Have you ever heard that real estate is the ideal way to invest? Of course, “ideal” is just the catchy phrase but the 5 key concepts that it represents behind the word is very powerful and legitimate. Let’s dive into it:

• I – Income
• D – Depreciation
• E – Equity
• A – Appreciation
• L – Leverage

Income

It is pretty straight forward to understand that the primary reason to invest in real estate is about increasing your income. Especially when you are considering buy and hold for rental income, you should totally focus your analysis on positive cash flow, which means you get something into your pocket every month, as opposed to paying out from your pocket every month.

Depreciation

What people may not realize is, especially in the US, there is favorable tax codes which allows real estate investors to depreciate the property as an asset. Typically 27.5 years, what this means is, even though your investment property is increasing in value and equity over time, but on paper you can depreciate certain amount every year to offset your income! You cannot do this with stocks or other paper assets.

Equity

If you finance your real estate investment and you make your payments diligently over time, you are reducing the principal balance and thus building equity as a result. Over time, once you build up enough equity in the property, you can then have another financial play to do a cash-out refi or equity line to pull the money out to invest on the next deal.

Appreciation

Even if you finance it with Interest Only (IO) loans, there is still a good chance that your real estate investment is appreciating in value over the time of your holding, and that can simply be because of the overall market condition. If you catch the wave at the right time, and the housing marketing is at the upward momentum, you just need to sit back and ride along the wave! All values appreciated will become equity which you can use later on.

Leverage

Last but not least, leverage. To us at DoorInvestor, this is the most powerful concept among the 5 mentioned. Leverage allows you to put up a small investment capital but take control of a larger stake. Real estate investment allows you to use leverage while lenders feel comfortable working with you. Image if you ask your friend (or ask your bank) can you let me borrow $80,000 because I only have $20,000 and I want to buy $100,000 worth of Company XYZ stocks; your friend will probably tell you to “walk away.”

On the other hand, if you ask your bank (you don’t need to ask your friend in this case, because your bank will do this all day long) can you let me borrow $80,000 because I only have $20,000 and I want to buy a $100,000 house; your bank may check on a few things to make sure you can pay back, but in normal case your bank will likely to work with you to complete this transaction.

I.D.E.A.L.

As you can see, knowing this 5 key concepts of I.D.E.A.L. can give you so much confidence and comfort to get into the world of real estate investing. If you do not know where to start, or interested to learn more about different strategies, you should take a look at the education material below.

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