Real Estate Investing
In today’s episode, our guest, Ron Phipps, joins Monica to talk about how to get involved in real estate investing, and to discuss the benefits and the best ways to get started. Real estate investing is a great way to build wealth and to prepare for long-term cash flow for the future. This is a great opportunity for real estate agents, investors, and the general public. In addition to the benefits, Monica and Ron talk about some of the downsides to real estate investing, and the risk involved with different kinds of units.
The big picture: Why is it so great to invest in real estate? The history of real estate investment goes all the way back to the founding fathers and their recognition of the value of private property rights. They understood that self-reliance for citizens was important, and property is a very effective tool by which the citizens can become financially self-sufficient and independent. Ron talks about the difference between the net worth of families that own property versus renting property, as well as the difference between generations, to show how real estate investing can be an effective tool for saving.
Ron and Monica talk about the importance of real estate for your overall long-term savings portfolio. Real estate has a lot of functionality beyond monetary gains, since it provides one of our basic needs. The demand will continue to be there, as we all need a place to live. Ron breaks down some numbers in terms of population size and family size to support the increase in demand. It is important to work with a real estate agent who understands the investment piece and the demographics to be successful (understanding which types of units are necessary, amount of space, etc).
Some of the benefits of real estate investing: First and foremost, it is a very good way to create wealth and also have flow. You don’t always need a lot of money to put down, up front. It is one of the few vehicles where you can leverage the money for a more expensive asset, and use money earned from rent or other expenses to pay off the mortgage. In these situations, you have appreciation and depreciation at the same time. Additionally, you have an asset that in the longer-term will appreciate. Real estate is a great way to build wealth and be able to pass it down through generations. For some, the fact that real estate is a tangible asset can provide a great sense of comfort and relief to those who invest.
What are the different motivations when picking a property? Some people opt for a property that cash flows all the time, where other people are maybe more concerned with a property being easy to manage, and not make as much. You have to decide what you’re trying to do by investing. Ron talks about the aims of international investors, as well as some different factors to consider when deciding how you are going to invest. Once you know what your end goal is, it is critical to find a Realtor® that knows about the investment side as well as the market area.
It is also critical to be a real estate agent that knows about the investment side. The National Association of Realtors® has come out with a course that has two focuses: the first is to encourage Realtors® to make investments, and the second is to train them on the vocabulary of real estate investment and what strategies they can use to help their clients. The investor is a more reliable (and frequent) customer than a family looking for a house. As Realtors®, becoming an investor can help you focus back on your core business, and can also help you be more qualified to help your clients make sound investment decisions. This includes providing your clients with a network of resources to help when problems arise, as well as discussing disadvantages with their clients.
Some of the disadvantages of investing in real estate: 1) lack of liquidity, 2) you can’t sell the property overnight, 3) there are risks and expenses, and 4) the variability of market conditions. As an investor, it is important to be aware of these things.
There are a lot of avenues for financing. Ron talks about some of these different avenues — including researching smaller entities for better lending, leveraging other properties, and using IRA money to fund investment property. Depending on where you live or where you feel comfortable investing, you can start with small numbers. Keeping your original properties can help increase your cash flow as well. Monica and Ron again talk about the importance of getting together with a professional about what goals you’re trying to accomplish, and doing due diligence to cover all your bases.
Some important things to consider with your investment property are the cost of maintenance, insurance, and current rent rates. After considering these things, if the numbers don’t work, you may want to consider moving on to a different opportunity. It is important to be disciplined about these numbers to help ensure a successful investment.
There are many opportunities for building your education in real estate investment. Ron recommends the class Building Wealth, Representing Investors, and Becoming One Yourself. This one-day course will provide resources, tools, and networking to help realtors secure their future through investing. Monica suggests the Real Estate Investors Networks (REIN) — look in your local area for these networks. There are many additional opportunities in your local communities as well as within the state. Explore the different opportunities around you to see what kind of education you can find, or financial assistance. The National Association of Realtors® is a very valuable tool for understanding different market areas and demands.
Ron’s final advice is to use common sense and engage the professionals to help you in your pursuit. Real estate is a great tool to become financial independent, but the professional advice will make the journey a lot less painful.