5 Reasons to Start Real Estate Investing
written by Sinclair Wilson a Black Lifestyle blogger
I’m not going to beat around the bush. I want to be wealthy, as most of the world. I want to live my life not having to stress about money. One of the ways I plan on making this a reality is through real estate investing. Real estate investing will allow me to begin building wealth while keeping my full-time job and primary source of income. Now, I must give the caveat that I am in no way an expert on real estate investing; however, I have been doing extensive research on the topic as a part of my own preparation to begin in the real estate investing business.
To Create Passive Income
Although I’m not exceptionally keen on the term “passive” income, because it implies that you don’t have to work for it, passive income is a big pulling factor for real estate investing. Passive income is money you earn that is not directly related to the amount of time you invest. Non-passive income would be the money you make from your 9:00 - 5:00 in exchange for your time and services. When real estate investing is done right, you can earn a monthly income simply (I use this term loosely) by owning the property. The Buy and Hold method of investing is a great way to create passive income. This essentially means you purchase the property and then rent it out as opposed to buying and selling right away. Don’t feel like fixing toilets or collecting rent money each month? You can hire a handyman and property manager to handle as much of the monthly responsibility as you please. With this method, there’s not much left to do on a monthly basis except paying the mortgage using the rental income. Any equity or rental fees after paying expenses will be profit. Now that’s passive income.
Live For Free
If you are currently a renter, when you think about how much of your paycheck goes to rent, you probably begin shaking your head, or at least I do. I loathe the idea of paying rent because it is the money going towards nothing. I want my money to make more money. Many real estate investors start out by buying a multi-family property, which has 2-4 units, and lives in one of the units while renting out the others. This method allows you to offset your living expenses (mortgage, property taxes, utilities) with the income gained from the other units. You essentially live for free. This also allows you to save money to go towards your next investment. When you are ready, you can either sell the property or move out and rent out all of the units. Although the thought of purchasing a multi-family property right off the bat can be a bit scary sounding for someone just starting out, the process of purchasing a multi-family property is largely the same as purchasing a single-family home. This is why so many successful real estate investors start out this way.
Choose Your Involvement Level
Another great thing about real estate investing is the freedom to choose your involvement level. There are a plethora of ways to get involved. You can go the more traditional route of purchasing land, single-family homes, multi-family properties, commercial properties, or industrial properties and renting them out. You can go into the property flipping business, which involves renovating the property and then selling it right away. There are even ways to invest that don’t involve actually purchasing property, such as Real Estate Investment Trusts (REIT), or tax lien certificates. REIT involves purchasing shares in a company that invests in real estate and converts most of its profit into dividends. Investing in tax lien certificates can get tricky, but in a nutshell, you pay the unpaid taxes that accumulate on a property to obtain a tax lien certificate. Now the home/property owner has to pay you the taxes along with late fees and interest. This investing method usually requires you to have some cash on hand. There are several ways to go about investing in real estate; you just have to choose which method works best for your current situation.
Control Over Your Investment
Every investment involves some level of risk. With owning real estate, you are at the whim of the housing market; however, you still have control over most of your investment. You choose which property you think will be a good investment. Although property has an asking price, you choose how much you want to offer for the property. For Buy and Hold properties, you decide how much rent to charge each month. For flipped properties, you decide the asking price on the renovated property. You choose your exit strategy, meaning how and when you are going to sell the property. All of these decisions affect how much profit you will make on a monthly and yearly basis, so you really do control most of your investment. Of course, there are aspects of the investment that are out of your control like property taxes and required insurance, but the majority of the decisions YOU make will determine how profitable the investment will be. This is unlike the stock market which is vastly out of our individual control.
Creates Wealth That Can Be Easily Passed Down
Every property you purchase (that remains in good financial condition) increases your wealth. This particular form of wealth can be easily passed on to future generations. Personally, I plan to pass most of the properties I acquire onto my children when they are old enough. I will not dictate what to do with the properties once in their possession but knowing that I am setting them up to not have to struggle will bring me great satisfaction.
Historically, black people in this country have not even had the option to build this kind of wealth and this has left us generations behind our counterparts, financially speaking. Although I am a small piece to the puzzle, I like to think of me passing down my real estate properties to my children as my own form of resistance to the society that continues to tell us, we can’t. I can. And I will. Stay true.