Another benefit of investing in real estate and leveraging the income of others (tenants) is that someone else will pay down the principal balance of the loan used to finance your real estate investment. Depending on the asset class, tenants could be a company, business, or individuals. Everyone needs a place to transact, store things, or just have shelter.
For example, assuming that you obtain a loan of some sort that is amortized over a period of time, then a portion of the payment made goes to the interest and a portion goes toward the principal or initial loan balance and slowly reduces the amount of debt owed over time – which builds little equity positions for you every month (which someone else, a tenant, is doing for you by the way)! Remember the example from my other article on appreciation? If you borrowed $800,000 to purchase a cash flowing property, then the tenant would pay off both the principal and the interest over time. Ask yourself if it is easier to borrow $1M or save $1M? Principal paydown is a powerful wealth builder.
