy a property, pay the mortgage, get paid rent, and turn a profit.
That’s it! Just a basic understanding of this process will be a huge help when you narrow down the area where you want to buy. If you feel a little lost, you can always take real estate investing courses to steer you in the right direction.
3 – Rates are typically amazing (It will come back eventually)
Mortgage rates are always so much lower compared to other types of secured debts. Houses normally appreciate in value over time, so even if you fail to make the payments, the banks wouldn’t be left empty-handed and motivates them to give good rates.
According to the Bank of England, the average mortgage interest rate in June 2021 was 1.95%. Are rates higher moving into 2023? Wildly so, but you know the Bank of England wants to get back to that <2% rate before too long. If you own your house for decades that’s the important value, not just next year’s interest rate.
4 – Returns are inflation-adjusted
As a landlord, you can increase rent to make up for inflation, and over a long time horizon how you invest during inflation is very important.
For fixed-term agreements, the government allows you to increase the rent after that term ends. And for periodic rentals, you can adjust the rate once a year.
And this is great news if you got a fixed-rate mortgage because your monthly payments would be the same throughout the life of the loan. So with rent increases, your nominal rental profit also increases over time.
5 – Capital is more powerful than labour
Unless you make it big in Hollywood or see yourself becoming the next Mark Zuckerberg, it’s nearly impossible to earn serious money from your labour alone.
For most people, capital (and how it’s used) will be the deciding factor between doing okay and doing great.
You can be the most hardworking person, but you still can’t work forever. If you have your dream job and plan to work for as long as you can, that’s fine! But there’s nothing wrong with diversifying your sources of income, right?
And when you finally retire, rentals can augment your pension so you’ll always have enough.
By investing in rental houses, you’re stacking the odds of success in your favour!
My success in leveraging real estate so I can retire early isn’t a fluke. I’m even going so far as to say that in this type of investment, success is practically inevitable. After all, 90% of millionaires made their money that way.
When you buy a rental house to create passive income, you’re using a proven formula to achieve financial independence.
And saving for a downpayment isn’t as hard as you think it would be. All it takes is your consistent dedication to go the extra mile to make it happen.
The only question now is, what are you willing to do for success?