Books On Real Estate Investing For Beginners
If you are interested in adding a few books to your current reading list, there are numerous titles on real estate investing. These books can provide information on the basics of investing, industry terminology, key strategies, and more. Here are a few books to help you get started:
The Book on Investing in Real Estate with No Money Down by Brandon Turner: The goal of this book is to start thinking like an investor. Turners insights help readers learn how to use other peoples money to make deals and how to make the most out of your finances.
Building Wealth One House at a Time by John Schaub: This book is all about methodology. If you are interested in learning how to buy properties, earn money, and replicate the results, this is a great read. With over 30 years of experience in real estate investing, Schaubs book is a great starting point for beginners.
The E-Myth Real Estate Investor by Michael Gerber This is the backbone of real estate investing. The E-Myth teaches beginners to look at investing from a new perspective. The book provides an overview of strong business practices and investing frameworks to help you get started.
To learn more about the best books for beginner real estate investors, read our full run-down here.
How To Find A Good Rental Property
Youre not buying a home
Well, obviously you are buying a home. Perhaps many. But thats incidental: what youre actually buying is a revenue stream. And the potential to make a profit.
Arguably the No. 1 mistake made by newbies buying rental property is to forget that. Theyre still admiring the countertops, solid wood floors and open-plan concept instead of focusing on the numbers.
But those numbers are everything. It doesnt matter how nice a rental home is you dont want to own it unless its going to make you a profit.
But it has to be marketable
Of course, that doesnt mean you should buy a succession of hovels. Though that might work if you have a large pool of potential tenants nearby who love hovels.
But, generally, you need to buy an attractive, pleasant place that plenty of people in the area will want to rent. You need to deliver that at a price they can afford. And you must make a profit.
That may well mean that you have to invest in fixing up a rundown home. But dont spend one cent more than you need to get a good return on your investment.
Theres only one thing to do if the purchase price plus the renovation budget wont generate a profit: Walk away.
Numbers? What numbers?
There are some numbers you know or can estimate with accuracy. For example, the purchase price of the property, your down payment, your mortgage interest rate and your monthly payments.
Research when buying rental property
The Power Of Leverage
With the exception of REITs, investing in real estate gives an investor one tool that is not available to stock market investors: leverage. Leverage means to use debt to finance a larger purchase than you have the available cash for. If you want to buy a stock, you have to pay the full value of the stock at the time you place the buy orderunless you are buying on . And even then, the percentage you can borrow is still much less than with real estate, thanks to that magical financing method, the mortgage.
Most conventional mortgages require a 20% down payment. However, depending on where you live, you might find a mortgage that requires as little as 5%. This means that you can control the whole property and the equity it holds by only paying a fraction of the total value. Of course, the size of your mortgage affects the amount of ownership you actually have in the property, but you control it the minute the papers are signed.
This is what emboldens real estate flippers and landlords alike. They can take out a second mortgage on their homes and put down payments on two or three other properties. Whether they rent these out so that tenants pay the mortgage, or they wait for an opportunity to sell for a profit, they control these assets, despite having only paid for a small part of the total value.
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Which Strategy Is The Best For You
When it comes to investing, there’s generally two schools of thought:
Modern portfolio theory teaches that a good investor diversifies their portfolio to mitigate risk. Following that theory, I would advise that you invest in several of the strategies in this post â both active and passive â as well as more traditional investments like stocks and bonds.
This strategy aims to minimize your exposure to asymmetric risk, where only one class of asset declines, and the rest increases. For most investors, this is the strategy I’d recommend.
The other strategy is specialization. This theory of investment states that if an investor has proven a process to generate outsized returns in a specific asset class, they should invest heavily in that class. It also offers the potential for higher returns,but also brings far more risk than modern portfolio theory.
Personally, my partner and I are following the specialization strategy, as the large majority of our net worth is invested in rental properties and startups â like the site you’re reading this post on!
We believe that with our knowledge in real estate, we can generate outsized returns while we’re in our 30’s, then shift to a more conservative approach like the modern portfolio theory later in life.
This strategy is not without its risks, of course, but we have the benefit of time to recoup our losses if things don’t go our way.
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Reits And Other Alternatives
For those who arenât inclined to go through the labors of sourcing, vetting, and selecting dealsâto say nothing of maintaining a property or dealing with tenantsâreal estate can still be a viable strategy for building wealth toward financial independence.
If you want to invest in real estate but donât want the headaches that come with doing so much work yourself, real estate investment trusts or other alternative deals may be just the ticket. These options are hardly the stuff of HGTV dreams, but they make it possible to invest in real estate with the help of industry experts. In fact, REITs operate a lot like a mutual fund.
In addition to traditional real estate investment trusts, recent changes in securities laws are also making it easier to invest in real estate using independent crowdfunding platforms. Using platforms like CrowdStreet or Fundrise, investors are able to invest smaller amounts of money in real estate deals that they normally wouldnât have access to.
Brrrr To Your Next Property
- 5 out of 5 stars 2
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Take a property, throw in a tenant, and watch the money roll in. This seemingly simple formula has attracted nearly two million people in the UK to become landlords, but the reality is a whole lot more complicated. How to Be a Landlord is a straightforward guide to everything involved in letting and managing a property. Frequently updated and with contributions from over 50 experienced landlords, this is the most current and comprehensive book on the subject – and essential listening for anyone who wants a simple, profitable life as a landlord.
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Buy, Rehab, Rent, Refinance, Repeat is the first book about the incredible strategy that’s sweeping the nation. BRRRR real estate investing has long been a hidden secret of those with decades of experience, but this audiobook will tear down the barriers, reveal the truth, and make financial freedom more attainable than ever. This audiobook will teach you an easy-to-follow plan that will grow your wealth quickly without letting a lack of cash get in the way of pulling it all off!
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Reits And Other Investment Opportunities
A real estate investment trust is a company that owns, operates, or finances real estate that produces passive income.
Many REITs specialize in certain types of properties, like healthcare facilities, commercial buildings, or apartments. The primary benefit of a REIT is that individual investors could start with a small amount of money and then add additional funds on a regular basis as their budget allows.
Investors could buy shares in publicly-traded REITs, REIT mutual funds, or real estate crowdfunding platforms. Several crowdfunding platforms have launched in recent years, including:
Each of the investment opportunities is tailored to slightly different investors. For example, you must be an accredited investor with a certain net worth to join Crowdstreet, while anyone with ten dollars or more could participate through Fundrise.
Some investing platforms allow more access to withdraw your money, while others will be more illiquid. By comparing Fundrise versus REITs, you would understand how this crowdfunding platform and similar platforms separate themselves from traditional REITs.
Real Estate Limited Partnerships
A real estate limited partnership is similar to a real estate investment group. It is an entity formed to buy and hold a portfolio of properties, or sometimes just one property. However, RELPs exist for a finite number of years.
An experienced property manager or real estate development firm serves as the general partner. Outside investors are then sought to provide financing for the real estate project, in exchange for a share of ownership as limited partners. The partners may receive periodic distributions from income generated by the RELPs properties, but the real payoff comes when the properties are soldwith luck, at a sizable profitand the RELP dissolves down the road.
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The Complete Guide To Real Estate Finance For Investment Properties
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Real Estate Investment Strategies
You may be right. But dont forget: Those risks may be lower than with some other investments. Those obstacles are designed to help prevent you getting into trouble. And that work is optional. Because you can choose to avoid it by hiring others to manage and maintain your investment properties. Trouble is, that will eat into your profitability.
Other investment vehicles
Still, if youre questioning your suitability as a landlord, you might want to look at alternative ways of investing in real estate. Here are some:
These all come with varying levels of risk, which may be associated with the returns they offer.
The Moving On Up Strategy
One popular way to begin buying rental property is not to buy a rental property. And thats not as oxymoronic as it sounds.
Because with this model, you rent out your existing home and buy somewhere bigger and better to live. Your tenant pays your original mortgage, effectively buying that home for you. And you get to live somewhere larger, more comfortable, more prestigious or perhaps more convenient.
The advantage is that your financing for the rental is already in place, and at the more favorable terms of primary residences. In fact, if youre considering this strategy, and you can improve on the terms of your current mortgage, refinancing while the house is still your primary residence could be a good idea.
Often, theres nothing not to like. But there are some potential drawbacks and a number of rules you should follow:
Drawbacks to moving on up
Most of the drawbacks to moving on up are the same as those for all rental properties: The risks of extended rent-free periods between tenancies and the possibility of having a bad tenant.
But theres one tax implication you should bear in mind. Suppose you have substantial equity in your existing home.
That sum is not currently taxable, because your gain has been made on your principal residence. If you sell it now, youll likely pay nothing.
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Potential Drawbacks To A Real Estate Portfolio
While returns from real estate can blow the stock market out of the water and help you build wealth and passive income quickly, this investment isnât without its disadvantages.
For one thing, thereâs the carrying cost. If you take out a mortgage to buy your rental, your bank doesnât care if your tenant moves out, they still expect their mortgage payment every month. Even if you get laid off at work, youâll still have to pay the taxes. This makes it incredibly important that you keep your properties rented so they keep providing cash flow.
Itâs also critically important when youâre choosing a property to make sure you understand whether itâs part of a homeownersâ association . If it is, you may get hit with additional expenses in the form of dues, assessments, or maintenance costs. In some cases the HOA is like $10 month and basically just covers meetings for people to decide whether you’re allowed to paint your house teal or bright orange. Others can be very oppressive. These costs can reduce or eliminate your cash flow, so itâs important to know the costs before you pick a property.
Even with its drawbacks, real estate is a powerful tool to reach your goals. If youâre trying to build wealth to achieve financial independence, real estate is a phenomenal way to go. Real estate investing can help you steadily build your nest egg with relatively safe assets that arenât affected by the daily ups and downs of Wall Street.
Buy Rehab Rent Refinance Repeat
The BRRRR method of real estate investing focuses on rental properties. Investors search for distressed and under-market properties that can be repaired or upgraded in order to appraise for a higher value upon completion. Under-market properties might be available at a discount compared to the properties around them. For example, while neighboring homes might be worth $150,000 to $200,000, the home youre looking at is selling for $120,000 due to a divorce proceeding that requires a quick sale.
Once the property is ready, the investor lists it for rent. After a tenant has occupied the property, the investor could refinance the real estate based on the after-repair market value. A refinancing loan may allow the investor to start the BRRRR process all over again with another property.
Money is made with the BRRRR method in three ways:
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Home Equity Loans And Lines Of Credit
A home equity loan is a loan on the equity youve built up in your primary residence or other properties.
You essentially get to tap into equity you already have in your property without having to sell the house to receive that money.
For example if you bought a house years ago for $80,000 cash and its value is now $100,000 due to appreciation, you would have $100,000 in equity to pull out of the house.
The bank may finance 90% loan to value though so you would receive 90% of the $100,000, giving you $90,000 in an equity loan to spend on your investment property purchase.
If you already had a $50,000 mortgage on your home, then you would be capped and could only borrow $40,000 as this would bring your total amount owed to the bank to $90,000.
Banks may offer different types of products such as a Home Equity Installment Loan or a Home Equity Line of Credit . A loan and a line of credit are two different products.
The downside to using home equity loans is when the housing market goes down.
During the housing bubble in 2006-2011 many homeowners were taking out 100%+ equity loans on their home and when home prices started falling they were suddenly underwater owing more to the bank than their property was worth.
Using home equity loans and lines of credit have multiple benefits over traditional loans, including:
You dont have to take out the full amount allowed by the bank.