Welcome to the Fearless Innovator Podcast, my name is Mechiel Kopaska and I am your host.
Today’s I’m going to review several ways you can invest in real estate but first. I want you to know that investing in real estate is NOT a get rich quick scheme. It takes loads of time and financial education and constant learning to stay on top of all the changes and all the pivoting going on in the market.
I will cover Note Buying, Private Lending, Rentals, Flipping, Short Term Rentals
Here are a couple of other things to consider.
What’s your age? I’ve had several retirement aged people ask me this very question. Hey, I’m getting ready to retire and I want to invest in real estate. What should I do? Of course, I’d have to dig into their specific situation but on the surface, starting to invest in real estate at retirement, right after you’ve quit your job or closed down your business and you intend on living off of social security – this would be a disaster situation. However, I’m sure there may be some who have built up nest eggs, in that case it may be plausible for someone to invest in real estate especially if they do not intend on living off of their nest egg while it works for you. If you fall into this category, then perhaps you invest in something like Note buying or private lending if with a return on your money and you can sit back and watch it grow. If you have money sitting in an old IRA that’s not doing well, you may consider moving it into a self-directed IRA and putting it to work by buying real estate or partnering with an investor that would offer you a decent return on your money?
There are qualified note buyers in the market – just do your homework before partnering or your homework if you seek to do this on your own.
Private Lending is also a viable option. This is where you can lend your money to another investor to partner on a short term (less than 1 year) or a long-term deal that may have higher yields. You can do this inside a Self-Directed IRA or money that you have in a under performing savings account at less than 1%. The interest rates will vary based on the real estate transaction. There are always people looking to find individuals that have money sitting around doing nothing but gaining 1% on their money.
*Another warning – there are risks involved in both of these so be sure to use a seasoned real estate attorney to secure your position.
That leads me to Risk Tolerance!
What’s your risk tolerance? If you have a high-risk tolerance and you want to be involved in the process, in other words you want a J.O.B, perhaps flipping is a good mechanism for you? Why is flipping high risk? Several reasons –
1) The purchase of the home is where you make your money. If you buy this home too high you’ve already lost the game. How you purchase a home at the right price is another episode, but typically a great deal can be made when negotiating with the seller directly.
2). Budget – determine what your budget for the rehab is before you purchase the home. It’s best to bring your contractor to the home prior to purchase to determine all costs – there is such a thing as scope creep – a Project Management term which means you budgeted for the 6ft panel door but decided you liked the look of the new sliding barn doors because you think the house will sell for much more. Not so much!
3). Timeline – If you just borrowed hard money with 4 points at 10% interest you are now paying a lot of money on a monthly basis to borrow this money. The name of this game is get in, get it done and get out in the least amount of time as possible! Why? You’re now paying a high monthly mortgage payment, you’re paying Insurance costs and property taxes all considered as holding costs. People forget about these costs! OH, and let’s not forget how fluid the real estate market can be. Let’s say you entered into this flip the market was moving along great, but then 4 months later the market starts to soften and now you thought you were going to sell at $185,000 just became $165,000 – there goes your profit!
Do you want to earn passive income while you’re still working? Passive income is income that requires minimal labor to earn and maintain, this can equate to rental properties. There are other options but this one most can relate to.
Why do you want passive income? 1). Your renter pays off the good debt(mortgage) for you. 2) You’re taxed at a lower rate on income taxes. 3) Depending on your lifestyle, you could determine how many rentals it would take to get you out of the rat race – which means you could quit your J.O.B.
Another passive income idea is Short Term Rentals – The income you receive monthly is considered passive. Perhaps, you have an extra room to rent. Great – there is a little work required to get the room furnished and then setup on your choice of Short-Term Rental platforms and if you use a service, there’s little to no work on your part, but collecting a paycheck. You can even have a Short-Term Rental out of state. I did this in Gatlinburg, TN from Florida. I did have a few hiccups in the beginning but then I got them all ironed out.
How much money would you be willing to invest?
*Warning – do not use your nest egg to begin investing.
I had a small amount of money sitting in my Self-Directed IRA and I thought for sure, I’d have a hard time finding anyone that was willing to take such a small amount. I was wrong, I found a guy in my network that’s using the money towards expenses on a flip and he’s giving me a great return on my money, even better he’s going to continue to use my money for 5 more years. When it’s due he puts my initial investment plus the interest back into my retirement account. I’m 57 now, so in 5 years I’m closer to retirement, and maybe then I’ll take it out and use it but for now it’s baking!
I’ve just covered the surface on ways to invest in real estate. It’s clearly up to you how much work you want to put into it, how much you have to invest and what your risk tolerances are. In the end, you weigh your options and then dive in!
Thank you for listening, I hope you were inspired, entertained or you learned something new!
While I’m on my 3 month adventure in my RV, I’m out riding around my home state of Iowa looking at Freedom Rocks but my real estate business is on auto pilot and I’m producing income If you want to know how, reach me at www.fearlessinnovator.com or you can now listen to me on the Fearless Innovator Podcast. I can be found on Apple Podcast, Spotify and YouTube!
Catch me later…