My Obsession with Real Estate – Am I Really Buying my Toddler a House?
When I tell people that I’m in the market to buy my toddler a house, they usually look at me like I have three heads or give a little chuckle that sounds like a laugh but screams, “okay, lady… what’s a toddler going to do with a house?”
I’ll tell you what she’s going to do with a house! Well, okay. Immediately, she won’t do anything with it. Until she turns 18, I will rent it out, use that income to pay the mortgage, and be free and clear by the time she goes to college – at which point I will hand it over to her so she can use that rental income to build the life of her dreams. Debt free.
I’m always looking for ways to work smarter, not harder, and buy and hold real estate investing is exactly that. It’s an incredible vehicle for building wealth so I’m getting my foot in the door NOW. I mean, why would I want to wait to jump into one of the most lucrative industries in the world? An industry that created 90% of the world’s millionaires as well as dozens of billionaires!
There’s nothing that I wouldn’t do to secure a future for my daughter in which she can thrive to her absolute highest potential. Right now, that means leveraging my credit score, my access to resources, and my financial assets to grow, GROW!
Flirting with real estate investing
Even before I had the means to do so, I knew that I wanted to own at least one investment property someday. For years and years, I had been reading stories of others who have built a fortune in the industry and while a real estate empire isn’t exactly my goal, financial stability for myself and my daughter absolutely is.
“Why real estate?” you ask?
The potential to make money RIGHT AWAY – Although it’s unlikely that you’ll turn a profit on your tenant’s first rent payment at your first rental property, the possibility is there! If you have the capital to purchase a building in cash, that first rent check (minus expenses) is yours. On the other hand, renting out property for more than the monthly mortgage payment gets you closer and closer to owning that property free and clear. That means each month, you’re that much closer to turning a profit on your real estate investment.
Value appreciation – I know that it seems like the real estate market is always fluctuating, but if you look at it from a larger perspective, it typically trends upwards. When an investment appreciates in value, that usually means that you can sell it for more that you purchased it for – even if you haven’t done any major updates or renovations! In fact, Zillow reported that in the last year, the value of homes in the Unites States has risen 5.8% and they’re predicting another 7.0% increase over the next year. That means a $250,000 investment will potentially be worth $425,000 in 10-years! Sounds like my baby is going to the college of her dreams.
It’s easy to get into – I’m going to be talking about the trials and tribulations of real estate investment in a later post because it’s not necessarily “easy,” but it’s an accessible market. You don’t need fistfuls of cash or to purchase the best building on the block in order to turn a profit. You just need to know where to look for houses and what financing options are available to you.
Tax deductions – Taxes are never an exciting topic, but when I hear about using deductions to maximize returns, I’m all ears! As a real estate investor, you can deduct:
Mortgage interest
Depreciation (In the eyes of the IRS, homes lose value over time, so they give you a tax break for the perceived loss of value. Investopedia breaks it down very well.)
Property taxes
Insurance
Repairs & maintenance
Employee payroll
Travel costs
& more!
Passive income – Making money while I sleep? Sign me up! Sure, managing a property will take up a portion of your time, but you can absolutely work a full-time job, travel, go to school, do pretty much whatever you want once you’ve invested in real estate because it doesn’t tie you to a single location. Did you know that Arnold Schwarzenegger made his first million by investing in real estate WHILE he was a rising film star? Perhaps you can have it all…
Generational wealth – Once your investment property is totally paid off and you own it free and clear, the only expenses that you’ll be responsible for are taxes, repairs, and upkeep, which will really be paid for by your tenants. That means by the time the property is in the hands of your children or their children, they’ll be able to reap the benefits of pure profit that they can continue to pass down! Provided that the property is well taken care of, of course.
These are all of the reasons why I was attracted to buy and hold real estate investing in the first place. I want to have something that generates income to pass on to my daughter when she’s of age so she can just focus on school, traveling, or whatever it is that she wants to do!
However, this process has not been easy and, I hate to admit it, but so far it has not been fruitful. The first offer that I made this summer fell through so I’m still in the market for that perfect investment property. But I’m not giving up.
Everything I wish I knew about buy & hold real estate investing BEFORE I put in my first offer
Although my first attempt didn’t go exactly according to plan, I wouldn’t say that I totally lost out because I learned A LOT. Now, I can take all of this knowledge and apply it to the next offer I make!
To hopefully make things a little bit easier for anyone reading this that is interested in buy and hold real estate investing, I’m going to tell you everything that I wish I knew BEFORE I put in that first offer, and everything that I’m so thankful for learning.
1. How to find the best buy and hold real estate market
In order for a rental property to be as successful as possible, you have to know where to shop. Do your research into which cities, states, neighborhoods, and metro areas have promising real estate markets by looking into an area’ job market, projected population growth, and affordability.
Promising real estate markets are typically driven by the job market. Areas with expanding industries see in increase in job openings which leads to an influx of people who are looking for new places to work and live.
Hand in hand with the job market is the factor of population growth. Keep an eye on the projected population growth of certain areas – this will help to ensure that the property you’ve purchased will get rented out quickly and stay occupied.
Finally, and probably obviously, is affordability. You can’t get stuck looking in your “dream area” if there is a lack of affordable investment opportunities. You want to look for an area with reasonable purchase prices and high rent costs so you can capitalize on your investment as much as possible.
2. Don’t fall in love before the deal goes through
“Keep your options open!”
“When one door closes, another one opens!”
“There’s plenty of fish in the sea!”
I know that these words aren’t comforting after you’ve gotten your heart broken, so that’s why I’m saying them to you now.
Real estate investing is a business transaction. Although you may have personal motivations behind it, you cannot forget that you’re dealing with a competitive industry that is driven by money. Even when you find a property that seems promising, have a few on the back burner and remind yourself that nothing is final until all the papers are signed. I was really excited about the property that ended up falling through and – I’m not going to lie – it was tough to get over.
You literally cannot afford to fall in love with a piece of property that may or may not work out. Remain objective and remember that you’re doing this for your family’s financial security in the long run – not to own another home sweet home.
3. Build a trusted team (ESPECIALLY for long-distance real estate investments)
Real estate investing is multi-faceted and the easiest way to navigate the waters is to have someone to guide you, support you, and inspire you. Start by finding a real estate investor that you can trust. This might take a couple tries so don’t feel like you’re obligated to stick with one if you aren’t getting results. Time is money!
Once you find someone that you feel confident having in your corner, ask them to refer you to other vital team members like property managers, lenders (that understand the dynamics of building a real estate portfolio), and contractors – especially contractors.
I hate to say it, but I’ve found that it can be pretty tough to find reliable contractors in your area, and it is even harder if you’re looking for someone to perform work on a property in a city that you’re unfamiliar with. More than likely, someone on your real estate team will have experience working with some of the best contractors in their city so they will be able to point you in the right direction.
4. How to crunch the numbers
The numbers are the most important part of buy and hold real estate investing because you need to know that your investment is going to be worth it in the long run. There’s no sense in making an offer on a piece of property that will not turn!
I love to use Bigger Pockets before I even think about putting in an offer. They have many calculators that help you break down an investment deal and understand analytics. To figure out if you’re getting a good deal, you can use their super simple calculator:
1. Figure out the market value for rent and compare it to what current tenants are paying (if there are any)
2. Calculate monthly operating expenses
Taxes
Insurance
Property management fee (if applicable)
Mortgage
HOA (if applicable)
Vacancy
Maintenance & repairs
Utilities (if applicable)
3. Subtract expenses from rent
4. Calculate returns
It’s important to do this calculation as soon as you find an attractive opportunity. If it’s a great deal, it WILL go fast. There are lots of real estate investors out there with more experience and more capital. They seemingly come out of nowhere and you have to always be ready!
5. Don’t hold on to something that won’t work out
Even if you haven’t completely fallen in love with a property, going through the process is an emotional investment that can be hard to walk away from. After putting in all that time and energy, it’s completely understandable that you just want that investment to work out so it will all be “worth it.”
Realistically, there are some investments that just won’t ever be worth it for one reason or another. If you find yourself hitting a wall at every turn, it’s time to cut your losses and walk away with valuable knowledge that you can apply to your next investment opportunity. Like I did!
6. Trust the process
If you’re anything like me, you’ve watched hours of Selling Sunset on Netflix and dreamt of making a single real estate move that added $1.5 million to your bank account. With real estate investing, however, you’re playing a long game that isn’t going to have massive returns right away – but it will be worth it in the end.
Real estate investing is not a get rich quick scheme. It’s a strategy for building generational wealth and solidifying a successful future for your family. And although I haven’t made it to the point where I can start building that kind of future for my family YET, I’m very excited for what’s to come.
Stay tuned because I’m going to flip the script and talk about my Real Estate Woes in an upcoming post. Although I’m in love with this industry, it hasn’t always shown me love back. Still, I’m going to keep on searching for the perfect investment property and be open and honest about my experiences along the way. Hopefully this insight can prepare anyone out there that is also eager to get into real estate investing!
If you have any specific questions about real estate investing, let me know and I will do my best to answer them in the next post!