I believe investing in real estate to be one of the best investment vehicles. Investing in real estate allows you to receive passive income, put your money in an appreciating asset, receive many tax benefits, and gain equity in your property. I believe this is better than a 401k or IRA for the normal investor. Reason being, this gives you passive income, something that can replace your current income. So, if there are some bad years in the market and the price of stocks or housing values go down, it does not matter, because you are receiving passive income from your renters. When investing in real estate, you can get a loan from 3%-25% down and the bank will give you the rest on a mortgage. 97%-75%. Investing in stocks, you do not have this option, whatever you put in, grows, you do not get to use the banks money also.
The reasons listed above are why Sam and I are proponents for investing in real estate. We own our primary home and we are looking for a new primary home, so we can take advantage of the 2 year, tax free gains from selling our current house. We also have a duplex together and I have a slough of rentals with my partner Ryan. My partner Ryan and I have some long-term holds, some properties we are BRRRRing, and some flips. We are utilizing the good market right now to build our portfolio.
We talked about real estate investing on episode 5 of our podcast. We discussed different types of investing, what metrics to look for, and the perks of investing in real estate. If you want to hear a more in-depth talk, feel free to check that out.
Our main metric we look for when purchasing, is the 1% rule. The 1% rule means, for every $10,000 a property costs, you need $100 a month in rent. So, a $100,000 property, should bring in $1,000 a month in rent. This is an easy metric we look for to get an idea if the property is going to cash flow. There are a lot of variables which affect cash flow however. Some things are, vacancy rate, maintenance, capital expenditures (big maintenance/updating), rents, market values for rents, property management fees, property taxes, insurance, HOA fees, and more.
We utilize Bigger Pockets calculators to calculate how good of deals we can expect to receive. When we run our analysis, we type in all of these factors, to get a sense of our cash flow at the end. There are all sorts of tools like this out there but this is the one I choose to use. It is very important to analyze deals before purchasing real estate investments. A property can easily go from a cash flowing property to a cash taking property if you do not analyze and account for most things. As long as you do your due diligence, investing in real estate is one of the best investment techniques you can have.
There are a lot of resources to learn about real estate investing, probably the biggest one being Bigger Pockets. I recommend checking them out if you have an interest. I will discuss in more length in following blogs about different ways to invest in real estate and their perks.
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