Saturday, 23 February 2019

5 Things You Should Know Before You Invest In Real Estate

Real estate is my favorite place to invest, when you buy real estate you own a physical piece of property it's just not a piece of paper that people say is supposed to be worth a hundred dollars, you own something you can see, feel and touch and if things were to go really bad and all of your tenants left. You still have a physical asset and that physical asset should still have some sort of value. The way real estate investing works is you buy a property and then you lease it out to tenants and then these tenants will use or live in your property and every single day these tenant use or they're in your property they will pay you to rent. This, for the most part, allows you to create a predictable stream of income because you know how much your rent is, yeah there will be times where your tenant doesn't pay you or things don't go the way you planned but for the most part you should be able to predict how much you are going to make

Getting started in real estate can be tough and finding the right guidance can be even tougher so in this article I want to go over 5 things you need to know before you invest your money in real estate

1. Real Estate Investing Is Not Just a Game

A lot of times you hear people who for the most part have never invested in real estate give a piece of advice, they think real estate is simple if it was simply how come they are not investing in real estate. It looks easy on paper but it requires you to work with other people and we're humans so we're prone to making mistakes, you have to build a relationship with a contractor who can point you to the right investment property at the right time. You have to find a contractor that can do the work and that's not going to charge you 3 times what it should cost and you find a tenant that's going to pay you on time. I am in no way shape or form saying that this is impossible or that it's not worth it because of these things, I'm saying that building a performer on Excel saying how much money you should make there's a lot easier than doing it because you have to find people to make it happen. That means you need to be able to lead people as a team so you can fit the different pieces of the puzzle together.

2. How To Get Started With Real Estate 

Some people say that real estate has more millionaires than any other industry, I have not fact-checked that myself but there's no doubt that wealthy people love investing in real estate because, for the most part, it's a secure way to keep and grow your money. But real estate has a high barrier to entry because you have to buy real estate and real estate isn't cheap. 

There are 3 ways to find your real estate deals, 
  • You can use your own cash in your bank account to buy a property
  • You can get a loan or use debt to buy property
  • You can get equity investors who will get ownership in your real estate deals
In other words for most traditional real estate deals, you either need to have access to a bunch of capital or be really creative to get started

You are never guaranteed to make money when you invest, you might even lose money so you should always speak to an accountant and an attorney in your area so you understand all the local laws and regulations that govern investing

3. How To Utilize The Real Estate Tax System

You've probably heard people talk about tax shelters and tax loopholes, I am not here to debate politics or talk about tax regulation, I want you to be aware of how the game works so you can use it to your advantage instead of getting abused by it. Real estate investment can be used as legal tax shelters meaning you can use your real estate investments to legally pay less money in taxes. For example, if you own an investment property you get to take a depreciation deduction which means you get to tell the IRS that hey my property is one year older so I deserve a deduction on my taxes. Even if your property doubles in value and you make like six figures and rental income, you could still take the depreciation deduction and tell the IRS hey my properties are year older so I want to take this deduction on my taxes

  • Disclaimer: I'm not an accountant so you should speak to a tax professional in your area so they can come up with the best plan for you

4. Things Will Go Wrong Sometimes When Investing In The Real Estate Market

At some point something bad will happen you'll have a bad tenant, a bad, agent, a bad contractor, a bad property, a bad property manager, or all the above at the same time. It happens to all of us but you have to get up and you have to keep moving forward because that's how you learn

Buy insurance for your investment properties, it is not going to cover everything, but it is a small cost today and it can save you a fortune in the future

5.  Real Estate Is Like Every Other Asset

There are times when the market is hot and values are going up it's called the "bull market" and then there are times where the market not so hot and values are coming down called the "bear market". Nobody can perfectly predict the market but you can get a general idea of where you are in the economic cycle based on what's happening around you if businesses are booming and real estate value are soaring you're probably in a bull market

  • Ideally, you want to invest in the area where people are moving to when the market is down and cheap this way when the market recovers your property will be positioned to go up in value

That also means that rental rate will go up too and because appreciation is never guaranteed you should base your investment decisions based on actual rental income, not based on what you or your cousin or some random person on youtube tells you property is going to be worth in 5 months or 5 years. Before the last real estate crash tons of people thought the real estate market could never go down so they were buying and investing in property and they were holding on to it for a few weeks so they can flip it at a profit, yeah people made a ton of money very quickly. But the people that held on for too long or the people that owned real estate with too much debt were skinned live when the market went down. 

Of course, you want your property value to go up but you shouldn't rely on that. Think of appreciation like icing on the cake, base your investment decisions on financials, not emotion.

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