Investing is an amazing concept: Instead of doing work to make money, your money does the work for you. In 2020, there has been a huge spike in personal investing. When it comes to investing, you can take many different avenues, and one of the less liquid paths is real estate. Jess Lenouvel, real estate marketing expert and CEO of The Listings Lab, joins Bold TV’s host Philip Michael to talk about the keys to making money in real estate. Check it out!
Three real estate components you should know
So when it comes to making money in real estate, there are three components you want to be aware of. These three components are how you would actually make money.
- Principal paydown, which is paying off your mortgage every month
- Property appreciation, which is when your property goes up in value over time
- Rental income, which is getting monthly rent payments from tenants
Lenouvel points out that too many people focus on rental income. It’s nice to have extra money coming in every month, but economies change all the time. Rents don’t always coincide with the cost of a property. She explains brilliantly that the money you collect from rent doesn’t matter as long as you have the principal paydown and the appreciation. With these two components, you’re making money – not by bringing in a monthly cash flow but by increasing your equity.
Focus on your equity
Equity is the difference between what you owe on your mortgage and what your home is currently worth. If you owe $150,000 on your mortgage loan and your home is worth $200,000, you have $50,000 of equity in your home. So, it’s OK if you’re not cash flow positive every month. Your equity will keep increasing, and you can potentially borrow against or from this number in the future.