Leave a Legacy
Why Real Estate?
Cash Flow
6.43%
Top 10 Dividend Stocks
+8%
Twin Cities Single Family
Gross Income - Expenses = Cash Flow. The top 10 highest dividend paying stocks in the S&P 500 produce only a 6.43% avg. dividend yield. Median single family homes in the Twin Cities’ produce an avg. 8-15% cash yield (CoC). Although exceptional, experienced real estate investors understand that cash flow is the least powerful return on investment in real estate.
Dividend Yield: Ratio of cash return from stock dividend payments.
Cash on Cash Return (CoC): Rate of return from cash earned on total cash invested.
Source: Standard and Poor’s 500 Index.
Appreciation
10.61%
S&P 500 Total Annualized Return
12.50%
Twin Cities Annualized Return (Appreciation Only)
While prices may fluctuate, real estate increases in value over time and that value compounds. This is called appreciation. Since 2012, properties in the Twin Cities have appreciated over 150%. That’s a completely passive 12.50% average annualized return solely on appreciation in comparison to the S&P 500’s 10.61% total return.
Annualized Rate of Return (ARR): Geometric average amount of money earned per year.
Source: Northstar Multiple Listing Service; Dow Jones Indices.
Inflation Hedge
3.42%
U.S. Consumer Price Index Annually
9.51%
U.S. Market Rents Annually
Prices increase overtime, that’s statistically inevitable. But an inflation hedge can protect your dollar’s value. Real estate is a hedge. Prices increase every year while your mortgage payments stay the same. Since 2000, the Consumer Price Index has increased annually 3.42%. Market rents have increased 9.51% annually. Market rents annually outpace inflation by +6% while the majority of your expenses remain relatively fixed.
Consumer Price Index (CPI): weighted average of prices paid by consumers, an inflation metric.
Source: U.S. Bureau of Labor Statistics.
Tax
Stocks
28% Capital Gains Tax
20% Dividend Profit Tax
3.8% Net Investment Income Tax
Real Estate
0% Mortgage Interest
0% Property Tax
0% Operating Expenses
0% Repairs
*Varies by tax bracket, consult CPA or EA.
Real estate investors pay significantly less in taxes. Stocks must pay capital gains tax, dividend profit tax, and net investment income tax. In real estate you may write off all property tax, insurance, interest, maintenance, and depreciate all of your residential properties value from it’s taxable income over time. 1031 exchanges also allow investors to roll equity of a sale into another property with no capital gains tax. There is no taxable asset like real estate.
Visit IRS.gov for tax definitions.
Source: Internal Revenue Service.
Equity
Property value - loan balance = equity. Unlike stocks in real estate you can force equity by increasing the value of a property and sell for a profit (Flip) or refinance and repeat (BRRRR). This is where investors can make calculated triple digit returns.
Buy Rehab Rent Refinance Repeat (BRRRR): Long term rental strategy.
Debt Paydown
Assets
Liabilities
Debt paydown is the act of acquiring real estate and utilizing your tenants income to cover the mortgage payments increasing your net worth without the need for additional capital over the financing lifetime of the property. Your tenants pay for your properties and increase your net worth in real estate.
Net Worth: Sum of all assets minus all liabilities, typically excluding primary residence.
Leverage
Unique to real estate, you can leverage assets and exponentially increase your IRR. In the stock market $100,000 gets you a $100,000 asset; In real estate $100,000 (20% of 500k) gets you a $500,000 asset and the ability to reinvest. You can use leverage to purchase a property, improve it, retain the asset and recover 100% of your capital to reinvest (BRRRR)
Internal Rate of Return (IRR): Time value of money, compounded annual percentage rate over time.
By the Numbers
8-15%
Cash on Cash Return
12.50%
Annual Return on Appreciation
6%
Faster than Inflation
Investment Services
Leverage our knowledge, skills and expertise to generate wealth with real assets. Speak with us to formulate your strategy and portfolio architecture to reach your dreams.
FAQs
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Real estate and stocks are both great assets to have in your investment portfolio. A balanced portfolio and diversification are always key when it comes to investing. The S&P 500 produces consistent 10% annualized returns. We have funds for the passive investor that consistently generate +20% IRR and we manage projects that generate triple digit returns. Stocks and equities can quite literally go to zero; real estate cannot, because it’s a tangible asset. We recommend a balance of both to our investors.
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Investing is specific to every investor’s approach, timeline, and end goal. But the most powerful return in real estate is the return on appreciation. We recommend to all of our investors to buy low, hold, and sell high. This is a slow, but low risk, passive way to create generational wealth. Creating a large portfolio of single family or multifamily rental properties is one of the most common paths to wealth.
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It depends. The best way to start in real estate is to house-hack a singe family or purchase a multifamily property as your primary home. This allows you to take advantage of putting 3.5% or even less down with 0% interest down payment assistance programs, state grants and even use additional unites potential rent as qualification income. Otherwise you do typically need 10-20% down on other investments.
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If you invest in syndications, funds, or other private equity products, your investment is 100% passive and requires no additional maintenance. Rental properties generate passive returns, but also require property management. Whether you are managing the property or paying a property manager determines your level of passivity.
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Absolutely. Real estate is one the most common ways to create generational wealth. Acquiring a cash flowing portfolio, paying it off and holding the properties until you sell or pass it down is the most common real estate wealth building strategy. As this industry becomes more saturated you’ll need a genuine professional who can get you there.
Invest with Bode Realty.
Bode Realty is a leading real estate investment company. Fill out this form to learn more about becoming a real estate investor.
