Real estate investors have become a cliché during the past 3-4 years. It seems like everyone you talk to is a real estate investor or knows someone who is. What makes real estate investing so popular? In the past few years you could do no wrong with real estate. With profits in the five and six figure ranges, one profitable real estate deal would exceed most people’s yearly pay.
On Risk and Effort
However with great reward comes great risk. That risk can be mitigated and controlled if you are investing correctly. Unlike paper assets, buying real estate is not a simple process. You cannot just log into your brokerage account and point and click. It also requires additional work, sweat equity or even more money.
How You Make Money
You make money in two ways, cashflow or capital gains. This is the same as buying high yield stocks or buy low and sell high. When it comes down to the math, real estate investing is pretty easy.
For cashflow, buy property in which the rent will cover all your monthly expenses (mortgage, taxes, insurance, management, HOA, maintenance and repairs). For capital gains, buy low enough to resell at a price that covers all your expenses (holding costs, realtor commissions, closing costs and repairs). Purchased correctly you can get both cashflow and capital gains with your investment property.