Agent's Perspective - The ABC’s of Investing


Acquiring real estate can be much more than just finding a house that you can call home. Purchasing real estate has become an increasingly popular investment vehicle for people seeking long term gains and retirement security. Real estate can provide a very predictable retirement income and a significant addition to your net worth and estate. 

For many years the conventional investment wisdom was to start with a small rental home. The rent received each month from the tenant would pay for your monthly mortgage, taxes, and insurance costs. Over a period of time your monthly costs would decrease and your rent would increase, and thus provide you with spendable income. By diligently saving money you could eventually acquire a second rental home and repeat the process. 

This is an example of a very simple and effective investment strategy that many people have used to build substantial net worth and monthly income. It is definitely a good approach, but it is a slow, and relatively limited, approach to creating real estate wealth and monthly cash flow. Many investors look for ways to accelerate this process, shorten the time line, increase the profits, and create much larger equity. 

There are several ways to shorten this process. Of course, if you have the cash and are able to purchase multiple properties that will speed things up. Most of us do not have the luxury of large pools of capital to use. 

Some investors start out by purchasing, improving, selling to make a quick profit, and then roll the funds into another project as quickly as possible. This is speculative, but can help to build investment dollars. It is often called “flipping”. 

Then, of course, there is the technique of using leverage. You can control more real estate if you are able to put less of your own money down. If you are able to finance a higher proportion of the purchase price you may be able to purchase several properties instead of one. This becomesmore complicated and your risk factors increase. However, instead of having to accumulate the traditional 20%-25% down payment, you use some of your own funds and borrow the balance against the equity you have in other properties that you own. 

We can point to multiple examples of investors who have leveraged modest investments into sizeable property portfolios that are worth $25 million, $50 million and even $100 million. 

They have been able to borrow against their equity to finance additional acquisitions and dramatically increase their real estate holdings. Over a period of 15 to 20 years they have accumulated huge equities and enjoy significant monthly incomes. 

It is important that you have an investment “road map” to follow so you can avoid the pitfalls that are always present in real estate investing. Being under prepared and planning as you go is the wrong approach. You need to do your own research. Plan your investment strategy and then go out and find the properties that will work for you. 

Remember, you will not get rich quickly. It is a long process that requires discipline and staying on course. Over time you will reach your goal to financial independence. Having access to experience, knowledge and money is critical to being successful at real estate investing. We have been helping investors acquire investment properties for over 5 decades at Terrace and love sharing that experience.