Playing the (Real Estate) Long Game – And Winning

Playing the long game with real estate investments isn’t too dissimilar from how you’d put away a set amount of money monthly for an IRA or 401k retirement account. Over time, you expect that account to be well-funded, especially if you diligently make payments over 30 years or more. Our clients are traditionally small residential real estate investors, so they’re trying to play the long game by creating generational wealth to pass on to their children and their grandchildren. 

Real estate is a great way to pass on wealth to your heirs, and while I don’t want to say anyone can do it, it is available for a lot of people. I’d love to see more people considering it as a primary form of investing. 

• The key to achieving this generational wealth is simple: Buy the house. 

Now, you can’t just stop at buying the house – but you have to start there. Everyone has to start somewhere, after all. After you’ve bought the house, you have to be disciplined with your money management to ensure you can pay off the mortgage within its term. Make a budget, stick to it, and try to never miss a payment. 

However, the biggest variable you have to consider when you’re playing the long game to create generational wealth for your family is time. 

• Buy the house, manage it well, and give it time. 

That’s the secret formula at the core of what we do as real estate investors. By following this formula, you’ll either have a property you can leave to a family member someday, which they might be able to use as an investment property – like the home you’ve owned for 30 years – or you’ll be in a financial position to buy additional properties. Those will make a fantastic business for someone in your family someday. 

Enjoy it while you can, of course, because there’s no reason why you can’t benefit from your hard work – but if you’re thinking about the future, and you want to leave something behind, buy the house. It’s always a good investment as long as you know your buying power and stay on top of managing your money. 

While the forecast for your future might show a high chance of generational wealth shining down on your family tree, you’ll also benefit from real estate investments – and approaching it the right way – by getting all that mailbox money. By mailbox money, I mean the money you get from rent checks every single month. 

• Do you want to reinvest it into real estate and buy more properties?
• Do you want to pay off that new sports car you bought as a retirement gift to yourself?
• Do you want to finance that dream vacation without having to scrimp and save?

Answer these questions, determine your goals, and make a plan of action. With this investment, the choice is yours. 

Be Aware of Your Time Horizon 

Another factor you need to consider when you’re creating a real estate investment strategy is your time horizon, which comes into play as you’re thinking about the long game. 

What is your time horizon? This can be a bit tough to generalize in some situations, such as when you buy a property outright with cash and, thus, don’t have a mortgage payment to factor into your overall plan. 

• In this scenario, your property is going to be more liquid. You’ll have more equity than you’d have with a property where some of the value is tied up in your loan. 

However, when you get a mortgage from the bank, your time horizon is equal to the term of the loan. 

It doesn’t matter if your loan is 15, 20, or 30 years, I urge you to think about that number as your time horizon. Here’s why. Let’s say you got a starter home with a 30-year mortgage and you’re five years into it. You’ve got 25 years left. If you did the same, boring thing every month by making your payments, in 25 years, that property is going to be paid off. You’re going to wake up 25 years from now with an amazing investment – and it’s going to be worth tons of money. 

Even better, it won’t cost you anything along the way. There’s no substitute for time. 

As I get older, 30 years doesn’t seem so long. I remember thinking that 30 years seemed inconceivable, but now that I’m on the other side of that time horizon, I want to stay healthy enough to do it all over again. Now, if you’re thinking, “Chris, can’t I just pay it off sooner?” Yes. If you’ve got extra cash and you can afford to make higher payments or more frequent payments to knock that 30-year mortgage down to 20 years, go for it. 

Or, you could take that extra cash to get together a down payment for another property. You have so many options in real estate investing – but you need to think about the time horizon. 

Many people bought houses during COVID, and they got locked into very low interest rates, like 2% or 3% – and they don’t want to give those interest rates up. If you have an interest rate of 3.5%, you might be able to justify getting a different home – with a 7% interest rate – even if you need the extra space. 

Maybe you’ve got a new baby on the way and you need a bigger home. It might still be hard to think about walking away from that 3% interest rate – but what if you didn’t walk away? Some people, especially those facing a longer time horizon, might choose not to pay the mortgage off sooner and, instead, get together a down payment for a second home and rent their other home to get that mailbox money. 

However, you do need to be realistic. 

• Contrary to what some people suggest, only some investors will get any substantial mailbox money once the loan is paid off. 

Or, if the loan isn’t paid off, you might be able to get more with the money you’re earning off a rental property by building equity, refinancing your loan, or finding ways to get a lower payment or new rate. 

Figure Out How To Pay Off Your Mortgage

It’s always important to not only be realistic about your financial situation, but also be honest with yourself about the money you could “lose” by having vacancies, needing to shell out money for repairs and maintenance, and other costs associated with investment properties. And it’s important to always be realistic about the fact that there are and will always be costs associated with maintaining a home. 

However, these costs can make it difficult to get more than a few hundred dollars a month as profit. It’s not impossible to make more, but it’s difficult to achieve. The key to getting around this is finding ways to pay off your mortgage – and that mortgage can be paid off by someone else if you rent it. 

• If you can maintain, improve, and pay off the mortgage over the term of the loan, you may never have to come out of pocket to add any more cash to the property. 

Trust me, if you do this, it will feel like winning the lottery. Let me put it this way: You had a house, someone paid off your mortgage in whatever the timeframe of your loan was, and now you own it free and clear. At this stage, the next tenant will put substantial cash into your pocket – and, potentially your heirs’ pockets – for the rest of your lives. 

You might not be making money while you’re paying off that mortgage, but as soon as you can figure out how to pay it off – through one route or another – that mailbox money will start looking more and more impressive. And, as long as you can keep the property in good repair and occupied, it’ll make money that will last for generations. 

Final Thoughts

The short-term looks different than the long-term, but we want to play the long game. All the best investors do. 

If you have gotten into real estate investing – or are considering getting into it – because you think it’s a fast way to make money, you should reconsider your choice of investment. Yes, real estate investing can be very profitable, and a lot of people find success in this industry. If you play your cards right, then you stand the chance of making money not only during your lifetime, but can pass along an asset to create generational wealth for your children, your grandchildren, and maybe even their children and grandchildren. 

Generational wealth is an incredible gift to give your loved ones – but it can also benefit you as a solid investment during your lifetime. Remember: Once your time horizon is up, you own that property free and clear. That’s when it starts to make you money, and as long as you’ve made smart decisions about the market and know your area, the rewards will make the wait more than worthwhile.