At Housebarons.com we have discovered a few paths toward financial success with real estate. This comes after more than 5 years of taking on real estate investment opportunities from house flips, sales and landlording. We got into to this gradually but after five plus years of doing this as a business, I’d say we are believers in the profit potential which real estate endeavours offers. While there may be many different ways of achieving financial success with real estate, we are going to show you why we chose to dive into the real estate pool. The following is our list of 6 tips toward financial success with real estate and why we find real estate worth the investment.
So can you achieve financial success with real estate ?
1). The short and simple answer to this question is this – everyone has to live somewhere and because of that fact, demand should really never go away. People DON’T have to own stocks. People DON’T have to buy gold. But having a place to live is on everyone’s short list. Because everyone is looking for a place to live, we can provide for that very basic need. That fact alone makes it an attractive investment vehicle when trying to achieve some financial success with real estate as an investment vehicle.
Real Estate as a growth vehicle.
2) Real estate provides a great growth vehicle to achieve maximum returns if you have the right information, skills or even a willing heart to learn.
Just this week I was looking over the options my daughter had available to her in her 401K at her new job. One of those which caught my eye was a Vanguard REIT. For those who prefer to have someone else invest for them, a REIT can offer an opportunity to profit in the real estate sector and in 2016, the entire sector was up over 15%. A REIT may be the right choice for someone who likes real estate as an investment, but would feel overwhelmed by the prospect of owning individual properties.
A Solvable Mystery
Though the hope of financial success with real estate seems possible, it is also true that real estate can be daunting at times. For the uninitiated, the domain behind the walls of a house can seem like a mystery. Just exactly how an appliance actually functions or how systems connect to the house as a unit can seem like a puzzle that only those in the trades can solve. But since the advent of Google and YouTube, those mysteries quite easily unfold. Once unwrapped, the doors of opportunity swing wide!
Financial success with real estate with the help of a General Contractor
My eyes were opened to this fact years ago when I read a book about building your own house. In it, the author claimed that if you functioned as your own GC or general contractor, you could potentially save 15 to 25% on the cost of building your own house.The job of the general contractor is much like that of a conductor of an orchestra. The conductor tells which part of the orchestra to begin and at what particular time and tells others when they should join in or stop.
The GC makes sure that all of the trades begin at their appropriate time and do the appropriate work. It is not the job of the general contractor to dig the holes, to lift the beams, and to swing the hammer. The job of the GC is about details, setting schedules and overseeing quality. In no way am I saying that the job of the general contractor is insignificant. Far from it. But if you have the skills to oversee details and to plan, then the playing field just got very level. It’s not a matter of young or old, male or female, strong or weak. It’s about knowledge. If you have the skills or you are willing to learn then your job your project may just have gotten 25% cheaper.
GC Plus DIY
The book went on to say that you could then increase your chance of financial success with real estate EVEN FURTHER. If you knew how to do a little swinging of the hammer, a little of any of the trades – plumbing, electrical, carpentry etc. or even general help – you could increase your profits even more. Potentially, an individual might lower the total cost of a building project as much as 40%. So imagine that you work on a project for a year and you figure out ways to save yourself 15-40%. Even in the ranks of Wall Street professionals, those are annual returns on investment which are worth a second look!
Real estate is relatively easy to understand .
3). That can’t always be said of many investment vehicles. Take for instance stocks. Picking a stock and understanding which particular company is worth investing in is not often a simple task. Picking a good stock involves understanding the company’s balance sheet. It involves P/E ratios. You need to know how much debt the company is carrying. Is the company growing relative to its peers? What’s the beta of the stock? Is the stock overbought, oversold or fairly valued? Does the company post strong growth each quarter. Is it growing year-over-year. Are you looking for dividends or growth.
All that being said, it’s quite difficult to just look at a company, walk in to a store, or Google a stock symbol a make a snap judgement. Simply by looking at it, it’s tough to know whether or not a company’s prospects for financial growth are exceptional. But generally speaking, a house reveals much to the inquirer.
The Eyes Have It
When looking at a house it doesn’t take super deep research to find a few clues toward financial success with real estate. Just by looking around, most people can generally assess if a particular house is in good or bad condition. When looking at a location it doesn’t take a great deal of understanding to tell if the house sits in a location that is attractive or a location that’s undesirable. And in our experience, real estate opportunity really does boil down to the old adage – location, location, location.
Certainly there are always levels of understanding. You can always dig deeper and you can always learn more. But even to the casual observer, looking at a property or rental or a house to purchase often begins simply assessing the quality of what you see sitting right before your eyes.
The right kinds of real estate investments provide evergreen returns.
4). When it comes to real estate, rental income can be regular, growing, and potentially a significant source of income with minimal time requirements, or in other words: evergreen (or long lasting).
When done the right way, a rental property can be the closest thing to building your very own ATM machine. Now, being a landlord is not for everyone. But it does have its advantages for those who are willing to do the hard work to get this ball rolling for them.
We got into the rental business somewhat unintentionally.
Our Discovery
Our entrée into the house flipping world started be requiring extra resolve. We began with a burned-out hovel of a house that we virtually rebuilt from the ground up. The house, when finished, had all new systems with many upscale finishes inside. After finishing the work renovating the house (which took just over a year), we decided to list the house at a premium price. We figured that if we didn’t sell it quick we could rent it. After a couple months on the market, a family happened to drive by the house who expressed an interest in renting the house. And so we began.
We were novices in the world of landlords, but one thing we learned from this experience was something we fell into. A brand new or mostly new house with all new systems makes for very easy landlord work. And this has become our formula – our formula of financial success with real estate. Having a house in top condition with premium finishes makes for a very desirable house with VERY LOW landlord maintenance. And because we had put in so much sweat equity into the house, our first rental became a cash-flowing juggernaut. So then, adding to the adage of “location, location, location was a look at great condition. We serendipitously figured out that a rental with location AND in great condition made for the ultimate winning rental formula. And this was the secret to providing evergreen returns.
The Tax equation.
5.) In business and investing, taxes are always an issue. Another reason “why real estate” is for us has been the tax benefits. First,let me say that I’m no tax expert. (Therefore you should consult your own tax professional before entering into any investment). Stiil, from what I understand, there are some nice tax benefits to owning real estate. Specifically for us, having rental property brings the added bonus coming in the form of tax breaks. These “breaks” are found namely in the magic of depreciation.
In generic terms it works quite simply. The value of the rental property is depreciated ( per IRS guidelines). This is accomplished by dividing 27.5 years of useful life into the property’s market value. Then you arrive at the yearly deduction or yearly depreciation that offsets from the rental income you receive. In essence the IRS makes it attractive for you to rent your property. (Remember this: What the government gives, it always has a plan for taking back! The IRS plans to recoup this depreciation when you sell the property. Then, all this depreciation you received would be considered taxable capital gain or profit.)
A Winning Formula
Nonetheless, all this can become a win-win-win-win situation.
You could win by:
– receiving rental income – in other words, the renter is paying your mortgage.
– by receiving taking the depreciation / tax break from the IRS against that rental income.
– because of the historical appreciation of property each year. In other words your property may grow in value each year. All the while you’re also getting to depreciate your property on your taxes.
You could even win if you may never have to claim the profits or pay tax on the profits of these properties. But to do so, you pass the properties on to your heirs at your death. (But this has some twists and turns to it. First consult a tax professional who can walk you through how things will play out in your individual situation).
Real Estate allows you the opportunity to be your own boss.
6). In this modern business climate, the employee is many times viewed as an expendable tool. Loyalty between worker and company is little more than an artifact from a bygone age ( unless you are part of a very special company). The result is an uncertain future. One remedy is to strike out on your own. This takes a certain kind of personality. This also brings a unique combination of risk and rewards.
The risks are : you are the boss. That means you live and die based on your decision making. No more complaining about your stupid boss! You are now that guy, and being stupid is the fate you must strive avoid! There is no one left to blame. It is on you!
The rewards are – you are the boss.
You set the goals, you make your schedule and your hours. You decide how hard you will work and when you work. There is a lot of freedom here, and yet freedom tempered by responsibility and discipline.
Your Turn!
How would you appraoch a goal of financial success with real estate? Which kind of scenario is to your liking? Some prefer to not have to think about running the business. Others don’t ever want to have their head on the chopping block. Who wants to wait to hear the The Donald’s infamous phrase, ‘you’re fired’. What might seem like a capricious decision can leave lives in turmoil for months or years.
If you find yourself in some way motivated or intrigued by real estate investment, then financial success with real estate might be the path you’ll find. It has some enticing advantages – advantages that we have ultimately embraced, risks and all! It is not simple or easy, but with hard work, it is certainly achievable!