Follow Us on Social Media

email icon rss icon linked.in icon google plus icon twitter icon facebook icon

5 Easy Ways You Can Use Your Tax Refund to Invest in Real Estate

by Brandon Turner on April 18, 2013 · 16 comments

  
Tax Return

Can you really start investing in Real Estate using just your tax refund?

Obviously, it depends on the amount you received back, but since the average return for a US Taxpayer in 2011 (according to Wikipedia) was right around $3,000 – I’m going to use that number. So, how can you get started investing in real estate with just $3,000 bucks? This post is going to show you five different ways you can use your tax money to start building your financial future with real estate.

1.) FHA Down Payment

One of the most popular methods for new investors to get into real estate investing, the FHA loan allows a homeowner (yes, you have to live there) to put down just 3.5% of the purchase price for your investment property. So, how much would $3000 get you? Well, not a whole lot. However, if you live in an area where you can pick up a small duplex in need of cosmetic repairs for under $80,000, this might be a great option for you. Be sure to have the seller pay the majority of your closing costs and use your own sweat equity to improve the property and begin making serious monthly cash flow.

For more information on using this strategy to get started investing, check out this great article by Frank DeFazio “New Investor Strategy: How to Buy Your First Multi-Family Investment Property & Live Rent Free.”

2.) Pay off Debt

Yes, true, paying off debt doesn’t really help you “invest” in real estate – BUT by paying off your high interest debt (such as credit cards or other lines/loans) you can save more money year round, allowing you to qualify for higher real estate loans and ensuring financial stability in your home. You may be tempted to go out and buy that nice Samsung 65-Inch 1080p 240Hz 3D Slim LED HDTV (or you may be tempted to buy one for me! … ) but paying off that $3000 in credit card debt will get you much closer to your goal of financial freedom.

There is a reason Baby Step 2, in Dave Ramsey’s “7 Baby Steps to Financial Peace” is to quickly and intensely pay off all debt. Getting out of debt allows you to fully maximize your income by reducing your expenses. Don’t underestimate the value of being debt free.

3.) Education

No – I don’t mean go out and pay for a $50,000 training from a real estate guru and get sucked into the “guru trap.” (Read more about The Real Estate Guru Trap – How It Works & 4 Ways to Avoid It) I’m talking about using your $3,000 to gain a real education. This might mean taking a week off work to read all 21 of the best real estate investing books. Maybe it means buying a plane ticket and a few nights in a hotel and flying out to visit a seasoned investor and friend that you met on the BiggerPockets Forums. There are a lot of low-cost ways to get education, and spending your tax refund on it might be the best way to do so.

4.) REITs

Maybe you just want to use real estate as part of your overall investment plan, but want to keep it as passive as possible. For you, a REIT might be perfect. A REIT, which stands for Real Estate Investment Trust, is kinda like a mutual fund but for real estate investors. Basically, a whole lot of investors pool their money together in order to buy large pieces of real estate, managed by the REIT. If you want to learn more, check out this awesome article on REITS from Ankit Duggal.

5.) Marketing

Finally, $3,000 will buy you quite a few pieces of direct mail and stamps, so you can start prospecting for leads to wholesale to other investors. Direct mail is the process of sending out a large number of pieces of mail (either letters or postcards) to targeted homeowners, in the hopes that a small percentage of motivated sellers respond to the mail and reach out to you, allowing you to buy their home for a discount. There are many different companies who specialize in this, such as PostCard Mania or Click2mail.com – so be sure to check them out and see how much Direct Mail you could send out.

For a great case study on an investor doing this right now, check out Arthur Garcia’s “Go Where Others Won’t – My Direct Mail Journey.

So – how are you going to use your refund to better your financial future? Leave your comments below and let me know!

Email *
  



{ 16 comments… read them below or add one }

Robert April 18, 2013 at 4:00 pm

There’s only one of those TVs left in stock, so you’d better get crackin’.

Reply

Brandon Turner April 18, 2013 at 6:16 pm

You can have it shipped to “Brandon Turner, PO BOX 253… ”

:)

Reply

Brandon Foken April 18, 2013 at 4:04 pm

I’m using my tax refund the same way Arthur is – marketing!! $2,100 will buy me a lot of stamps, envelopes and paper. It’s a lot better feeling putting money towards my future than buying the latest shiny object out there. Thanks for the article, Brandon.

Reply

Brandon Turner April 18, 2013 at 6:18 pm

Awesome Brandon! Let us know how it goes. Sadly – I gotta pay in like $2,000. Not as fun!

Reply

Ron Ridgway April 18, 2013 at 5:08 pm

I really appriciate your insight to the industry and allowing others to think outside of the box.

Reply

Eric Lundberg April 19, 2013 at 9:41 am

Great ideas here, and well presented, Brandon. Who needs a 65-inch tv anyway? I’m good with a 60-inch :)

Reply

Brandon Turner April 19, 2013 at 7:18 pm

I know who needs a 65″ TV. …. Me! ;) Thanks for reading sir!

Reply

Dawn A. April 19, 2013 at 11:51 am

That $3,000 you lent to the government might have been better served in your pocket during the year!

Reply

Brandon Turner April 19, 2013 at 1:57 pm

Very true, Dawn!

Reply

Karen Rittenhouse April 19, 2013 at 3:35 pm

Let me just start by saying — What a great photo!

We used to use all “found” monies for marketing. Has really paid off over the years.

Today, we’re using all “spare” cash to pay off mortgages. So rewarding!

Thanks, Brandon, for another educational and motivational post.

Reply

Brandon Turner April 19, 2013 at 7:16 pm

Thanks Karen! I wish I could say I took that pic, but I just found it online :) However, I just bought a fancy new DSLR Camera, so I hope to start using my own!

Reply

Kevin Sapp April 19, 2013 at 6:38 pm

Tax refund, what’s a tax refund?

Reply

Brandon Turner April 19, 2013 at 7:03 pm

I heard it’s something people who lend the government money for free get back once a year with no interest.

I wouldn’t know. I owed $2k. :(

Reply

Kevin Sapp April 19, 2013 at 7:09 pm

Brandon,
I’m not sure if that makes me happy or sad, I guess a little of both, I’m happy you did not have pay more, sad that I did. I guess I need more property for more deductions!
Kevin

Reply

Brandon Turner April 19, 2013 at 7:12 pm

Haha! Every year it seems to climb for me… I think I should be happy (I’m making more, right!) but I’m not happy when I have to write that check!

Shaun April 25, 2013 at 8:47 pm

The Sucess Penalty can get quite steep very fast as you make more…
Pretty sure that the check I wrote this year was more than the aggregate of any that I have previously.

Reply

Leave a Comment

Comment Policy:

• Use your real name and only your name in the field designated for your name.
• No keywords allowed as anchor text in the name or comment fields.
• No signature links allowed under your comments
• You may use links in the body of your comment, but it must be relevant to the discussion at hand, and not merely be some promotional link.
• We will have NO reservations about deleting your content if we feel you are posting merely to get a link without adding value to our discussion.
If you add value, but still post keywords, we'll use your comment, but remove your link and keywords.
• For more information about acceptable practice, see our site rules.

Want your photo to appear next to your comments? Set up your Gravatar today.

Previous post:

Next post: