Real Estate Investing is generally a low risk investment. For most people, houses make up the largest percentage of their wealth in retirement.
It usually requires a longer time investment because you can’t easily sell your property compared to stocks. It’s considered a more active form of investing, but there are ways to mitigate this.
Real Estate Investing is generally a low risk and long term investment strategy.
A lot of the risk is involved with how you are investing in Real Estate. Each strategy requires either a different form of investment whether in time or financial.
In general, it is very difficult for you to just totally lose out on your real estate investment. Over a longer period of time, the taxes, strategies, and market favor real estate.
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Real Estate Investing is Low Risk If You Buy It Right
The One thing you have to do is Buy The Right Real Estate Asset For the Right Price.
In real estate it’s all about the purchase. You need to have an exit strategy for making your money work for you. If you don’t buy right, you won’t be able to make money.
There are different real estate investing strategies and different real estate assets to target.
Which type of Real Estate Investments Do People Target?
Popular real estate investments are in Single Family Homes, Multi-Family Homes, Commercial Properties, and Land.
My main niche has been in investing in land. It’s a lot less competitive than other real estate assets. You can flip it for quick cash or do owner financing for passive income. It’s been the main way that my wife has been able to quit her job.
What are the Different Real Estate Investing Strategies?
The most popular real estate investing strategies are renting, wholesaling, rehabbing, and creative financing.
Wholesaling and Rehabbing are strategies for real estate investors that want to be actively involved with this business. It takes work finding the deal and flipping it.
Renting and Creative financing are a good way to build up passive income. In general, it’s a longer term strategy. The type of creative financing that I’ve personally done is with owner financing. It’s an easy process once you understand how it works.
Primary Home Investment – Making the Right Choice
Many times, people buy a house mainly for personal reasons. This is alright because there are still a lot of benefits for homeownership. You can always make things into an investment by adjusting how you use your house.
Sell Your Home in The Future and Don’t Pay Taxes On It
Why Is it Important to Know About The Home Tax Exclusion
The Home Tax Exclusion is a way to sell real estate without paying capital gains on the property. A lot of homes will appreciate over time. You can expediate the process by buying right and fixing up the property.
Over time, houses generally appreciate in value. If you live in an appreciating area, you will be able to sell your property without paying any capital gains tax on it.
It’s an important way to tap into the equity of your house. Most times, people will get a mortgage to buy the property. When you purchase the property with a loan, you are able to get a higher return.
Single Person – They get a Sizeable Tax Exclusion
You are allowed up to $250,000 as a tax exclusion. This means that if the house appreciated and you lived in the house, you can actually sell it and not pay taxes up to $250,000.
Married Couple – It’s Double for Married Couples
The same benefit is true if you are married. In this case, it’s $500,000. If you’ve had a house for some time, more likely than not, your house will have appreciated.
A quick note about for Home Tax Exclusion. As long as you have lived in the house within 2 years of the past 5 years. You can sell your house and not be taxed.
The Main Real Estate Strategy for Your Primary Home Flip For Very Low Risk
I’ve met people that flipped their home into bigger homes. Each home has more potential for appreciation dollars. If you can afford the monthly payments, you can start investing in real estate with your primary home.
Essentially, you buy your home and then sell it within a couple years. Every couple years, you tap into the equity of your home. As you do this, this money keeps rolling over to the next house.
Combine this Strategy with House Hacking
You can also buy a home and have people renting out the rooms, basement, and attic. I’ve seen people put a little unit in the yard and rent that out as well.
House hacking is the best real estate investing strategy for first time real estate investors.
Real Estate: Rentals
Becoming a landlord has been one of the major ways people have become wealthy. It’s usually an active form an investing, but it will increase your wealth over time.
There are two ways you generate wealth with real estate rentals:
- Over time, your house is expected to increase in value. This is called appreciation.
- The other way that you increase in wealth is by having your tenants pay off the principal in the mortgage.
Taxes generally favor landlords. You will be able to write off your mortgage interest.
1031 Exchange
If you use your house purely as a rental, you can use a 1031 exchange. You will be able to sell your rental and buy another investment property. This saves you money that you would have had to pay towards taxes.
Alternative Forms of Real Estate Investing
There are so many ways to get into Real Estate Investing. Each type of investing strategy has a different time and financial investment.
There are forms of investing that involve giving out loans to Real Estate Investors privately, REITs, and Real Estate notes.
If you want to know the different ways to invest in Real Estate, check this article: 13 Real Estate Investing Strategies and the Best Strategy When You Are Starting Out.
Non-Real Estate Forms of Investing
I prefer a combination of real estate investments and business. I believe this gives you a great return and enough variability in big payouts. You will need to understand your risk tolerance, time investment, and financial commitment to make the best personal choice for you.
Stocks
You are able to buy specific stocks. The way to make money through stocks is waiting for the stock to appreciate. Some stocks have dividends. You are able to get a little bit of cash based on how much stock you own within a company.
Bonds
This is a low risk and low yield investment. This is a good option if you are getting closer to retirement. If there is a downturn in the economy, you can mitigate loss by putting some of your paper assets in bonds.
Mutual Funds
There is a portfolio manager that usually manages the portfolio. It’s usually a combination of different investments. You can choose the type of mutual funds that you want to be a part of. There is an additional cost for buying into a mutual fund because they will manage it for you.
Index Funds
Index funds have increasingly become more popular because of Vanguard Funding and Warrant Buffet. They’ve recommended it as a resource that requires minimal supervision with low fees. They argue that it results in a better interest rate over time.
Options
Options are a form of stock investing. You are not buying the stock, but you are buying the contract. You are saying that you are able to buy the stock at a certain price point. If the stock market goes up, you can buy the stock at the predetermined price. If the stocks go down, you lost the cost of the option. This is going more into an active form of investment in stocks.
Businesses
One of the things that people don’t recognize is that there are businesses available for sale. You can buy a business already functioning and make that into an investment.
There are physical locations that you can get through a broker. You can also find online businesses for sale such as websites in ecommerce or blogs. Keep an eye out for these businesses that you can get a larger return for your investment.
Frequently Asked Questions:
Should I invest in Real Estate or paper assets?
I would recommend buying real estate. There are a lot of tax benefits and overall benefits you can get with real estate investments. If it’s an investment, you shouldn’t to buy and sell quickly like stocks.
What is the best way to invest in real estate?
Try house hacking to get your property. Get rentals as you increase your capital for longer term holds.
How can I scale up with real estate investing?
You can use the BRRR method of real estate investing. Another option is to get into land investing. Both ways allow you to quickly reinvest profits and get assets.
