Real Estate Basics
1. What is Real Estate Investing?
Real estate investing is the buying, ownership, management, rental and/ or selling of real estate – whether residential, commercial, industrial or land for profit. As a real estate investor, your aim is to own one or more pieces of real estate and dedicate it to either rent or to serve as a primary residence and gain profits from rental income or sales through price appreciation.
2. The Four Wealth Generators of Real Estate
Being a real estate investor isn’t always a bed of roses, however it is one of the best and secure ways to build wealth long term. With that in mind, there are four main wealth generators in real estate and they make up the main reasons why most people consider investing in real estate. They are; cash flow, appreciation, tax benefits and loan pay down.
Cash flow: This the money that is leftover after the bills have been paid and rental properties provides you with the passive income that you need to generate enough cash flow on a monthly basis. It is stable and more predictable than most other types of investments and it allows you time to focus on other things like building a business, reinvesting in more real estate or
travel.
Appreciation: In real estate investment, the value of properties appreciates over time while the loan is being paid down. It is like what was mentioned earlier – though recessions do happen, over time the value of real estate goes higher and higher. It is an inevitable phenomenon that the value of a property you purchase today will be worth far more than it is now in 30 years’ time.
Tax Benefits: What’s more, the tax benefits you receive as a real estate investor is another major reason why you should consider investing in rental properties. The cash flow you generate from rental properties is not subject to self-employment tax unlike most other businesses and the government also rewards you with depreciation and significantly lower tax-rates for long term profits.
The loan pay down: With the rental income you get from your investment, especially if you have purchased a rental property using a mortgage, you don’t have to worry about paying the mortgage personally. Because of the loan pay down, your tenants are actually the ones responsible for your mortgage payments. It is like a savings account that grows automatically every month without you depositing money into it.
3. Can I Invest with a Full-Time Job?
Investing in real estate while working at a full-time job may be difficult but not impossible. Even though you may be in a job that requires your presence every minute of the day, you can still juggle both and have time for yourself and your family.
There are several ways to make money in real estate, with some requiring more of your time than the others. All you have to do is choose which strategy or techniques best suits your lifestyle, financial situation, education, experience and goals then go with it. All that is involved is how you are able to manage your time effectively and knowing which projects to dedicate your time and energy to on different days of the week.
You don’t have to quit your job, you only have to take some time out of your busy schedule to organize your goals and figure out where you want to go and what kinds of activities you need to channel your resources that would bring you closer to your destination.
One way you can do this is by deciding which part time investment option is most convenient for you and then sticking to it. Some ways you can invest part time in real estate while keeping your full-time job include: buying rental property and hiring a property manager, partnering up in larger investment deals as a limited partner, acting as a hard or private money lender to other real estate investors and investing in notes (mortgages).
Once you are able to figure which one or more options best appeals to you and you work towards it diligently, you will automatically find yourself making changes in your life that will bring you closer to your goal without losing your full-time job.
4. Can I Invest With No Money Down?
In reality, you can’t invest with no money down, however you can do so with other people’s money. You just need to know the options available to you and how to use them to your advantage. As a real estate investor with no money down and without a good credit score necessary to raise the money to purchase property through traditional means, you have the following options available to you:
Hard/Private Money Lenders:
You can raise money from hard money lenders who usually charge an upfront percentage fee based on the borrowed amount, including the interest rates, which is usually between 10 and 18 percent. Or you can collect loans from private money lenders who usually charge in the range of 6 and 12 percent interest on the money borrowed.
Wholesaling:
Wholesaling simply involves finding discounted properties, then assigning the contract to a potential buyer and getting paid to do so. You do not need a high credit score or huge sums of money down to be able to do this. You just need to have the right number in place.
Partnership:
Working with a team of one or more investors is also a good way to begin your real estate investment journey with no money down. You can create a partnership where one investor may supply the distressed properties at discounted prices while the other may use his credit score and working capital to finance it. What matters is that each partner must bring something to the table and that every aspect of the partnership is thoroughly discussed and that everyone is in binding agreement to it before the partnership is officially created.
Some other alternatives for investors with no money down include: home equity, option to buy, and seller financing. Whichever option you decide to choose, it is important that you ensure it is one that you have some knowledge about and that you can manage effectively.
4. The Real Estate Investor Mindset
The mindset of a real estate investor is usually one of a savvy, strategic business leader and also that of a creative, passionate entrepreneur. They are individuals who see a goal and know what steps they need to take to achieve it. They are inventive, action-driven individuals who construct solid, feasible plans to get from where they are to where they want to be and can think out the box whenever the need arises.
They maneuver through any obstacles they encounter and swiftly tackle any unexpected problems with skill and patience. They stay focused on the task at hand, work diligently, do not waste time worrying over disappointments, willing to take advice, welcome fair criticism, and avoid any distractions or interactions that are not productive or hinder them from achieving their goal.
4. Can I Get Rich Quick With Real Estate?
Although real estate may be the best traditional investment in the world today, not everyone that buys or sells a piece of property automatically becomes rich. It is definitely not a get rich quick type of business and you may as well lose all that you’ve gained if you haven’t the knowledge and experience needed to build wealth in the business.
You need to have a solid long term plan with feasible goals in place to be able to really get rich in the real estate business. It could take months or even years to arrive at your goal but it would definitely involve capitalizing on the four wealth generators mentioned earlier, which are cash flow, appreciation, the loan pay down and tax benefits. Once you have taken full advantage of all four wealth generators, then you are well on your way to acquiring riches.