Let your tenants build your nest egg for you…
Real estate investing can be a very lucrative way to get rich. I happen to know because I’ve been very successful at it, and I’ve been involved in it for less than a decade. I mean, how many other careers let you set your own schedule and pay you while you’re not even working? That’s why so many millionaires (approximately 90% of the world’s millionaires) happen to also put money into real estate.
In order to start out in the real estate investing business, I suggest getting a mentor to teach you the ins and outs and to help you answer questions that might come up along the way. To start out, consider if real estate investing is a career match for you by asking yourself the following questions:
- Am I prepared to commit to my real estate investment for the next 3 to 5 years (minimum)?
- Do I have the equity to qualify for mortgages?
- Do I have the money to make a down payment?
- Do I plan to purchase and renovate properties?
Property purchasing costs
- Do have I the capital to cover such as lawyer’s fees, taxes, and adjustment costs?
- If not, can I find a joint partner (a financial partner) to help me with my financing?
Property management costs
- Do I plan to manage my properties myself, or will I hire a property manager?
- Am I qualified and knowledgeable to do renovations and home maintenance myself, or will I hire a contractor?
What do you want in an investment property?
Property investments can range from family homes to condos—and from duplexes to multilevel apartment buildings. If you’re just starting out, start out small with the purchase of a condo, town home, duplex, or a single family residence in a desirable area of town. You can estimate the amount you’ll expect to bring in by researching costs of living and current rental rates for similar properties in the area. I did this by monitoring property rental sites like Craigslist and Angie’s List over a six month time frame—both prior to and after purchasing my property and putting it on the market for rent. For a more precise calculation of property income:
- Research what the current rental prices are for similar types of property in the immediate area (e.g., is it located downtown, near a university, on a transit route, etc.)
- Calculate the yearly rent for the whole property (i.e., for instance if you rent per room)
- Divide this total by the purchase price of the house + the monthly expenses (i.e., mortgage payment, insurance fees, property taxes, utilities if included in the rental price, etc.)
- If the result if higher than 8%, the percentage left is the expected income you will make from the property rental
On top of the regular monthly expenses you should also leave some wiggle room for:
- Home repairs or upkeep—approximately 5% of the monthly rent should be put aside
- Property management fees—will differ per hire
If your total is still showing a profit, then go ahead and purchase the property! Property investment is an excellent way to make a monthly income without doing a lot of work. Think of it as a way to save for your nest egg. In a sense your tenant’s are paying your bills—or your mortgage—every month they pay rent. In addition, the interest on any investment property is tax deductible, and you can further deduct any money you put into the house (i.e., repairs or renovations) from your income. Plus, your chances of getting a loan after purchasing investment property is greater as well—so you’ll be on your way to building your empire.