When should you start building wealth? The time to start accumulating assets does not depend on age. The important thing is that you start “as early as possible”.
One of the most popular ways to build wealth is investing in real estate. In this post, we explain why real estate investing is one of the best ways to build wealth and why.
Real estate investing gives you the opportunity to acquire a valuable asset with relatively little money. How? Imagine you want to buy a property for 100.000 EUR, but you only have 10.000 EUR. If you borrowed 90.000 EUR, you could buy an asset (the property) worth 100.000 EUR with “only” 10.000 EUR of your own capital.
This is the so-called “leverage effect”, which allows you to acquire assets with other people’s capital. This is possible with real estate investments, but usually not with other types of investments, such as the purchase of stocks
One of the most common problems with wealth accumulation is inconsistency in saving over time.
One day you decide to save money and increase your wealth. Some time later, a friend invites you to a fantastic vacation in the Bahamas (your dream trip). What are you doing now? You take your savings and fly to the Bahamas. Great on one hand, but on the other hand, you’ll be spending a big part of your savings.
That doesn’t happen after you invest in real estate. You have to pay the “savings rate” (=principal and interest) to the bank, no matter what. An ideal investment would repay the bank’s debt from rental income.
The real estate market is a non-transparent market. This means you have the opportunity to find undervalued or overvalued properties. For each object there is an individual price.
If you find a property that is selling below market value, you are automatically creating value at the moment of purchase. You pay less for an object with a higher value.
With all other forms of investment (e.g. gold, a bond or a share), everyone always pays the current price. “Below current market value” does not exist due to the transparency on the stock exchange and therefore no immediate purchase profits.
But it gets even better! You can actively increase the value of your assets. Imagine you are renovating the apartment and installing a new kitchen. By doing this, you can increase the rental price AND the value of your real estate assets!
Can you also actively increase the value of your shares? So unless you’re the CEO of the company, that could be quite difficult. Instead of waiting for someone to increase your wealth, do it yourself!
This point is very important for us! The increase in the value of a property is not a reason to buy it, but a nice extra. The reason to invest in real estate is the passive rental income that will pay off the property over time.
Therefore, it is important to buy in a place where you can always rent the property, preferably with a positive population forecast, such as Valencia.
Do not speculate! Market timing does not work and is certainly not a systematic way to build wealth.
Let’s say you bought an apartment 20 years ago, and in the meantime you’ve paid it off through rent. With the rental income, the debts to the bank have been repaid and there are no outstanding payments.
You get the rent, e.g. 700 EUR a month and you can keep a large part of it for yourself (forever, no matter how old you get). Now imagine that you have built up your assets and have already paid off 3 apartments, which means you would receive about 2,100 EUR every month as part of your retirement savings.
Once you enter the real estate world, you’ll discover a universe full of ways to make more money. Of course, depending on what and how much you want to learn.
We currently have very high inflation in the European Union. If you own real estate, inflation means three things to you now:
Real estate protects you from inflation. Once built up, assets and passive income are not eaten up by inflation.
Tip: Look for markets where you can get more profitability with less money, like Valencia.
If you also want to build wealth with real estate, schedule your free consultation with us right now!