Hello my friends, and welcome to another episode of Passive Real Estate Investing. You know, you'll often hear people say that they don't like real estate because if you look at the long-term returns of the stock market seem to be a better return overall. Well of course when they say stuff like this, they are leaving out a few important things, a few key things because they're looking at real estate as being a very one-sided or one dimensional asset, and that's not the case as it is with most other investments like the stock market. First, when people say the stock market, what they really mean is something like the S&P500 or the Dow Jones Industrial Average.

These are not the stock market, rather they are indices filled with some of the leading companies in the us. You'll often hear that the stock market makes returns somewhere from seven to 8% or 9%, 10% annually. And this is really based on the index returns rather than the market itself. Second, while a seven to 10% return is good annually for the average person, it is not a good return or even a great return for the professional investor. And when you stack up the returns from real estate against the stock market, they often only factor in that one profit center in real estate, and that is appreciation or capital appreciation, or you might just call it capital gains.

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The reality is, is that there are four ways you can make money with real estate that when you add them all up together make for a considerably higher return than the stock market.

And these profit centers are the reason that real estate is one of my favorite investment vehicles. And I'm gonna throw a bonus profit center in there today. We will call it the fifth profit center, which I'll talk about here in a minute. But at the end of the day, you have to understand that real estate is multifaceted or multi-dimensional. It is not just one rate of return. You have to look at it holistically and look at each of those returns together to really understand the true power of real estate and what it can deliver for you as an investment. Now here's a quick word of clarification as I talk about this, realize that I'm talking about investment real estate, not property that you buy specifically to run a business or more specifically your personal residence. And as I've talked about in previous episodes, your home is not an asset.

It may be to the bank if you have a mortgage on it, but it's technically not a asset. It doesn't generate cashflow or income, it puts money in the pockets of your county for property taxes and money in the pockets of your mortgage lender. If you have a mortgage loan on it, it's not putting money in your pocket, at least not unless you sell it years down the road and realize the gain in terms of capital gains. But essentially it's an expense. You're putting money into it every year. So from that perspective, investment real estate is investment property that puts money in your pocket.

Now the first profit center is essentially the cash flow or the cash flow on operations of your business. If you're holding real estate as an investment, you will have tenants. And each month these tenants pay rent. Now, let's say you own a home and you are receiving a thousand dollars a month in rent.



Great, that's $12,000 a year in gross income. When you subtract your expenses, which includes things like property taxes, insurance, your property management, if you have a property manager and you're budgeting for vacancies and your budgeting for a turnover, because ultimately your tenants will move out, then what you're left over with is your net operating income. This is what's left over to pay your mortgage payment, also known as debt service. And then anything left over after that is your cash flow,