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For many people, the world of real estate and the stock market require completely different types of investments that require separate approaches. But some financial experts believe the two men have more in common than the average investor suspects.
The Rich Dad Channel recently shed light on how stock market investors can take advantage of traditional real estate strategies. Co-hosted by world-renowned stock expert Andy Tanner and financial educator Del Denny, they break down three ways people can adapt their real estate investment strategies to make money in stocks.
1. Property rental
The stock market and real estate market fundamentally share a similar blueprint for making money. Tanner explains that investors can buy real estate or stocks at low, undervalued prices and sell them later when the value increases. You can also hold your assets for a long time and earn passive income.
Both markets allow multiple investors to pool their funds to purchase more expensive assets that would be difficult to purchase individually. In the real estate industry, a syndicate is an investment structure in which a variety of people pool their capital to purchase an apartment complex, office building, or commercial development and share the profits from the rental income. Similarly, the stock market allows investors to pool their money together to own companies and generate passive income through dividend payments.
For Tanner, earning passive income through rent and dividend payments is a great strategy because it generates cash flow that investors can use in a variety of ways. However, while both renting real estate and investing in dividend stocks can generate steady cash flow, it’s important to keep in mind that dividends are not guaranteed and can change over time. It’s important.
2. Understanding cash flow
Passive income from rental properties and dividend-paying stocks allows investors to improve their financial health and enjoy more freedom. Some investors may choose not to work anymore. Others reinvest their income to accelerate growth and build more wealth. Regardless of how you choose to spend your money, Tanner emphasizes that it’s important to understand what cash flow is and how to use it to your advantage.
To teach children about cash flow, Tanner used the “Cash Flow” game by Robert Kiyosaki, author of “Rich Dad, Poor Dad.” The game mirrors real-life financial situations, including real estate investing, and challenges players to stand out from the competition and get on the fast track.
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Tanner emphasizes that playing the “cashflow” game is not a strategy per se, but improving your financial education is. You can profit more from the stock market by using the game to better understand concepts such as leveraging your investments and distinguishing between assets and liabilities.
3. Use of leverage
When you decide to buy a property, you probably won’t pay the full amount upfront. Instead, you will need to take out a home loan from a bank. In this arrangement, you pay only a portion of the total price of the property as a down payment, and the bank pays the rest.
In 2023, 80% of homebuyers financed their purchase. These home buyers enjoy all the benefits of owning the property, including living in the property, even though they still have to repay the mortgage with interest by the agreed deadline .
Another big benefit you can enjoy is an increase in the value of your home. Analysts at Goldman Sachs currently predict that U.S. home prices will rise 4.4% next year. If this prediction comes true, the value of your property will increase, even if you haven’t paid it in full yet. However, there are risks, and even if the property value declines, you will still need to repay the mortgage in full.
Tanner brings up the idea that you can use leverage in the stock market as well. Purchasing an option contract does not give you ownership of the company. Instead, it is a contract with other investors that gives them the right to buy or sell shares at a specific price before an expiration date.
Like mortgages, stock options offer the opportunity to earn large profits with a small initial investment. If you can accurately predict the rise or fall of stock prices, you can make much more money than simply buying stocks. However, stock options also come with significant risks. One wrong prediction can result in the loss of your entire investment.
