What is a good way to build a retirement nest egg? Many consider investing in real estate to be a great way to build financial security. Unfortunately, only 15 percent of Americans are actually investing in real estate other than their primary residence, according to a real estate investing study by RealtyShares. So what is holding people back?
Many Americans believe that investing in real estate is too difficult, too costly or beyond their capabilities. Rest assured, there are safe ways, easy ways and inexpensive way to invest in real estate – if you do your homework and prepare. Give the Lise Howe Group a call at 240-401-5577 and let us share our experiences and those of our clients with you.
What Is Real Estate Investing?
Investing in real estate means buying property to earn income and build wealth, either on your own or with the help of real estate investment companies. Many investors own more than one property, and their earnings include rent paid by tenants and the equity they build through appreciation. Investment property owners have different tax considerations for their investment properties than they do for their primary residence.
Investing in real estate doesn’t have to be intimidating. Here are four ways to start investing in real estate now.
Rental Properties
Buying rental property is one way to get started in real estate investing. Buying a rental property starts with choosing the right property, and then finding renters, maintaining the property, dealing with tenants and collecting rent each month.
One stumbling block might be locating an affordable property worth investing in. In some places of the DC market, home prices have appreciated so much that it may be difficult to find a lucrative deal. While it might be fun to own that cute condo in a hot section of DC, the rents – while high – might not cover the mortgage and condo fees. Instead, a small townhouse in Gaithersburg or Germantown – while less exciting – might be the better choice. A rental property should be able to carry itself and still provide a cushion for repairs. I personally think that buying a property with the expectation of appreciation is a bad idea. Markets go up and down, but an investment property with good rental income weathers those cycles.
Rental properties not only provide rental income, but also tax benefits not available with other investment opportunities. An additional advantage is that you have more control over your rental property than you do over investments such as the stock market. As the Rich Dad, Poor Dad author, Robert T. Kiyosaki, noted, you can’t do anything to improve the value of your General Motors stock, but you can landscape your rental property, remodel a bathroom, or paint it and add value to it.
Live-In Flips
House flipping involves buying a property at a discount, improving it for the purpose of appreciating its value, and then selling it at a profit. A live-in flip is a property the investor lives in while renovating it.
Living in your flip benefits you in three ways: First, you can make money when you sell the house later; second, you avoid having to pay for a separate home to live in. Third, you can use better financing vehicles for the purchase and repair.
“Flipping a house—acquiring, repairs, and selling—can be completed in six months and result in a substantial payday,” says Lucas Machado, real estate investor and founder of Home Heroes, LLC. “Flips can earn tens of thousands of dollars in a short time frame. It’s the best strategy for those that need capital in the near future.” Talk to your accountant however about the tax implications of turning your principal residence over frequently!
This can be a good opportunity to buy that charmer in DC with lots of potential like this one in Hill Crest Heights which I listed on Alabama Avenue and is currently under contract. Solid homes sold in as is condition in Montgomery County or northern VA can offer great returns on your investment too.
I am excited to add that I finally have a great construction company that I work with who is perfect for anyone looking for a flip opportunity.
REITs
Real estate investment trusts (REITs) are a special form of security that invests in real estate. Unlike most other investment vehicles, REITs must pay out at least 90 percent of their taxable income as dividends to investors. When you invest in a REIT, you’re essentially paying a professional management team to do the work of investing your money in real estate while you reap the profits of REITs.
REITs are an easy way to invest in real estate because you don’t need tons of money. You have to do your homework on the REIT, and then this can be an easy way to invest in real estate.
Multifamily Homes
Multifamily properties are buildings that house more than one family. The fact that people always need
a place to live results in consistent demand for rental units regardless of the overall economic environment.
Investing in multifamily homes can be lucrative if it’s done properly. It is hard to find a good property in the DC area because prices are so high. In addition, in DC there is rent control which can keep rent prices down and tenant protection laws which can slow down the purchase process. There is also rent control in Takoma Park, another place with a good supply of multi family buildings. My favorite location for multi family buildings is Baltimore City, because prices are lower than DC and Takoma Park and rents are good. It is important to work with a knowledgeable Realtor however since location is key in Baltimore to a good investment property.
If you live in the property yourself, you can get an FHA loan and only have to put down 3.5% for a down payment. While you live in this property, you will be living either for free or heavily subsidized by renters. When you move out, you can still keep your FHA loan. In about 30 years, once this property is paid off, your cash flow will be quite substantial—just in time for you to start thinking about retirement.”
