How Do You Start Investing in Real Estate?

How Do You Start Investing in Real Estate?


Today I’m going to talk about real estate
investing, which is something near and dear to my heart, as I’ve been a real estate investor
for about 35 years. And I will tell you something you can make
a lot of money in real estate, as I have. You can also lose money in real estate, and
I have done that too – through the savings and loan crisis in the 90s and the Great Recession. So I’ve got three tips for you. Number one is real estate is like a business. It’s not like the late night ads that make
it sound really easy. It’s actually, you’re going to be finding
tenants, you’re going to be finding properties, you’re going to be collecting rent, you’re
going to be evicting tenants and fixing toilets – so be aware of that. That’s number one. Number two is make sure you understand the
finances of real estate, because we’re here to make money in real estate. But if you don’t know how this works, make
sure you understand what is called cash-on-cash. Cash-on-cash is your net profits divided by
your investment. Maybe you have a $100,000 downpayment. Your profits, after all expenses, even the
mortgage payment, $3,000, $3,000 divided by $100,000, that’s a 3% cash-on-cash. Realize, different areas of the country have
different ratios. Texas might be around 10% cash-on-cash. In California, you’d be lucky to be break
even out the gate. So be aware of that. Which brings me to my third point, which is
understand why you’re investing in real estate in the first place. Because real estate can be a great investment
to build net worth, or to create cash flow. Very often, it’s not the same. Again, I’ll
go back to Texas. Texas, historically, has not appreciated that
much, but the cash flow has been really, pretty good. So you make your money through cash flow. In California, the cash flow has been abysmal,
but the properties have gone up in value, and so, you make them by appreciation. Realize, if that’s what you’re doing, if you
have California properties, for example, when you retire, you’re probably going to be selling
those properties, because selling the properties is really the only way to access that equity
without borrowing against it. And when you sell properties, of course, you
can do an outright sale, an installment sale, you can do 1031 exchange into a property that
has a better cash flow, or you can do something called a tax-exempt trust – charitable remainder
trust is the real term. Take a look at that. If you’d like some more information, look
at PureFinancial.com

Leave a Reply

Your email address will not be published. Required fields are marked *