The world of financial investment lies outside the knowledge of most average Americans. Even among those financially literate, “investment” usually means little more than a sum of monthly savings into a financial vehicle run by someone else, usually an IRA or mutual fund of some sort. While this is laudable, it does little to increase wealth. For those with motivation for more, lack of funds or lack of knowledge is usually enough to hold one back. The one potential exception to this maxim lies in the field of real estate. It is often said that, “It takes money to make money.”
While this is true, there is an addendum, “but it doesn’t have to be your money.” Many people may have a good idea for a business, only to find that the banks will not forward the start-up funds for their enterprise. Home ownership, on the other hand, is actively encouraged by both the government and banking industries. A down payment of 20% will secure almost anyone 80% leverage on an investment that easily returns its cash. Oftentimes, even less is demanded. There are theories that rely on buying homes in foreclosure, ‘fix-er up-ers’, and trading-up and cashing out, all of which can be successful, but again, fall outside the knowledge of the average American. While the skill can be learned, what is here recommended is the slow-but-steady purchase of real estate of sound make and good location, for the purpose of rental income. Over the course of the 15- to 30-year loan, as the investor takes his rental income, tends to repairs, and reinvests the extra either in the mortgage or an additional purchase, wealth is created from a minimal initial down payment.
There are risks to consider, and annoyances to overcome, but the traditional 7% return on real estate coupled with the coverage of mortgage payment by the renter makes real estate the easiest investment field for the average American. All it requires is a little study, a little money, a little discipline, and a long-term investment position. By adopting this mindset, financial investment can become possible for all, and not simply the purview of the experienced fund manager. There may not be the expectation of instant riches, but a secure financial future is awaiting those who can take the first step.
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