How time helps real estate investors!
Have you ever read The Compound Effect by Darren Hardy? If you haven’t, I highly suggest you pick it up since it’s packed with so much knowledge from many aspects, including personal development, but I can also relate this to real estate investing very easily.
One of the takeaways from The Compound Effect states that if you consistently do an activity repeatedly, your results will compound. If you increase your daily activity through exercising, you’ll slowly develop a habit and that habit will allow you to lose weight, feel better, etc, because each day builds upon the previous one.
The same thing happens when it comes to real estate investing. I was on the phone with a friend/investor the other day and I told her about a property that I purchased in Phoenix in 2015 for 45k. She asked if I was missing a number in front of it and I said No. It’s probably worth 110k now, but my point is that over time, real estate typically goes up in value, and this takes time!
One thing to note, this property is not a high end property, but it’s been a great investment. It’s the only property in my portfolio that I have that I would classify as a C class property. Choosing what you put in your portfolio is important, and the reasons why are even more important.
Over the years with this property, I’ve pulled out equity using a home equity line of credit (HELOC), and recently paid off that HELOC and put a traditional mortgage on the property, pulling out more cash from the property and locked in low interest rates as well. My point is that this all took time, for the property to appreciate, and to harvest out cash from the property.
During the past 6 years with this property, time was on my side because it helped my tenants pay down my loan balance, which is just one of the benefits of investing in real estate. It created cash flow on top of the mortgage being paid down, it created tax benefits through mortgage interest deductions, depreciation, and expenses relating to the property.
Patience is a virtue in real estate investing, because most of these benefits wouldn’t have occurred in the first year alone. It takes time to compound but think if you have five or ten of these 45k properties. It would allow you to continuously reap the benefits of appreciation (long term) so you can take money out of your properties, all while creating the other benefits that benefit you today, which is tenant pay down of your mortgage, cash flow creation, tax benefits of owning real estate, and creating wealth.
If you’ve read The Compound Effect by Darren Hardy, please let me know your thoughts and takeaways from it by leaving a comment below. How did it change your life, personally, professionally, and/or as an investor?