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The
Four
Secrets
to
Building
Wealth
with
Investment
Real
Estate
There
are
many
benefits
to
owning
investment
real
estate.
Pride
of
ownership,
portfolio
diversification
and
direct
management
control
are
just
a
few.
However,
let’s
face
it,
if
investment
real
estate
didn’t
contribute
to
our
personal
bottom
line,
few
would
find
it
attractive.
So
what
do
successful
real
estate
investors
know
that
others
don’t?
The
secret
is
to
understand
the
four
ways
investment
real
estate
increases
your
net
worth.
Let’s
get
started:
1.
Cash
Flow
The
most
basic
and
understandable
method
to
make
money
owning
real
estate
is
cash
flow.
Cash
flow
is
simply
defined
as
the
net
change
in
dollars
in
your
checking
account
during
a
period
of
time
(such
as
a
month)
that
occurs
as
a
result
of
owning
and
operating
real
estate.
Put
another
way,
cash
flow
is
equal
to
the
money
that
is
left
over
after
you
collect
rents
and
pay
all
the
bills,
including
the
bank
note.
Having
a
positive
cash
flow
is
crucial
to
the
ability
to
hold
an
investment
in
the
long
term.
2.
Price
Appreciation
–
with
Leverage!
The
appreciation,
or
increase,
in
the
market
value
of
property
is
many
times
responsible
for
the
lion’s
share
of
the
profit
from
investment
real
estate.
This
is
especially
true
for
short
holding
times.
The
old
adage,
“buy
low,
sell
high”,
expresses
this
basic
principle.
What
makes
appreciation
so
powerful
in
real
estate
is
the
ability
to
borrow
a
portion
of
the
purchase
price.
Consider
an
example
whereby
an
individual
has
$10,000
to
invest
either
in
stocks
or
commercial
real
estate.
Furthermore,
let
us
assume
that
both
investment
choices
will
appreciate
the
same
amount
in
a
year,
say
5%.
At
the
end
of
the
year,
the
stock
account
will
be
worth
$10,500,
or
an
increase
in
$500.
However,
the
real
estate
investor
understands
leverage;
the
ability
to
borrow
a
portion
of
the
purchase
price
of
an
investment.
Most
investors
can
borrow
80%
of
the
value
of
a
property.
So
the
$10,000
cash
available
can,
with
this
leverage,
purchase
$50,000
worth
of
real
estate.
Growing
the
$50,000
by
the
same
5%
results
in
$52,500,
or
an
increase
of
$2,500.
Who
likes
$2,500
better
than
$500?
Answer:
real
estate
investors.
3.
Debt
Pay
Down
This
method
flows
from
the
leverage
principle
introduced
above.
When
investors
borrow
money
from
the
bank
to
purchase
real
estate,
they
pay
it
back
with
monthly
payments
exactly
like
a
home
mortgage.
A
portion
of
those
payments
goes
to
interest
and
a
portion
goes
to
principle.
To
the
extent
that
collected
rent
is
used
to
fund
the
principle
portion
of
the
monthly
debt
service,
this
rent
money
builds
the
equity
of
the
investor
by
paying
down
the
debt.
Lowering
debt
increases
net
worth.
4.
Tax
Depreciation
This
method
of
wealth
creation
is
entirely
due
to
the
vagaries
of
our
current
tax
code.
However,
it
does
create
real
dollars
in
your
bank
account,
so
we
should
understand
it.
Here
we
go:
The
government
acknowledges
that
buildings
age
and
in
doing
so,
lose
value.
They
allow
us
to
recognize
this
loss
of
value
annually
by
treating
it
as
an
operational
expense,
just
like
a
utility
bill.
This
operational
expense
can
be
used
to
offset
the
profit
from
operations,
thus
lowering
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