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Where to Invest:

1. Education

2. Retirement Accounts

3. Stocks

4. Real Estate

5. Crypto

6. Buying a small business

7. Starting my online business

We've covered many important investments so far, each with clear guidance for newcomers. Real estate, however, is a different beast. It offers a multitude of ways to profit, from construction to commercial investment. Today, we focus on buying investment properties and the realities of this venture.

The Myth of Passive Income

Real estate investing is often sold as a passive income stream. This is a misconception. True passive income is found in investments like index funds, which we covered last week. Real estate requires active involvement, especially in the beginning. It's akin to starting a business, demanding upfront work and ongoing management. House hacking, which is where you buy a multi-unit home and live in one of the units, as we've covered before, is probably the easiest way to get into this game.

Personal Insights from the Field

My journey in real estate started with the purchase of an up-down duplex. The time spent here has been enlightening and challenging. Here are some of the major hurdles I faced:

• A faulty A/C unit and electrical setup in my duplex cost about $5,000 to fix.

• Squirrels invaded the attic, leading to a $3,000 expense for removal and repairs.

• Exposed pipes froze during a harsh winter, costing $2,000 for repairs.

These are just some of the things you may face when you get into the game. Positively I had great tenants that always paid on time and were handy enough to fix small things without asking for help. I have heard horror stories about bad tenants and I am sure that would have made this experience less enjoyable.

We eventually moved out of the duplex. It is great for saving money but someone living on the floor above you can be trying at times. I recommend getting a side-by-side if you get in the duplex game! When we moved out we ventured into Airbnb, this is a completely different type of investment. It is more of a hospitality business than real estate investment. We will cover more on that in a future article.

The Rewards of Real Estate

Despite the challenges, real estate has been one of my best investments. I bought a property in an emerging neighborhood at a 3.75% interest rate, which proved to be a good decision. The home appreciated quite quickly and our payments were on the lower side because of the interest rates. It took a lot of time and research to end up with the right deal. Put in the work it’s the only way to get real rewards. Real estate can be lucrative, but it requires this diligence and a willingness to learn and adapt.

Throughout history, people have often said, “If only I had bought five years ago, it would have been the perfect time.” This sentiment remains true and will likely be echoed in the future. While finding the right deal may be challenging, the market generally appreciates over time. So if you've been contemplating real estate investing, now is the time to jump in and start your five-year clock.

Selling Property and Taking Profits

Many say you should never sell property, but I disagree. My investor journey has taught me that sometimes you should take profits. Not everything returns to its highs eventually. We sold our property to focus on ventures that were more aligned with our current goals. Everything has an opportunity cost and while we could have made more money on this individual investment if we held it, we felt that we could make more overall with our other investments. Sometimes it is the right decision to take profits!

Steps to Start Your Real Estate Journey

1. Save for a Down Payment: Aim for 4-5% of the purchase price with an FHA loan.

2. Find a Reliable Realtor: This relationship is crucial. Interview and tour with several agents before committing.

3. Get Pre-Qualified: Know your maximum price level.

4. Analyze Properties: Review 100 properties to refine your analysis skills.

5. Define Your Buy Box: Set clear criteria for your ideal property.

6. View Properties: See at least 10, aim to find at least 3 potential buys.

7. Make Offers: Start low if there's no competition. This is echoed in Never Split the Difference by Chris Voss.

8. Negotiate Wisely: I know everyone wants to get the best deal. In the end, if the deal is good you will make money. Don't lose a good deal over a small price difference. Remember, a $5K difference in price is only a minor monthly difference over a 30-year loan. Do not lose a great deal over stubbornness.

Looking Ahead

Next week, we'll tackle the controversial topic of cryptocurrency. Stay tuned for a deep dive into the world of digital assets.