Real Estate Opportunities in 2016

Over the course of the past 8 years, another thing that has grabbed a lot of my time and attention is the study of real estate.

Let me be straightforward. I love real estate.

I think it’s an amazing way to build wealth.

Now, a lot of people who got into real estate and then got hammered after the great recession would argue differently. Not me. I’m still in.

Why do I like real estate so much?

There are lots of ways to make money in real estate. Principally, there are 4 basic ways:

  1. Cash Flow
  2. Appreciation
  3. Amortization
  4. Depreciation

Let’s take a quick minute to walk through each of these.

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Cash flow is pretty self explanatory. When you take all of your revenues of the property and subtract all of your expenses, including debt if you are carrying a mortgage, the cash flow is what you have left. For example, is the property renting more than it is worth. If so, you have cash flow.

Next, is appreciation. What is great about real estate is that the value tends to go up (or stay the same, based on how you look at inflation). But historically, over time, in terms of $’s, a real estate market will go up over time. So, if you simply control the real estate (or manage the cash flow), you will make money in that a house today is generally worth more than it was 20 years ago. Now, this depends a lot on each market. But typically across the board, most markets will appreciate.

Amortization. This is simply paying down of a loan. So, your monthly payment goes towards interest and taxes, but part of it also goes towards principal. That is, if you have a renter who is covering your mortgage, each month, some of their dollars are adding to your net worth. Nice. So, how many units do you want?

Depreciation. This is another great one. Basically, this is a “non-cash” expense, which means you get to deduct expenses on your taxes for the property wearing down, even if you didn’t have to pay for any actual accrued expenses that year. This saves you money on your taxes.

I love it. So many ways to make money. Backed by a real asset. I can actually see and touch my investment. It’s not some elusive stock to a company that I have no idea who manages it.

So, what are the opportunities in 2016?

There are always hot residential markets. In the past few years, Texas has been fantastic. How do you know where to look? Follow the jobs. Dallas, Austin, Ft. Worth have all been very hot because they have been growing in population and jobs. Follow the jobs, demand increases, and real estate prices go up.

In the same line of thinking, follow the demographics. The boomers are aging. So, different than your residential, multi-family, or commercial types of investments, there is a lot of money flowing into health care for these seniors.

In particular, there are senior living projects going up all across America. These can range from independent living, to assisted living, memory care and full nursing care. A little sub-niche that has spun out of this that I’ve really had my eye on is residential assisted living. There are little operators all over the country who are opening up smaller senior care homes that actually feel like a home, vs. an institution. Pretty smart.

There are all kinds of ways to make money in real estate. And, I’m going to do some of that right now.

Have a good day!

 

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