Recently there was an article on BiggerPockets about why you shouldn’t invest in Real Estate. I happen to love Real Estate; I love selling Real Estate as a broker, I love looking at Real Estate and I especially love investing in Real Estate.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
Why Do I Invest in Real Estate?
I did not come to invest in Real Estate by chance, I took a lot of time researching every investment option I could.
Before I started investing in Real Estate I had some money in the stock market, but I never felt good about my investment. If the market went up, my accounts went up and likewise if the Market went down so did my investment. I had no control over the investment and the individual stocks I picked tended to be affected by market conditions that had nothing to do with the stock itself.
I invested in mutual funds, which did okay but also seemed to basically follow the market. I even dabbled in stock options to try to increase my returns. Options were a great way to lose a lot of money very quickly!
I was pretty young at this time in my life and I really wanted to grow my money into something big. The stock market did not seem to be getting me to where I wanted to go. I did a lot of research on other investment vehicles that would multiply my money. I looked different ways to invest in the stock market, mutual funds, bonds and I even looked starting my own business or buying a franchise.
I realized a couple of things while doing this research on investment options. The first think I realized was that I already had a business since I was a Realtor. Many people think of being a Real Estate agent or Realtor as a job, but really we are running a business. We get paid on how much we sell or others sell if we have other agents in our team. We have a lot of expenses, marketing is extremely important and delegating and building a team is extremely important.
The second thing I realized was investing in rental properties could provide the incredible returns I was looking for. I could take control of my investment with rental properties and there were so many other plusses that it seamed like a no brainer.
9 Reasons Why Investing in Real Estate is Awesome
1.) No Retirement Calculators For Me!
I used to plug in my savings and estimated returns into those retirement calculators all the online trading companies have. I always became dejected when looking at those, because at my current savings rate and an aggressive yearly growth interest rate, I was not retiring for about 20 years if I was lucky. Part of calculating this number, was deciding how long I was going to live. How depressing is trying to figure out how long you will live to make sure you don’t run out of retirement money!
One of the huge advantages of investing in Real Estate was I would not need a retirement calculator or decide when I wanted to die. With rental properties I could buy properties with positive cash flow and never have to sell them if I did not want too. If I bought enough positive cash-flowing properties I would have a nice monthly income until I died on my own terms.
2.) Cash Flow Creates Income Right Away
I am not a stock broker or an expert on the stock market, but I have done a little research on stock dividends.
Correct me if I am wrong, but the highest dividend paying stocks seemed to pay 4% or less annually. That is not a bad return compared to a .002% bank account, but it is also barely above inflation. It is true that stock could rise in value increasing the value of your investment, but that money is not realized until you sell the stock. Many Real Estate investors would not touch a property if it had 4% annual cash flow, they would want 15 percent, 20 percent or more in cash on cash returns. The best part is that 20 percent return is realized immediately and the property may still appreciate on top of that return.
That 20 percent return can be reinvested into the property by way of paying down the mortgage, adding value through expandability or you could buy more rental properties. The beauty in investing in Real Estate is the cash flow it produces and the many options that cash flow gives you.
3.) There is Too Much Real Estate for Everyone to Be an Expert
Look around you, I don’t care if you are in the middle of Kansas you are surrounded by Real Estate.
Single family, duplexes, multifamily, commercial, vacant land; Real Estate is everywhere! The individual has a huge advantage when they invest in Real Estate, because they can invest locally. The stock market is a global system, everyone has the same information and knows exactly what the prices are.
There are some exceptions to this rule; insider trading. It is illegal to use insider knowledge to profit in the stock market. It is not illegal to use insider knowledge to make money in Real Estate! I know my market like the back of my hand, I know prices, I know neighborhoods, I know rents, I know lenders. I would estimate there are less than 500 people who know close to what I know about my local market. Out of those 500 people, I bet less than 10 percent are actively investing and using that knowledge.
When I invest in the stock market I am competing with thousands, maybe even millions of people with the same or more knowledge than I have. We all have pretty much the same information and prices are based on this information and all these people in the market. In Real Estate I may be competing with 50 people or less and at any one time most of them probably aren’t in the market to buy. This smaller buyer pool gives a huge advantage to the individual Real Estate investor.
4.) Anyone Can Be a Local Expert on Real Estate
It is not easy, but you do not need a degree to become an expert in your local market. You need to do a lot of research, look at a lot of homes and talk to a lot of people, but you can become an expert fairly quickly. What you need to know is the value of homes, the market rents, market conditions and economic conditions that exist in communities. Once you know these indicators it is easy to spot a bargain.
5.) Real Estate Easy to Value
Compared to other investments Real Estate is easy to value.
Even if you have no idea how to value a property, you can find a Realtor who can value it for you for free. There are so many houses and pieces of real estate out there, there are a lot of comparables to use to value properties. Those sold comparable properties may not be perfect, but they will give a good basic idea of what Real Estate is worth.
With stocks or other investments it is much more difficult to value. How can the everyday Joe value a multi million or billion dollar company? Even the experts can’t agree on exactly what these large publically traded companies are worth. The only people who truly know everything that is going in with a stock or company are the managers and owners of that company. They are doing everything they can to make it look as good as possible. You aren’t really buying a company, you are buying the people who run it and hoping they aren’t fudging the numbers and hoping they are smart enough to make a profit in the future.
6.) You Can Inspect Real Estate
When you buy a piece of Real Estate there is not too much that can be hidden unless you are buying large projects. You are able to do an inspections on the property before you buy in most cases and thoroughly evaluate Real estate before you buy it. Try asking to inspect a corporation to see how they are really run, before you buy their stock!
7.) You Can Buy Real Estate Below Market Value
There are many ways to buy Real Estate below market value. I buy properties off the MLS all the time that are price below market value. I can make a low offer or be the first one to make an offer on a property. This is when being a Real Estate agent gives me a huge advantage. Property can also be purchase at the trustees sale or off market. Off market properties create a huge advantage for the individual investor, because they can buy property well below market value without out much competition. I do not know of a way to buy stocks below market value. There may be under valued stocks, but the price is still available to everyone in the market.
8.) You Can Add Value to Real Estate
Not only can you buy Real Estate below market value, but you can add value to it after you purchase it.
One reason I can buy properties below market value is they need repairs. Investors typically get a discount when they buy a property that needs repairs because it decreases the buyer pool. Not everyone can buy property that needs repairs, because they may not be able to get a loan on those houses.
I can buy a house below market value, put $20,000 of repairs into it and have a house worth $50,000 more than I bought it for a couple of months after I bought it. You can also add bedrooms, add bathrooms, finish a basement or do many other things to increase value on Real Estate. It simply is not possible for an individual investor to add a bedroom onto a stock.
9.) Leverage Multiplies Returns When You Invest in Real Estate
When you buy stocks it is possible to buy on margin, which is a type of leverage. I did some research and what I found said can up to buy 50% more stock then cash you invest. I heard in a recent article you can buy 70% more stock, but I couldn’t find that info.
Either way, that is not as advantageous as Real Estate for a number of reasons. If you want $100,000 in stock, you need $50,000 cash to buy it. That assumes you have the financial means to qualify for the margin account. However, if that stock loses value the trading company can call your margin due, meaning you have to put more money in the position. The trading company can even sell your stock for you if the stock price drops too low.
With Real Estate you can get started for much less money than stocks. As an owner occupant you can buy a home for 3.5% down or even $0 down with a VA or USDA loan. You could buy a $100,000 worth of house for $0 out of pocket cash. Now, you would have to live in the home at least a year before you could rent it and you can’t have more than one VA or USDA loan, but you could get another owner occupied loan at 5% down. If you don’t want to move every year, you can get an investor loan with 20% down.
There are many other reason why investing in Real Estate is my investment choice; tax advantages, equity pay down, appreciation, serving your community by providing housing are a few others.
The biggest advantage investing in Real Estate gives you is you can buy below market, add value and rent for positive cash flow. If you buy properties right you can make more than your initial investment back before you even rent the home.
Your cash flow can provide you lifetime income with no retirement calculators and you have control over your investment to increase its value.
Do you agree? Let me know in the comments below!