How does an
investor go about creating the financial support needed to invest in real
estate?
Many gurus will tell you that it is possible to invest in real estate
without using your own credit or cash. This is true, and it is possible, but
you must be prepared to work very hard, find the right partner(s) or
investor(s), the funds you use may be expensive, and your returns will
generally be lower than investors who have more cash readily available.
If you
decide to start with wholesaling, as many new investors do, be prepared to
spend some money on prospecting, whether that is for a direct mail campaign,
bandit signs, or gas spent driving around. This is a business activity that may
also require a laptop computer, a smart phone with a camera and internet
access. All of these things cost money that you will need upfront.
If you are
going after hard money or a conventional mortgage, you will be required to put
some money down (“skin in the game”). Even sellers willing to carry a contract
will usually want to see some cash paid up front. It is possible to find
borrowed funds with 0% down, but again, this limits the investor’s options for
both purchase and exit strategies.
Whatever
your acquisition strategy, it is good to generate and maintain enough cash
reserves to sustain you during lean times. Finding the funds is only one part
of your strategy for creating financial freedom. Another important part is
living a lifestyle that allows you to generate a sufficient cash cushion for
both emergencies and investment.
As you set
goals for the New Year, it is a great time to take stock of your financial
state and net worth. To create more cash reserves, are there lifestyle changes
that will help you get where you need to go in the short-term?
Here are a
few examples.
Primary Residence.
Can you turn your primary residence
into an asset, rather than a liability? Can you reduce your living costs for
shelter to zero? Can you structure your living arrangements so that your rent,
mortgage, insurance, taxes and utilities are paid by other people?
I do this by
renting out short-term furnished room rentals in the house where I live – which
I do not own. I own other properties, but not the house where I live. I have no
mortgage to worry about, pay for no repairs, and do no yard maintenance. My
rent and all my utilities are covered by the tenants to whom I rent rooms. I
live for free, sometimes even make money, from my primary residence. I can come
and go as I please, and there is always someone to take out the garbage, take
in the mail, or meet the repairman. I have an intentional community of
self-selected housemates who fill a significant part of my social network.
Not everyone
wants to live this way, and as a licensed real estate professional, I have a
huge advantage in understanding local laws, regulations and best practices in
property management. But many other investors accomplish the same thing
financially by living in a duplex, triplex, 4-plex or apartment building, where
they collect more rent than the expenses it costs to live there. Plus, should
they ever decide to sell, they benefit from the capital gains tax exclusion for
a primary residence.
Transportation.
How long is your commute to work?
Mine is approximately twenty feet from my bedroom to my home office. Location
makes a big difference in saving money. The closer you live to work, the less
money you will spend on gas, parking and tolls.
Better yet,
find alternative ways of commuting that save the cost and hassle of driving (or
owning!) a car. I ride my electric bicycle whenever and wherever I can, saving
the use of my car for long-distance trips, heavy loads or bad weather. I save
thousands of dollars in transportation costs this way. At the same time, I get
healthy exercise, save the planet by not polluting, and enjoy the scenery.
Food Costs.
How often do you eat out? Chances are
you can save more money, eat better and stay healthier by preparing more meals
at home.
I often host
business meetings at my home office, where I can offer guests snacks, tea or
coffee which is less expensive and less time-consuming than going out to a
coffee shop. This is not appropriate for all meetings, but it works well for
most.
It doesn't hurt to examine your diet as well, and see where you can cut out sweets, alcohol or other toxins that hurt both your health and your pocketbook.
The bottom
line: Look for lifestyle changes this year that allow you to put away more cash
for the things that are important to you in getting your financial house in
order.
Job Hunting.
You need more income
coming in?
There are plenty of low-cost opportunities to start your own
business, whether that is in real estate or in another line of work. Don’t wait
for someone else to provide for you – consider where you can make a difference
now and fill a need.
Keep searching for work in your chosen field, but don’t neglect the
opportunities to benefit from multiple streams of income. Network marketing and
franchises are great starter businesses for the new entrepreneur in that they
are generally low-cost to buy in, and offer training and systems for success.
Owning a business provides numerous tax benefits, as well as income. Keep your
options (and your mind!) open to possibilities.
Happy Investing!
