Over the last few years, Americans are sitting on a historic level of home equity. Meanwhile, the stock market is in turmoil, inflation is at a 40-year high, and interest rates continue to rise. Americans are worried about their retirement, their quality of life, and whether they will have enough to be financially independent after doing all the “right things.” To those people, I suggest they look into real estate investing.
Real estate offers stable returns, tax benefits, and the ability to create generational wealth. But how can you do it? Remember that historic level of home equity Americans gained over the last few years? Deploy it. Do not be house rich and cash poor.
Take some of the equity in your home and use it to purchase a real estate investment. Purchase a property that will pay you every month, even if it is only $100 a month, that is $100 more than you were making. Further, at the end of the year, you will see the debt on that property go down, its value will appreciate, and you will be able to depreciate the property.
These tools will help you in the long term as you will be able to own a property that continues to pay you as long as you own it. If you get tired of owning it, then you can sell it for a profit. If you decide you want to scale up to more properties, you can sell it and enter into a 1031 exchange and buy a bigger property or you could purchase multiple properties.
It is in your best interest to deploy your cash now to create more revenue streams. In fact, anytime you purchase a property or an asset, having the mindset to monetize that asset will help you grow your wealth. Real estate is simply an efficient investment to do that.
My recommendation to people interested in real estate investing is to look at an area you like to vacation in and purchase a house, townhouse, or condo in that area that you can use. When you are not using it, place it on a short-term rental program such as Airbnb or VRBO.
This approach gives you a place to vacation and also provides you with a way to have short-term rental tenants pay for your vacation home. Thus, you have subsidized your vacations to your own vacation home, monetized your asset, and now have another stream of revenue that you are not having to work for.
To take this concept one step further with the vacation home above, in a year or two the vacation home will have increased in value, the debt will have been paid down and equity will have been created. Why would you not borrow from that vacation home’s equity and buy another property? Now you have scaled and now you own two short-term rentals. Welcome to the world of real estate investing. This is just one manner of doing it.
Other forms of real estate investing are syndication deals, where accredited investors can invest in apartment buildings for a stated rate of return and a pro-rata share of the profit on the sale or refinance of the property; long-term rental of single-family homes; long-term rental of multi-family housing; storage units; and the list can go on and on. The important takeaway from this discussion is that real estate investing has something for everyone. If you are not cash rich right now, you can be a real estate investor.
How can you be a real estate investor without having any cash to invest? House hacking is your friend in this case. Whether you are paying a mortgage every month or paying rent to a landlord, if you can rent out a floor or a room to someone and offset your current fixed outlay, you will be able to save more money each month, pay off your debt or possibly parlay those savings into another property.
Other avenues available to you are using funds from your IRA, 401k or other retirement vehicles for real estate investing. Mat Sorenson’s book, The Self Directed IRA Handbook, is the bible for lawyers like me to advise clients. There is always a way forward. Do not be worried that you don’t know enough about real estate to invest in it. Riding a bike is not natural until you do it enough. Once you get it, you get it for life! There is a way for everyone to invest in real estate.
How do you start investing in real estate? Here are my four steps to get you going:
- Start learning about real estate investing, whether it is by reading blog posts, articles, or listening to podcasts. Education is important on these matters.
- Go meet with a lawyer, a banker, and a real estate agent — learn how they can help you and become part of your team. Real estate investing is a team sport, and you are the captain of the team.
- Don’t be afraid to fail. Look at problems as opportunities. If the numbers don’t work on an investment, how can you make them work? Think outside the box. Don’t be afraid of the problems, lean into them.
- If you don’t know something, ask someone. This community is here to help everyone. I want to see everyone achieve success.
Good luck to you out there.
This article was originally published on Money Q&A.