Last week I posted a couple videos about investing over on Instagram and had a huge response. It is obviously a topic that a lot of people have interest in so we are going to be producing a lot more content talking about investing in real estate. Investing in real estate is a very general and broad statement. There are a variety of ways you can invest in real estate. Number one is homeownership. It is the most basic form of investing in real estate. If you believed your property was going to be worth less in the next five years you probably wouldn’t buy real estate. You’re buying it because you’re expecting the property values to increase of the next few years. So the very most general version of investing in rea estate is going to be owning your own home. You’re going to be paying down the mortgage, property value should be increasing over time and that’s where you’re going to be really making a return on your investment.
Going a little bit deeper, you can go into what they’re calling these days. “house hacking.” It’s renting out the basement, or you can live in the basement and rent out upstairs. It’s a way to generate some sort of income from the property you’re living in. It’s a great way to pay down your mortgage and to help you handle some of the costs associated with homeownership.
Now going even deeper, you can start owning properties that you don’t necessarily live in. It can be a single-family home, duplex or triplex. Anything over a four-unit rental is actually deemed commercial by most banks, so I wouldn’t necessarily recommend that to anybody who’s just thinking about getting into real estate. They all have their pros and cons. For a single-family detached the pro is it’s a lot cheaper to get into, but the con is your entire investment is contingent on the payment of rent from one tenant. If one tenant stops paying or it’s vacant because you haven’t found a renter, you’re going to eat those costs for the next little while. On the flip side, when you look at duplexes and triplexes it’s going to be a little bit more expensive for you to get involved in. However, if one unit is vacant you’re still going to be generating income from the other one.
So there are pros and cons to both, but you really have to talk to you real estate agent and figure out what your goals are and what your expectation are in real estate investing. I highly recommend everyone to think about real estate investing. It is a phenomenal way to grow passive long-term wealth. Be cautious of people who promising you exorbitant returns on investment and telling you there’s absolutely no risk involved. Anything that is going to offer you some kind of reward is going to have inherent risk. If you want something that is absolutely zero risk, you can put your money into T-bills in a 90 days account with the banks. You’re going to get 0.01% return on investment, but at least your investment is safe. If you really want your money to work for you in the long run, you should really consider real estate investing as an opportunity.
I also understand there’s a lot of drawbacks with real estate investing. There’s a lot of work and effort that goes into it and a lot of things can go wrong. You have to acknowledge that before you go into it. One thing I tell people is to just stay away from is flips. Unless you have your own truck with tools and you’re a handy person with connections to all the trades, I highly recommend people to stay away from them. You can’t expect a lot of money in the short term from them because flips can be extremely risky and there’s a huge cost associated with it. Buying and selling real estate is a very expensive proposition that is going to eat into your profit margins. You have to look at it as, how much work do you actually expect to put into it? I actually recommend buying properties that need a lot of work, but holding onto them and renting them out. I don’t like holding onto real estate for less than a year. Whenever I look into real estate investing, my plan is usually to look minimum 3-5 years out, if not 10 or more.
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