THE 5 W's OF REAL ESTATE INVESTING
While a personal home purchase is a type of real estate investment, there are some who want to continue the real estate evolution, grow their holdings, and assume the role of investor.
/inˈves(t)mənt/ Noun. The action or process of investing money for profit or material result. Real estate investing is the purchase of land and/or buildings for a return or cash flow.
Investing for the future starts today. Your earnings potential will be significantly impacted by procrastination. See the "The Value of Starting Early" chart by clicking the button below.
Land and buildings are everywhere, but not not all are created equal. Location, LOCATION, location is one of the most critical factors to consider when analyzing a real estate investment.
Real estate is at the core of almost every business, and it's certainly at the core of most people's wealth. In order to build your wealth and improve your business smarts, you need to know about real estate.
Investor / Billionaire
CEO Berkshire Hathaway
If I had a way of buying a couple hundred thousand singe-family homes, I would load up on them...It's a very attractive asset class.
Real estate investing, even on a very small scale, remains a tried and true means of building an individual's cash flow and wealth.
author of Rich Dad, Poor Dad
FINANCIAL WORDS OF WISDOM
Taking a thorough inventory of your personal and financial goals, as well as understanding your personality and risk-tolerance is essential for successful real estate investing. Here are few questions to get the wheels turning:
Personal goals: Do you want more time to enjoy the things that matter? Do you want to learn something new or change your current lifestyle? Why are you reading this page right now?
Financial goals: Do you want to be financially independent? Do you want to add real estate to your existing investment portfolio? Do you need to offset a life expense such as a child's education?
Personality: Do you like crunching numbers (left brain) or are you more creative (right brain)? Are you an introvert or extrovert? Are you an optimist or a skeptic?
Risk-tolerance: When it comes to risk are you conservative, aggressive or somewhere in between? Are you a long-term or short-term investor?
Knowing the answers to these questions will help you develop an investment strategy that complements instead of clashes with your future. Keep in mind, there are a few non-negotiable qualities you need to be a successful of real estate investor:
Patience - If you want to get rich quick, this strategy is not for you. Gains from real estate take years to materialize but historically outperform any other investment vehicle.
Persistence - There will be times when you'll get outside your comfort zone, but you've got to keep learning, growing and moving forward.
Preparation - Also known as due diligence includes inspecting a property, carefully reviewing contracts and disclosures, accurate property valuation, and finding answers to any questions you have.
Passion: Success will be difficult if you intend to just dabble in real estate investing. You must be a doer, and you need a team. Real estate is not my job. It's my passion, and I would enjoy the opportunity to discuss your real estate investing goals with you.
Investments take on many forms: stocks, bonds, college savings accounts, precious metals, antiques or collectibles, and my favorite real estate. Real estate investing involves a spectrum of activities from ownership, management, to the rental and sale of real property for profit. It's a strategy that pre-dates the stock market and is one of the most organic means of attaining wealth.
Within the realm of real estate, there are different types of investments: residential, retail, office space, industrial, raw land, as well as hotels, mini-storage, parking lots, and senior care centers.
Investment strategies will change over time, but my staple is buy-and-hold residential property. Using this method, property is acquired at a good value and rented to capture positive cash flow from day one of ownership. This approach is one of the safest forms of real estate investing, as long as you've properly calculated your expenses against rental rate.
There's a lot more to learn about the "what" in real estate investing. If you're eager to learn, give me a shout out.
That old adage, "There's no time like the present," should be shouted from a megaphone for all sideline investors to hear. Your net worth will be significantly impacted by your delay. Take a look at the chart depicting the difference in worth after four different investors each invested $5,000 for 10 years, with no additional contributions, at different ages, and assuming an 11% annual return. The difference between Investor A, who started at age 25, and Investor B, who started just 10 years later, is huge. At age 65, the early investor has over $400,000 (or 46%) more than Investor B. The difference between Investor A and Investor D, who started investing at age 55, is staggering! Investor A has nearly $704,000 (or 106%) more worth than Investor D.
Location is CRUCIAL in real estate investing! Your profit potential relies heavily on where you invest. Auburn, Alabama is a wonderful city for real estate investors. Auburn University is an excellent source of student tenants who rent townhomes, duplexes, apartments, and condos. Additionally, Auburn City Schools is one of the finest educational systems in the state, making single-family homes very attractive for growing families. The small-town atmosphere is also attracting executives and their families who work in Atlanta and Montgomery. Auburn is seeing tremendous growth in neighborhood and retail development, making this city a great town a great investment.
Here are few things to look for when sourcing markets to invest in:
Look for positive cash-flow at purchase by analyzing property purchase prices versus monthly rental rates. A general rule of thumb is a ratio of Purchase Price to Monthly Rent of 1%.
Know the average rental rates for the types of property you'll be investing in. If the average rental rate is not enough to cover your mortgage, taxes and other expenses, move along.
Research property tax rates carefully. Rates vary across counties, and it's good to know how much you will be paying as this will effect your cash-flow.
People live where the good jobs and industries are located, so invest in areas with strong employment, job growth, and stable companies and/or industries.
- Families like to live in areas with good schools. Make sure the schools in the city you invest in are of good quality.
- Check the area's growth by analyzing the number of building permits issued for that city or county.
- Analyze the number of rental listings and vacancy rates in a given market. If there is an unusually high number of listings in an area, this can be a sign that the market is saturated or that there's something awry about the neighborhood.
- Much of the above information can be found on websites such as City Data and The United States Census Bureau.
If purchased prudently, real estate is one of the safest investments. Why? Because...
It's a tangible asset. The land, the building, and materials are all yours. "It's a comfortable feeling to know that you stand on your own ground. Land is about the only thing that can't fly away." Anthony Trollope, Novelist
It's a money maker. The cash-flow from your rent is money back in your pockets to invest again. It's the gift that keeps on giving. Additionally, someone else is paying down your mortgage and increasing your equity position in that property.
It's inflation-proof. Property values and rental rates usually increase with inflation, but your mortgage is stays the same. Your rent yield will increase but your fixed expense to hold the property will not.
It's good for taxes. Rental properties can be depreciated on your taxes, thereby decreasing your taxable income. Not only that, you can also deduct property rental expenses such as tools purchased for upkeep, updates and improvements, and service provider fees, further reducing your taxable income.
Investing lets you do the things you want to do. This is about building REAL wealth, increasing your net worth so your worth can "work" for you, instead of you working for your worth. Buy-and-hold, rental properties make money while you sleep and generate passive income.
THE JOURNEY OF A THOUSAND MILES BEGINS WITH THE FIRST STEP.
TAKE THE FIRST STEP AND CONTACT SNW TODAY.