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First Steps in Real Estate Investing
With all the stories of people making
tremendous amounts of money in real estate it's no wonder
why so many are looking at real estate as an investment
vehicle. It offers more security than the stock market,
provides great potential returns, offers tax benefits
and let's not forget; it sounds cool to be 'in real
estate'. Everybody can buy and sell stocks from their
phone or computer these days. But real estate, now that's
something else.
One of the challenges that many are
faced with is putting up the money to acquire a piece
of property. Although in reality this is usually not
the biggest obstacle. You might say "Hey, what
do you mean, not an obstacle. I would love to invest
in real estate, but I just can't afford to!" The
point is that hardly anyone who buys a piece of real
estate has enough money in their account to pay for
it. That's where your banker comes in. Let's face it.
Do you know anyone that owns their own home? I mean
truly own it? Probably not. Sure, you know a lot of
people that have a house to their name, but wait until
they get behind on their monthly mortgage payments and
you will soon find out who really owns their house.
That's right, the bank. So if these people can use the
bank's money to buy a house, why can't you?
Now 'owning' your own home may sound
like a somewhat obvious way to get started in real estate,
but it is also a very good way to do so. You might say
"Duh..." But apparently this little step is
overlooked by a lot of people. Just take a look at how
many people are still renting a property instead of
buying one. Now of course the relation between rent
and housing prices varies from country to country and
even from area to area. But wherever you go you will
still find people renting, because in their mind "they
don't have enough money to buy a house." In reality
it would be much cheaper for them to buy!
When you rent, you are pretty much flushing
your money down the toilet. Of course you are getting
the pleasure of living, but the point is you're not
building anything long term. Every dollar you spend
on rent is a dollar you will never see again. Whereas
if you own your own home, instead of paying rent you
would be paying for your mortgage. Even though there
is a lot of variety in mortgages these days, the basics
of practically all mortgages are more or less the same.
Every month you make a payment which consists of two
parts: interest and principle. The interest part can
be compared to rent. Those dollars are gone with the
wind and you will never hear from them again. However,
the part of the payment that goes to the principle is
money you keep. Every dollar that is used to pay off
the principal is a dollar you put in your own pocket.
So if you're thinking about getting
started in real estate and you don't 'own' your own
house yet... Change it, and get some experience. It's
a great first step towards building your capital and
in many cases, it just makes more sense financially.
It can also supply a range of opportunities for accelerating
the process of building your net worth. When real estate
prices go up, so does the value of your property. Whereas
the money you owe the bank, your mortgage, remains the
same. In other words this helps you build your net worth.
Compare this to people that are paying rent... Their
net worth does nothing. However their landlord's net
worth is doing very nicely in this scenario and he or
she will probably love you for it. So if you get a warm
fuzzy feeling about making somebody else rich at your
own expense... Keep renting. If you would rather build
your own capital instead... Buy your own house!
Many home owners have accumulated more
money through appreciation of their property than by
working a full time job for many years. Now before you
go out and buy the first property you lay eyes on, don't
forget that some security measures are in order here.
As you may or may not know, real estate prices do not
always go up, and certainly not in a straight line.
Yep, this can be shocker to some people, as well as
an ugly reminder for those who overlooked this minor
detail in the past. If for some reason you would have
to sell your home in a down market, it can be a costly
adventure. You wouldn't be the first to end up with
a house worth considerably less than the mortgage resting
on it. So make sure to keep some slack. In the long
run real estate prices have always been on the rise,
but in any cycle there are down periods. By keeping
some slack and being patient you will be able to sit
through these times and profit from the long term up-trend.
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