After the real estate bubble burst in 2008, many people were scared away from investing in real estate. After all, they thought real estate could never go down. That was many people's belief up until that crash. Maybe they bought a home at the peak, and got crushed. It's unfortunate.
The problem is, many of these people were flippers investing for capital gains, and not investing for passive income, which is the real reason to invest in my opinion. Real estate offers passive income, meaning you make money every month without really having to do anything (after a little bit of work in the beginning, of course).
There are still plenty of reasons to invest in real estate, and I hope I can convince you.
Why not? Interest rates are negative. You can get a 30-year mortgage at less than 4 percent. When else in history could you have done that? Do you think rates will be that low in 10-15 years? I think not. Since inflation is around that 4 percent range, that is basically free money. The Federal Reserve has said they will not raise interest rates until at least late 2013 as well, to boost the economy. So you have some time to lock in these ridiculously low rates.
Question: Isn't the economy bad, though? What if we have another 2008 scenario?
Answer: More people than ever are now renting after the events that transpired in '08, according to many experts. Affordable housing is where it is at, in my opinion.
People have been scared away from buying homes. They can't afford to buy and don't want the committment. Many also got foreclosed on, unfortunately. I believe that multifamily homes that are affordable for tenants are the best bet going forward. Think $500-600 a month rent.
The truth is, not everyone should own a home anyway. We've learned this the hard way, and this was one of the reasons for the crash. I can see more and more people wanting to rent than buy going forward.
Question: How do I make money investing in real estate?
A: Investment real estate has always been a top choice for building wealth for many people, and it still will be going forward! The advantages to real estate are plenty. The main goal is passive income. There are 3 basic ways you can make money investing in real estate:
Cash flow is the money you put in your pocket every month after all the expenses are paid for. It's the total rent, minus expenses, debt payments, etc. You want to find a property that is positive cash flowing. That is a MUST!
Loopnet.com is one great site to browse properties. They will show you the projected Net Operating Income for the property. (Note that NOI is not the same as cash flow, because it does not include your mortgage payments).
Equity buildup - your tenants are paying your mortgage. It's that simple. After a couple of years you may wish to take some of that equity out for other real estate investments. Even if you just keep it there, you are building your net worth every year!
Asset Appreciation - Of course, your property can go up in price on its own. Historically, home prices went up about 2-3 percent on year per average. Then of course the crash happened. I do feel as if we've reached a bottom or are close to reach a bottom in housing prices.
My advice is to invest for cash flow and equity, and not to worry about appreciation. Invest for income and for the long-term and you will be fine.
There were many people who "flipped" houses before the crash and made money, but then got crushed when it all kept tumbling down. I would recommend against even thinking about trying to flip homes.
A: I would say to do a lot of research and reading before you decide that real estate is for you. Everybody has different circumstances, so it is impossible to give advice to people unless you know their situation. I do feel, however, that real estate is the single best investment there is. The advantages are plenty - besides the three ways to make money outlined above, there are also many tax advantages!
There are several great, free resources online. Besides Loopnet, Trulia and Zillow are both great sites for browsing.
I also recommend you check out my list of the Top 5 Money Books of All-Time. The key is to acquire knowledge beforehand - this takes away a lot of the fear you may have. Everything is scary at first - the unknown is always scary. But reading and gaining experience is a must, and you can't do that without at least giving it a try!
A Great Read on Real Estate Investing
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