A Simple Way to Getting Started In Real Estate Investing
WHY: For anyone who is interested in real estate investing, knowing how to get started is a great way to become more comfortable with the idea. For anyone interested in financial freedom in general, the main concept behind this lesson is SO important.
WHERE: I heard this strategy tossed around a ton on the BiggerPockets Podcast, but really learned it in depth from Scott Trench’s Set For Life. Scott explains the concept behind the strategy then goes in the nitty gritty details.
WHAT: The average American spends one third of their income on housing. That’s $33 out of every $100 you earn going into your housing. If you have a lot of money, the remaining two thirds can cover a lot. If you don’t, the remainder might barely cover your other costs of living. The core concept behind this strategy is reducing your living costs. This can start with getting a smaller apartment or selling your fancy home for a more manageable monthly payment. Reducing this cost can save you thousands per year, allowing you to raise capital for your investment properties. Doing this alone is a great first step to getting into real estate investing.
There is a way to live for dirt cheap or free, while simultaneously investing in real estate. This strategy is called house hacking. House hacking is great because you not only reduce your cost of living dramatically, but also purchase your first rental property. It’s straightforward but not easy. Step one is to identify a rental property that you can afford and analyze it. Many house hackers utilize an FHA loan where you can put 3.5% down or more (instead of the conventional 20-25%). You want to find a 2-4 family home, where you live in one unit, and rent out the rest of the units. The goal would be to have the other units cover all or most of the expenses the property has, namely the mortgage, taxes, insurance, and utilities. You must live in the property for at least a year to qualify for an FHA loan, so you are stuck there for a year, but that’s great! You are living for either cheap or free, and building equity through your the property. If you want to live somewhere else after a year, you can rent your unit out and start receiving cash flow every month, which you can reinvest into more properties. It’s easy to imagine a serial house hacker repeating this strategy for a couple years and building tremendous wealth!
If you get one thing out of this, it should be that reducing the cost of your housing will allow you to save more than your peers and get ahead. If you got the house-hacking concept down, that’s even better! Please check out the link connected to this article for more on house-hacking and/or read Set For Life; it’s a game changer.
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