I get emails and calls all the time about people wanting advice on how to invest in real estate. It is sort of flattering, like I have some sort of insider knowledge of the markets or what property or type of asset is the best investment today. But I am always willing to share my knowledge. Even more interesting are the investors who say something like, “If you find a property that I can make a quick $50K on, call me. I have the money to invest.”
If I see a property with a $50K potential, it’s mine — and no one else’s if I can help it.
I get people who contact me with things like this. “I have a goal to have 100 rental properties within 10 years. I have $10K to invest now. How should I start?” I admire the goal setting, and I appreciate the fact that someone can think big. Unfortunately, if that is your way to riches in real estate, your bubble will soon be popped.
Do You Have What it Takes?
There are many different ways to invest in real estate. I personally do rentals and have done a flip. I have also sold real estate. All my rentals had to be 100% remodeled after I purchased them, so I know a lot about rehabbing. If you are thinking about any self-managed real estate, you also need to know a bit about rehabbing. Once you can rehab a property, the world of real estate can get very interesting and more financially rewarding.
If you have money, it is easier to invest in real estate. It does not mean your experience will be better, just easier. Buy a property across town, hire a property manager, and wait for the money to roll in. Or you may wait for the property manager to call and ask for a check to rehab your property (again). You may luck out for a year or two, but the proof will be when you have had to experience a property turn. If you do not know how to manage properties, you have no business hiring someone else to do it for you. Get some knowledge first, so you can manage the manager.
The Top 7 Sacrifices Real Estate Investing Demands
1. Living Below Your Means
To be a RE investor, you need to live below your means. You will need some capital to start; you do not get capital built up by spending all you make. You will need excess capacity on your credit line to be able to get a mortgage. No bank will loan money to someone who is already maxed out.
If you have enough money to make a cash purchase, you will be at the top of the list in terms of buying potential. The seller does not have to wait for any approvals, worry about appraisals, or deal with a mortgage company that freaks out about a place that is not habitable.
When I bought my first property, the down payment was over $80K, and I needed another $40K to fix it up to rent.
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