Passive income streams are the wisest part of every successful financial strategy. Within these assets lies the potential to live your best life without working, and you can do this by investing in real estate.
Sounds great, but expensive, right? Well, it doesn’t have to be. Investing in real estate involves buying, managing, and selling or renting said property to make a profit. There is a significant upfront cost. However, using strategies like the BRRR method, you reap a hefty profit that you then use to reinvest in future properties.
Ultimately, the goal would be only to need that one out-of-pocket investment to create a butterfly effect of more real estate bought with profits from your previous sales.
Real estate is always a good investment. Housing prices continue to rise, and rental properties become easy passive money. Even better, you can hire a property manager to do all the work for you, and all you have to do is pay them and collect your money.
When you’re ready to start investing in real estate and adding multiple properties to your asset portfolio, use these tips to get you started and lead you to success.
Getting Ready to Start Investing
Whether you’re just starting and want to set yourself up for a solid financial future, or you’re in the middle of your life (or later) and considering preparing for your golden years, real estate is a good investment. But it can be scary to place so much money in one potentially risky area, like residential property.
Understandably, you don’t want to significantly adjust your current standard of living as you move into this investing gig, and you don’t want to do it half-heartedly, either.
The great news is that you don’t have to do either. It takes hard work and access to strategic resources. The path isn’t always smooth sailing, but you’ll learn how to navigate those dips and curves as you go. These tips have worked for others, and they can work for you, too, as you begin to immerse yourself in the world of property investment.
Decide Between Rental and Flipping
Have you ever considered becoming a landlord? It can be a fun and exciting job. You’ll be dealing with tenants, screening them for the suitability, collecting rent, paying the mortgage, handling property taxes, insurance, and other expenses, and dealing with maintenance on the property.
Of course, you can hire a property manager to do all this for you and still keep the title of “landlord” overseeing them. You can be as hands-on or hands-off as you prefer and can afford. Your semi-passive income comes by collecting rent.
The goal is to collect more than you need to cover your expenses and mortgage. Once the mortgage is paid off, which can happen quickly if your rent-to-mortgage ratio is high enough, all the rent minus expenses become profit.
Eventually, you can sell your property and invest in other areas or borrow from the equity you have to buy more real estate. But if that seems like too much work, or it takes too long to turn a profit, you could flip houses instead.
“Flippers,” as they’re called, buy properties at strategic times, either when the property values are low but on the rise or when they need some work but can be resold at a profit.
In general, if you’re flipping a house, you plan on completing any necessary renovations, then selling it within a few months. However, you could simply do a “hold and resell,” where you buy a property during a rapid rise in the market, hold onto it and watch the rates, then sell when you think you can make the best profit.
Either method of flipping has a risk because rates can continually plummet, or you can invest more in renovations than you can resell the home for. But if you can safely hold onto the property until you can get what you want for it, it’s an easy way to make money.
There are some things to watch for in-house flipping, though, as plenty of con artists have used this method to scam buyers. Now, the federal government has enacted laws to ensure flippers follow legal avenues and buyers are protected.
Tips on Investing in Multiple Properties
Now that you know which avenue you prefer to take as you invest in real estate, it’s time to analyze the property out there and how much of an investment you want to make into your first and subsequent purchases.
Here are some tips to follow as you learn the ropes.
First, get expert-level familiar with market rates. These numbers will guide you clearly to the times you can buy and sell your property. Always buy below market rates. Keep in mind that when you purchase property that needs to be repaired, your profit formula should include the After Repair Value (ARV) for the best return.
What you buy the property for, plus what you plan on paying for renovations and repairs, should be under the ARV enough that you make a hefty return and can use that profit to invest in your next project.
Second, don’t be afraid to put in some hard work early on to cut costs. There’s a term for this in any industry getting off the ground: sweat equity. Get real with your strengths and weaknesses, and see where you can use them to increase the value of your property. When you know what you can and can’t do, you’ll be more strategic in your choice of hiring jobs. For instance, if you can paint a wall well enough to look professional, you may save over a thousand dollars you would have spent hiring someone to do the job.
On the other hand, if it’s going to cost you more to do it yourself, or you aren’t sure you’ll do the work well, it’s better to hire a pro. This is particularly true in things like plumbing and electrical work, where DIY amateurs tend to make a bigger mess, which costs more to fix when they have to call in the experts.
The next tip involves what to do with your profit. It’s exciting when you see the monetary value of your hard work in your bank account balance. But instead of spending that money, you must reinvest it as quickly as possible.
Repeat the steps of watching the market rates, evaluating the property, and determining when to buy. Rent the home, fix it, flip it, and continue using those profits to grow your real estate portfolio.
As a flipper, you may only own one investment property at a time, but when you’re a landlord, as soon as you earn enough from your rentals to buy another rental property, go ahead and do it. Some landlords own hundreds of properties in multiple states.
Remember to use your profits wisely. Don’t invest everything in buying real estate. Save some funds to cover maintenance and fixing the home enough to sell or rent. You could take out a loan to do this if necessary, but the interest eats into your profit margin. Real estate loans are often part and parcel of your first couple of investments, but as you grow more successful, you don’t need to borrow as much money.
Getting started investing in real estate when you need to borrow money can be an obstacle. Some funding sources provide loans specifically for real estate investors working on the above-mentioned BRRRR method, flipping homes, and building real estate portfolios. They know what you’re trying to do, and they can help you get the funds you need to do the job. It’s usually easier to go through a nontraditional lender for these loans. You can get your money faster, with less paperwork and hurdles, and optimize your return.
Finally, the last tip is to build your network of connections. The more people you know and your reputation better, the quicker you find reputable leads to check out. Real estate is highly competitive and only gets cutthroat once a good deal goes on the market. When you have connections, you get in on the ground floor and can decide if you want to invest in a property or skip it.
You’ll begin to recognize which leads are legitimate and which ones are wastes of your time and resources. Something that looks like a great deal could turn into a difficult home to rent or offload.
As you get comfortable buying, renting, renovating, and selling property, you’ll continue to grow your real estate portfolio. You might “own” multiple real estate ventures at any given time, with others in the works. Remember, it all starts with one savvy investment. The tips you learned here will help you turn that purchase into the beginning of a solid financial retirement portfolio that will give you the means you need to enjoy your golden years with a passive income stream you’ll be able to pass on to your future generations.