We love it when investors share their wealth of knowledge and experience with others. This article was contributed for just that scenario. Thank you, Jason, for sharing your guide to investing with us.
Real Estate Investing – A Beginners Guide
How many of you have ever had the idea of investing in real estate? To be honest, the idea of “investing” in real estate never entered my mind until I read one of Richard Kiyosaki’s most popular books, Rich Dad Poor Dad. The idea of purchasing a home with the intent to either flip or hold and rent was a whole new concept. The idea of “passive income”, while new, was very appealing – and I’m sure it is the same for many of you.
Well, in a perfect world, here’s how the scenario goes. You purchase a home as an investment and after a few updates you’ve already gained a large amount of equity and you now have two options: 1) sell your property at market value and make a profit, or 2) hold the property and rent it out to tenants. (IMPORTANT: There a pros and cons to both options depending on what your long term investment goals are.)
Assuming you rent your property in a timely manner and are able to acquire long term tenants, now you have somebody paying off your mortgage, property management fees, taxes, etc. This is the whole idea of “passive income” – while you’re sleeping at night, you are making money. Sounds great, right? As your mortgage begins to be paid off, you are now gaining equity for each property that you are investing in. Think of yourself 15, 20, 30 years down the road with just 5 rental properties with a market value of $100,000 each and you just paid off all the mortgages. Assuming each house had a purchase price of $100,000 when you bought them and a 20% down payment, this would mean you invested $100,000 of your own money – and over time, you paid off all mortgages with the rental income from your tenants. Your original $100,000 has now grown to a worth of $500,000 in this scenario – now that’s a nice return on investment!
For those that may have additional questions about the possibility of investing in real estate, Andrew McLean and Gary Eldred in the book Investing in Real Estate claim that “you don’t need experience” to achieve your financial goals in real estate. Although they do present four areas that need your focus which I will elaborate on:
- Perseverance – if investing in real estate was easy, everybody would be doing it. It takes a certain attitude and level of perseverance to be successful in real estate investing.
- Commitment – you must commit to giving your best effort when researching properties and trying to find your niche product. You must also be committed to your long terms goals even when you may be having problems with vacancy, repairs, etc.
- Willingness to learn – there are many ways that you can invest in real estate. Each and every day is a learning experience that will increase your skills and expertise as you continue to invest.
- Good knowledge of your local neighborhoods and properties – this is where the ground work comes in. It is your responsibility to do the due diligence for each property that you invest in. While you should have a real estate agent that you know and trust to help guide you through the transaction, it is ultimately your responsibility to decide if you would like to invest in a particular property.
Please keep in mind that this is only a small picture of real estate investing. By keeping your focus on the four areas above and seeking guidance from a team of professionals, you will be on your path to becoming a Real Estate Investor – congratulations!
DISCLAIMER: Jason Reynolds does not provide legal, tax, or investment advice. All information herein is general in nature and should not be considered legal, tax, or investment advice. Consult an attorney or tax professional regarding your specific situation. Nothing contained herein should be relied upon as a promise or representation as to the future. Recipients should conduct their own investigations and analysis of any real estate transaction that they are involved in. No warranty is given concerning the suitability of this information for any application.