In order to see the big picture and completely understand how passive real estate investments can benefit you, you'll want to see the numbers and understand the mathematics, which clearly show this to be a sound investment plan.
Using an investment amount of $10,000 just to make things easy to calculate, here are the mathematics facts:
For every $10,000 you invest in an IRA at, let's say, 2.5% interest compounded annually, at the end of 20 years, you'll have approximately $16,400. So, during that long investment of 20 years, you'll not even double your money.
You can calculate this yourself by simply multiplying the investment amount by 1.025%. The reason 1.025 is the multiplier is that the '1' represents your original principal and the '0.025' represents the interest, compounded once per year. The math becomes more complex if the compounding rate were more frequent. But even if the interest were compounded every day of the 20 years, you still will not have more than $16,500 for every $10,000 initially invested!
There are free, easy to use online calculators available to automatically calculate compound interest, so you do not have to accept this blindly on trust. Go check it out for yourself.
For every $10,000 of passive real estate investment you make - and, we'll use the conservative figure of only 5% profit - you will have just over $26,500 at the end of the 20-year period. If the investment earns 7%, you'll have about $38,700. That is almost 4 times the amount you invested.
This means that the passive real estate investor can easily earn significantly more profit than by using "traditional" investments such as IRAs, savings accounts and similar vehicles. In addition, depending on your personal income tax situation, you may get some really large tax benefits. To learn exactly what these may be, you'll want to consult your financial planner or tax advisor.
Next time, we'll answer the question: "What if the Real Estate Market Crashes?"
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