I’ve received a lot of interest in my work since I began investing in real estate. For the most part, everyone I speak to agrees that real estate is one of the best investments. Everyone tells me that they’re interested in investing themselves. They tell me that they know it’s the wise thing to do, but that they don’t have the time, the money, or the knowledge.
Accompanied by all these desires to invest in real estate, is a long list of questions I frequently get asked. Rather than answer them individually every time, I wrote this article to help anyone who might have the same questions.
You’ll find these most common questions I get asked below, with answers.
1. How much money do you need to start? I elaborated on this in this article here, about how much money you really need to start. So to summarize it up, basically, it depends. It depends on your market, on your income, on how big of a deal you want to do. In some markets, $10,000 is enough, in other markets, you will need at least $100,000 and that still won’t be enough for a down payment. The short answer is that you can buy a property with no money down, little money down, and you can purchase the property in all cash at the full listing price.
2. When will the market dip? What will the weather be like tomorrow? We can estimate with some degree of certainty, but at the end of the day, we never really know what the weather will be like. Similarly, we never really know when the market will dip. And when it does begin to dip, we never really know when the bottom is. And once we reach what we believe is the bottom, we’re then stuck wondering: When will the market recover? I don’t worry so much about the market declining, though a downturn in the market does permit some very good deals to be had. Trying to time the market is one thing (no one has a crystal ball, even if they swear they do), preparing yourself to take advantage of a down market is another.
3. How can I get started? I’ve written several articles that you can find on this blog for getting started in real estate. Everything for searching for deals, getting your finances in order, and eventually what you need to know and have in your arsenal to finally being able to do your first deal. Feel free to browse websites like Redfin and Zillow to get an idea of the kinds of properties for sale in your market.
4. Is it difficult to make money in real estate? Yes and no. On my first deal I was cash flow positive $1000 a month from the moment I put tenants in, just a month and a half after I closed on the property. The same property appraised for $200,000 more a year later. People make immense fortunes in real estate, while others lose their fortunes and end up bankrupt. Either one of these people can be you if you bite of more than you can chew.
5. What is the single most important thing you need to be a real estate investor? The ability to not give up. Some years will be good, some years will be bad, and other years will be just gosh darn awful. The key to anything, and not just real estate, is to stick through it. Focus on your goal when things seem to be getting unbearable, and you will make it through to better times.
6. Is real estate a better investment than the stock market? I wrote about this here. Real estate can be purchased with little money down, it appreciates, it has intrinsic value, it provides a hedge against inflation, and provides other incentives such as appreciation and tax write-offs. The stock market, though a good investment vehicle in many cases, does not provide nearly the same benefits as real estate.
7. How can you make your portfolio “recession proof”? There are many ways to survive a recession. The most important thing you can do is diversify your properties. For example, owning a dozen homes in various different neighborhoods and markets will be a more stable investment than owning one large complex in one neighborhood, in the scenario that the neighborhood begins to decline. Also, being under leveraged is one way to survive a decline in housing prices. Keep cash on hand to be able to pay for your mortgages in the event that they are vacant for a considerable amount of time. I write more about recession-proof real estate investing here.
8. What is the hardest thing about investing in real estate? All the people you need to come together to make the process work out for you. You’ll need agents, lenders, contractors, inspectors, engineers, architects, plumbers, electricians, lawyers, title agents and everyone in between. Sometimes, and at least from personal experience, getting all these people to do their work on time and under budget is the biggest obstacle to investing in real estate. Which is why having a good team is so important.
9. Why real estate? There are a number of ways to make passive income and grow your wealth. However, nothing is as time-tested and true as real estate. There are many benefits to owning real estate. Everything from tax incentives to the passive income and stability that comes with owning rental properties. I highlight some of these benefits here. I like it because I’m investing in a lifestyle as much as I’m investing in individual properties. Personally, I like the passive income and the freedom that the income provides. I want to be able to leave my current job if I want to, I want to be able to travel when I want to. Real estate investing is real “get paid while you sleep” money. Of course, it can be many things. You can be as busy as you want to be. But it is one of the few avenues for passive income that exist in the world.
10. What are the risks associated with being a real estate investor? People can make it all in real estate and they can lose it all. There are risks associated with everything. Just as a W2 job might seem stable, you can lose it at any given time. Millions of people lost their jobs during the Great Recession. Nothing is certain in this world. For the most part, people fail when they bite off more than they can chew, and are over leveraged to begin with, dont have a good amount of savings to weather the storm, and dont educated themselves enough on the risks associated with real estate investing.
