by Sharon Hiebing | March 17th, 2010
Continuing my series about the multiple stream of income investments I own, today I will discuss real estate investing.
Due to the fact that I have a California state license in real estate, I have been most comfortable investing in single family homes that I can then rent because that’s what I know best.
What I love about real estate is that if you’re smart about it, then it can truly be an almost 100% passive form of income. So how do you go about being smart about it? A few key things:
- You make your money when you buy – with investment property, you never want to pay top dollar. Try to purchase in declining markets or markets who are in the very, very early stages of recovery. This way when you go to sell, you can plan to do so at the height of the market and make a killing. If you’re willing to do some rehab work on a property, you can also get better deals, but you’ll need to do some very precise number crunching to ensure you don’t spend more than you can earn back.
- Leverage as much as possible – I always put down the minimum amount of money on my investment properties that the bank will allow and that will allow me to cash flow. There’s no sense tying my money up in a property I darn well know I won’t be spending the rest of my life in.
- Cash flow is king! You must know how to calculate this! If you don’t, learn! It’s the number one mistake most investors make is they do not know how to calculate cash flow so they cannot properly assess if a property is profitable or not. Getting into a negative cash flow situation, in my opinion, is never wise, even in so-called high appreciation areas. Can anyone say California? You can never bank on appreciation, so make sure you are making money every month, not losing it.
- Property Management – when determining cash flow, I always include the expense for a property manager to handle my rentals. This is how it becomes almost a 100% passive income venture, because all I have to do 95% of the time is sit back and collect the mailbox money.
Whether you’re investing in single family homes, commercial buildings, or land, I truly believe with the right strategy, proper due diligence, and excellent team members, you can make a lot of money in real estate. If you have any questions about real estate investing, please comment below.
