3 Ways to Get Started in Real Estate and 1 Way I Would Never Recommend!

Invest In A Bigger Real Estate Deal with a group of people or a company

The first is what I do with my investors at MC Companies. Which is joining with others to invest in a bigger deal. This can be either commercial or residential.

There are two great things about investing in a larger real estate deal.

  1.  Low minimums – Sometimes you can invest as little as $500 and be an owner in a property. (but always remember you will have little to no say in how the property is managed)
  2. You don’t have to be an accredited investor – in the past, to participate in these types of investments, you had to be an accredited investor, but that rule has gone away for certain investment types. At MC Companies you do have to be accredited.

Buy A Rental Property

Purchasing homes and renting them out is a great way to produce extra monthly cash flow.

To do this, you have to purchase a house that has a combined monthly mortgage payment, home insurance payment, and property tax payment lower than the rent the property commands. There are several ways to do this – from buying in an area with high rents to putting a lot of money down so that your mortgage payment is low. If you buy correctly, rental properties can be very lucrative. And, if you do the upfront work of finding those hidden gems, you can let a property management service do the rest and rental properties can be a form of semi-passive income.

Rent A Portion Of Your Existing Home

If you aren’t don’t have the cash to buy a rental property, you could first test the waters by renting a portion of your house. You have a couple of options to do this. First, you could rent a spare room in your home or you could rent the basement. If you’re yet to purchase your first home and like this idea, you could even buy a duplex and live in one apartment and rent the next.

The advantages of renting a portion of your house are that you get to watch your tenant closely. It’s less likely that a tenant will try to stiff you for the rent payment when you’re in the same household. Renting a portion of your house also gives you the ability to get a feel for what it’s like to be a landlord without making such a huge monetary investment.

What I would never recommend…

House Flipping:

I feel like house flipping is similar to gambling. You may win once or twice, but it’s never a long term success strategy. Below is why….

How Do You Make Money Flipping?

As a flipper, it’s simple Math. Add up how much you paid for the property, plus all the expenses to rehab it (it will always be more than you think), monthly cost to hold it, and any other expenses. Then you subtract that (likely very large) number from the income you get from selling the home, and that is your profit or loss.

It’s not like you see on TV. At all. As with most reality shows, they make it seem so easy: buy a home, work with your contractor, fix a few things up and boom you just made 100k. It’s not like that at all…..below is the reality of house flipping.

It’s Risky

Most flippers usually use leverage to purchase the property, and usually those are hard money loans to secure the property and pay for construction. They then try to fix it up quickly to maximize profits. Unfortunately, with each passing day/week/month, holding costs continue to add up. Some holding cost examples are maintenance, insurance, and interest. Delays will
kill your profit and delays are inevitable when dealing with contractors and the unknowns of reconstructing a house.

Taxes

The main reason I hate house flipping is the tax. The rate at which your profits are taxed can depend on how long you’ve held on to the property. If the property is held for a less than a year, then the profits are taxed at ordinary income tax rates, which can be 30-40% (it can be more if you’re in a higher tax bracket) Real estate is a very tax efficient vehicle, but flipping most definitely isn’t. If you hold onto the property for more than a year, you’ll be taxed at the long-term capital gains rate that typically ranges from 15-20%.

Conclusion

You may get Lucky once or twice flipping a home (or you may lose your ass) but at the end of the day there is no long term tax strategy and you will pay high taxes.It isn’t a strategy I recommend because I like long term cash flowing deals.

Rich Vs Poor Mindset

The variables that come to the table between those sitting down on the wealthy side and those sitting down on the opposite side have less to do with opportunity and more to do with their mindset. This is an important thing to acknowledge. Our background, our educational status and so many other variables are less impactful than the mindset that we have during our day to day lives. The mindset we choose to have will change absolutely everything. The mindset of the poor is commonly directed towards what they cannot afford and the mindset of the wealthy is more directed to how they can work to afford the things that they want. 

Spending Habits

There are many differences between the spending habits of the wealthy and the spending habits of the poor. Those who are poor spend the money they make and then choose whether or not to invest what is left. Those who are on the wealthy side of the spectrum invest first and then spend when needed. The wealthy know that investing their money will result in long term cash flow while those on the poor end of the spectrum only care what the money they have can do for them in the here and now. 

LLC Benefits

The wealthy know that having an LLC will protect their assets. If they are in a position where they are being sued, the person is actually suing a corporation or a company. There are layers that they will have to pierce to actually sue them directly and this is a very difficult task. The LLC also gives them the ability to write off more taxes from their business investments as well. People on the other end of the wealth spectrum are more often than not working a w-2 job and not able to get any tax breaks. Moreover, this thought process usually does not occur to them at all. 

Investing

The wealthy and the poor handle their investments very differently. The wealthy are very active in their investments. They are aware of what is happening to their money on a regular basis. They find them personally, do extensive research, and understand the numbers and the fees involved in the investment. On the other hand, those on who are considered, “poor,” usually hand off their money to someone without any research involved. They hope for the best but are not truly aware of what is happening with their money at all. They do not fully take the time to understand the investment that they are making or have the knowledge to make the financial decision to invest at all. 

Conclusion

Mindset is an invaluable asset when it comes to wealth. Those who are wealthy have an abundant mindset. They are purposeful about their spending habits and knowledgeable about where their money is going. They are direct about their objectives and they are fruitful in their investments. Those who are poor do not keep track of where their money is coming from or where it is going to. They may invest on a whim and hope for the best but they do not plan and follow their investments through to the end. This all comes down to the mindset that someone has. There is a clear line that draws the differences between the mindset of the wealthy and the mindset of the poor. If you can take the time to change your mindset, you can change your life.