Is real estate a good investment? With all the tv shows and clamor around flipping houses, owning rental property, and choosing real estate as a long-term or even short-term investment vehicle, many are wondering if investing in real estate is really a good move or if it’s just another late night infomercial pipe dream.
Is it actually possible for the average person to flip a piece of property for large profits or amass a large real estate portfolio that generates passive income?
The simple fact is there’s nothing magical about real estate investing. If you strip away “real estate”, it’s just investing. With real estate, just like any other form of investing, you can either make money or lose money.
Now, whether or not real estate investing is good or safe is really a matter of personal opinion. The best I can do to answer that question is share with you a bit of my personal experience, throw out a few nuggets of wisdom, and let you make your own decision.
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5 things I’ve learned about real estate investing
I started investing in real estate nearly four years ago. I’ve bought and rehabbed close to 40 properties dealing with banks, tenants, contractors, appraisers and a host of other people along the way in my journey. I’ve learned a lot, and I’m happy to share what I’ve learned with you. That’s what this entire blog is about. Here are 5 key things I’ve picked up.
#1 Real estate investing is hard
Let’s start with a healthy dose of reality. Being a real estate investor is hard. That’s probably not what you were hoping to hear, but that’s the truth. Now, that’s not to say it isn’t worth it, but it is hard. This is especially true when you’re first starting out. There’s a lot to know, and you’ll make rookie mistakes. You’re dealing with a lot of people, and there are a lot of moving parts.
#2 The mistakes are costly
Finding out after-the-fact, that your cute little 3 bedroom rental house needs $20,000 in foundation repairs is a big “whoopsie.” With property investing there will always be “unknowns” which is probably the single greatest risk tied to being a real estate investor.
Even the most experienced real estate investors are entering a bit of unchartered territory every time they purchase property.
The best you can do to mitigate unwanted surprises is to educate yourself as much as possible. Surround yourself with mentors who have been in the real estate investing game a while. If you don’t know any real estate investors, join a real estate investing club, and start meeting some.
#3 Cash is your greatest leverage
While it is true you can acquire real estate with no money, having cash to purchase and rehab your properties will give you maximum negotiating power. Furthermore, you’ll find it’s a lot easier to get investment loans from banks after you’ve purchased or rehabbed properties with your own cash.
#4 Don’t quit your day job
Prior to investing in real estate, I had this very naive stereotype about real estate investors. I imagined they were, for the most part, rich people driving around in fancy sports cars cashing rent checks.
To my amazement, most of the real estate investors I’ve gotten to know, including people with sizable real estate portfolios, are just every day folks with regular jobs! I know guys, who are serious real estate investors, who, by day, are law enforcement officers, school teachers, plumbers, you name it.
For their own reasons they decided to pursue real estate investing, but the point is, it’s not something they typically do full-time, and they are not people who started out rich! This just goes to show you that real investing can be for anyone.
So, why don’t they do real estate full-time? Well, I think there are several reasons.
First, and I’m speaking more about owning rental property vs. flipping, real estate investing is often looked at as a long-term investment vehicle. While there certainly is cash-flow from monthly rent, it’s not as much as you’d think once you factor in the following:
- mortgage payment
- property taxes
- homeowners insurance
- accounting/legal fees
- other misc. expenses
Additionally, banks prefer lending to real estate investors who have full-time employment outside their real estate pursuits (less risk for the bank). So, don’t quit your day job…just yet.
#5 It’s Fun!
Real estate investing is full of ups and downs, and, at least for me, that’s what makes it fun. Furthermore, the idea of taking a run down, beat up property and turning into a home for someone else is very rewarding.
If the idea of being a real estate investor doesn’t seem fun to you, don’t do it. Being a real estate investor will require your time, and if it’s not something you can see yourself enjoying, it will quickly become a drag.
Is real estate a good investment for you?
When determining whether or not real estate is a good investment for you, you need to consider three main things: money, time & risk. Let’s dive into each of these.
Money can be looked at several ways: profit or money you need to invest in real estate. When it comes to profit, determining how much money you can realistically make as a real estate investor depends on a number of key factors such as type of real estate, size of your real estate portfolio, debt obligations, location etc.
There’s no way to answer this question without knowing your specific real estate goals. Find a mentor, and develop an idea of what you’d like your real estate investing career to look like. At that point, your mentor can help you answer the money question, and you can decide from there if real estate is a good investment for you.
In terms of how much money you’ll need to invest – this will also vary from person to person. Again, this is something a local mentor can help you figure out once you share your game plan with them.
Check out my blog post on investment property loans for some different ways you can finance rental properties or acquire investment properties with little to no money down without relying on bank financing.
Real estate investing will take time. Don’t kid yourself and think that you can just hire contractors, property managers or anyone else and eliminate any time commitment on your end. Whether you choose to flip, rent or wholesale, your time will be required, and it may be more time than you think.
One of the great things about real estate is that you do have the potential to make a lot of money quickly, but, like any investment, you can also lose a lot of money quickly. You want to dig down deep to make sure you have the risk-tolerance to be a real estate investor.
Regardless of your risk-tolerance, my suggestion is to start with smaller (2-3 bedroom) single family homes. These are the easiest to find, acquire, rent, and the easiest to sell in many markets.
Where to go from here
As a next step, I recommend you connect with a real estate mentor. I also strongly encourage you to subscribe to this blog, so I can keep in touch with you and send you tips and tricks to help you succeed along the way.
Education is your best friend. Learn as much as you can about real estate investing in general, but you also want to learn about your local real estate market. This is why I recommend finding a local mentor. Real estate investing is a journey. Enjoy it. I hope you find success.