Since your house isn’t your biggest investment and you are using this mentality as a springboard to get out of the endless cycle of dumping your money into the bank’s coffers, there is one big question looming in your mind: “What do you do with this new found money you have saved?” The short answer… invest it.
There are probably a thousand schools of thought on how to get the best and safest returns on your money. However, with the recent collapse of the financial markets, along with stock prices and savings account interest, it should be obvious that there is no such thing as a totally safe bet. Since I am obviously an advocate of investing in real estate, and since I know quite a bit about it, I am going to stay out of those more uncertain waters and talk about what I know: investing in real estate.
The beauty of investing in real estate is that, more than any stock or mutual fund, you control your destiny. Sure there are lots of things out of your control such as the ebb and flow of consumer demand and fluctuating interest rates, but you have a greater measure of control through this investment method than almost any other. You buy the supplies, you hire the labor or you do the labor yourself… you have control.
I have gone beyond budget on projects and was faced with that ever important question: What is more important to me, my time or my money? I have often decided that my budget was the most important thing so I did some construction work myself, which I was planning to sub out. Sure I had to work hard for it, but when I got in a pinch the decision was mine; not some CEO who I have never heard of. That’s what I love about real estate. It’s not for everyone, but if you have that entrepreneurial mindset, there is nothing better.
If you decide that want to make a move into the investment real estate market the question then becomes what kind investing do you do? Fix and flip, fix and rent, buy fixed up and rent… there are a many choices. In reality, there is no one answer as different people have different strengths and financial resources. If you don’t know much about construction and don’t have the time or desire to learn, you might want to stay away from rehabbing. On the other hand, if you know your way around a tool box and have the time (or decide weekends and evenings are for chumps) you might consider getting into properties that need work. The margins tend to be bigger on those.
The key is to remain flexible. Two or three years ago, the best bang for your buck was to find decent 4-families that needed a little work and rent them out. Sometimes you could resell within a year for a profit. Those days were great. Now, the biggest return for the smallest investment of time and money is often small houses, usually 2 bedrooms, which are popping up daily on the foreclosure market. The key is to remain flexible. Never get stuck in a pattern of investment that you refuse to break. Some of the best returns come from recognizing new trends.
As I said, not everyone is cut out for the real estate investment world. The money can be great, but there is hard work and time involved even for the most distant investor. The trade off is that it is a relatively safe place to put your money if you make wise purchases and are patient. People always need housing and even if demand lessens for a couple of years (such as right now), things always bounce back. If you follow the deals and trends in the market, whether they be houses, multifamilies, there is always money to be made by those with the drive to make it.