In my personal opinion, real estate is the best asset class in the world. Real estate investing is such a powerful and scalable tool once you perfect the initial process of it. The returns you can see from the right investments will get you set financially for life. There is a reason why something like 90% of the 1% own real estate. I may be a little bias towards this asset class being a realtor and soon-to-be investor myself, but I think that you may feel similarly about it at the end of this post. There are many benefits to owning real estate as an investment including tons of tax benefits, but perhaps the most powerful component is getting paid while you wait. This concept comes from cashflow and appreciation. The combination of the two doubly pay you for owning real estate over time.
Get paid while you wait
When an investor buys a property, they typically expect to take a profit from the rent they collect every month. This is called cashflow, and it can be determined by subtracting expenses from the total rent of the property. Expenses to be accounted for include but are not limited to mortgage payments, insurance, property management fees, maintenance and repairs, and utilities. After all of these expenses are accounted for, what the investor is then left with is called cashflow. For example, a single-family home may rent for $1,500 a month. After expenses are accounted for, there may be $250 of that $1,500 left over. That $250 a month is passive income, and as long as you have the proper systems in place to run your property, you will get that $250. This at first glance may not seem like a lot, however in this scenario we are dealing with just a one-unit single family property. What if you had a 2-unit duplex, 3 units, 4 units, or even 10 units. At 10 units with a cashflow of $250 per unit per month, you are looking at a $2,500 net monthly profit! Being that it is passive income, this money will be in your bank account at the end of the month whether or not you go to work. That is the beauty of passive income and cashflow from real estate. Now, why is this section called “Get Paid While You Wait”, you may be asking. When you buy a property, over the course of time, it typically appreciates in value. Some years it may go up in value, and some slightly down, but the general trajectory of real estate as a whole such as the stock market is up over time. While you collect cashflow from your appreciating asset that is your property, you are also paying down your loan every single month to get closer to owning your property free and clear. This means every month, you will increase your equity in the property by simply paying down your loan with the money you get from rent from your tenants, and collect passive cashflow! What a good deal!
How do I even buy real estate?
You may be thinking right now, “Well that all sounds great but how could I even afford it or find a house to buy right now that would work well as an investment?” Well, I’m glad you asked because there are so many great answers to that question! If you have a job and a steady income, you could very well go the conventional route and get a loan from the bank to buy a property. Typically, banks require a 20% down payment for investments, so be prepared to have these costs accounted for in your savings so you can afford the house if you choose to go this route. There is nothing wrong with going this way, but there are many ways to make this more scalable quicker than the traditional route. There is a great strategy called BRRRR which stands for buy, rehab, rent, refinance, repeat. What the BRRRR strategy entails is basically finding a property that is fairly distressed and in need of work, and have cost of the property come out to 75% or less of the after-return value of the property (ARV). The reason for this is because when you refinance, banks typically only let you take out 75% of your equity. In order to recover your entire purchase price investment, 75% of the ARV is the max you can purchase a property for to execute a BRRRR unless you don’t mind keeping extra cash from your initial investment in the property. While this may sound hard to do, it certainly isn’t as hard as it may seem, and with the help of some great wholesalers and your keen eye to look for properties that would fit these criteria, you are sure to find deals that would work. A wholesaler’s job is to find these deals for you, get them under contract for as low a price as they can, and then transfer the contract over to you for a fee! While this sounds amazing, and it can be for sure, you need to make sure that you are dealing with legit wholesalers with a good reputation before doing business with them. Wholesaling doesn’t require a license and is fairly unregulated unlike a realtor, and doesn’t have a fiduciary to anyone like a realtor would have. The idea of the BRRRR is to buy this property and pay for it and the rehab with cash to raise the value of it by at least 25% through forced appreciation. Then, you would cash out refinance on the property to pull all of your money out so you could reinvest that same capital in other properties. While I could do a whole post about BRRRR and probably will, a great reference for everything you can possibly learn about it is in David Greene’s book, Buy, Rehab, Rent, Refinance, Repeat. The BRRRR Rental Property Investment Strategy Made Simple.There are many different ways to BRRRR, even without any of your own money. In the BookReal Estate Investing With No and Low Money Down by Brandon Turner, he explains many ways to invest in real estate without money, credit, conventional banks, and everything else that holds the typical layman back from investing in real estate. Some of these strategies could be used to perform a nontraditional BRRRR, but that isn’t necessarily the only option, and may not be the best option for everyone depending on their circ*mstances The book talks about amazing strategies in detail such as seller financing, lease options, private money lending, hard money, and syndications plus more and how you can do them yourself to get in the real estate game. In a later post, I will go over a lot of these strategies in greater detail and add some other ones I find interesting as well for your benefit.
Building the right team
In order to have any kind of success in real estate, you need a reliable group of talented individuals around you to make your sure your business is growing and scaling. Finding realtors and wholesalers to send you deals so that you can review them and make a decision quickly and effectively is key to growth. The hard part about making these kinds of connections is to establish yourself as a serious investor who reliably does a lot of deals. Once you can automate deal flow from various sources, finding the best deals will become easier and be much more time efficient. Having connections with good contractors and handymen is another necessary component of your business. You need a person who can organize a crew and get any rehab that needs to get done done in a timely manner, while also being cost-effective. Finding a good contractor can feel like an impossible task. Ask for referrals and test out their skills on smaller projects before using them for bigger ones. Using a property manager is what makes real estate investing a passive investment. Like contractors, good ones are hard to come by, and I recommend using similar tactics of finding good ones to that of finding contractors. Get referrals from other local investors and real estate professionals for whatever property manager you are interested in. When you are looking for great lenders, make sure to shop around for the best rates. This takes just minutes to hours of your time, and can save you thousands of dollars down the road if you can secure low interest long-term financing. A great tactic is to interview and test multiple people for every job until you find 1 or 2 of each essential team member that you feel fully comfortable giving the majority of your jobs to. At that point, you will be able to scale your business rapidly, and each deal should feel easier than the last.
COnclusion
This post was meant to be a basic rundown on real estate investing and how amazing it is. I will go much deeper into specific topics in later posts to help you understand various specific areas pertaining to real estate investing. Be sure to check out the recommended reads mentioned above and linked below, and look out for our upcoming posts on real estate investing, as well as our other great content!
Links to useful books on this topic:
Buy, Rehab, Rent, Refinance, Repeat. The BRRRR Rental Property Investment Strategy Made Simple
Real Estate Investing With No and Low Money Down
Support our blog and enhance your knowledge by picking up these books today!
