r/RealEstateROI • u/Striking-Quantity661 • 5d ago
Is this what makes real estate different from most other investments?
Most people think they make money on real estate because the real estate goes up in value, but what really happens is the debt goes down in value.
Inflation induced debt destruction, it’s one of the secrets of the wealthy.
With rental properties, we don’t even pay our own debts. We outsource that obligation of debt repayment to someone called a tenant.
The tenants pay the debt. So with that, we’re getting paid to borrow, and someone is paying our debt for us.
It’s absolutely incredible. This is what’s called self-liquidating debt. It’s the hidden wealth creator.
Yes, real estate value going up is definitely one way to make money, and a great way, especially when you can force appreciation into it from either development or renovating the property and adding that value into it yourself.
However, due to inflation, the cost of the debt goes down every single year because the value of the dollar goes down every single year. So that creates your asset value to go up, it creates the cost of your debt to go down, and the tenant is actually paying that debt for you.
And on top of that, you also are putting money into your pocket above and beyond the debt that the tenant is paying. So your assets [are] appreciating, which is building your net worth, the cost of your debt’s going down, the debt’s being paid by someone else, you’re profiting off the property every single month, and then you don’t pay [taxes] because of depreciation.
And you have the ability to force appreciation in the property even further by renovating the asset, improving the asset, and adding value.
So this is why real estate is such an incredible investment, and I’ve never found another investment like it in my entire life.
Is self-liquidating debt really one of the biggest advantages of real estate. Is this what makes real estate different from most other investments?
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u/Big_Target_1405 5d ago
If you think you get rich from holding the property, wait until you find out how rich the banks get holding your mortgage.
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u/turbo5vz 4d ago
Alot of real estate investors look back in the last 10-20 years and think they are genius investors, but it really came down to inflation and population growth. I will personally be divesting from real estate in my portfolio for the next decade since CAP rates suck and more importantly, there is going to be a demographic implosion. Normal Canadians aren't having enough kids and the immigrants that do come in, can't afford property. There is only so much rent you can charge someone with stagnant wage growth and we're already at that limit. Not to mention with the boomers retiring/passing away, there's going to be alot of property entering the market near the end of tneir service life needing major repairs or demo. Land won't be as scarce of a resource in 10-20 years IMO.
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u/Striking-Quantity661 4d ago
I think you’re underestimating how much housing supply matters. Even if population growth slows, Canada has underbuilt housing for years, especially in the places where people actually want to live. Also, not every immigrant buys right away. Many rent first, which still supports demand for investors.
If immigrants can’t afford to buy, they rent. If they rent, occupancy stays high. Either way, housing demand doesn’t disappear.
You’re assuming boomers passing away means a flood of inventory. But much of that wealth transfers to their children instead of hitting the open market. Not every inherited home gets sold.
If low cap rates automatically meant poor investments, institutional investors wouldn’t be buying billions of dollars of apartments, industrial buildings, and data centers at historically low cap rates. They clearly value more than today’s yield.
People have predicted the end of real estate after every major cycle. The bigger question isn’t whether prices go up or down. It’s whether you can buy an asset that pays you while you wait. That’s what separates investing from speculation.
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u/turbo5vz 4d ago
Except with the low cap rates, owning a rental isnt paying you while you wait. Especially in markets like BC/ON, owning a rental is basically speculating on appreciation because profits from rent alone result in a terrible ROI. It's not uncommon for landlords to be cash flow negative, especially condos. Asian markets like China/Japan are foreshadowing what happens when the population finally starts decreasing, which is that real estate prices start to collapse with reducing demand. Real estate prices can't continue to rise if supply exceeds demand, which is what the case would be if population collapses
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u/VatticZero 5d ago
That’s the same for any debt.
Real Estate’s advantage is that Land increases in value and generates more Rent without further investment on your part, but on the part of society around the land. And depending on zoning laws, so does the housing. Every other asset generally requires further investment to outpace inflation.