Book of the Week: The Ultimate Beginner's Guide to Real Estate Investing
09 May 2016
This week I read the The Ultimate Beginner’s Guide to Real Estate Investing from biggerpockets.com. I was looking for more information about real estate investing before the next bust. I need a list of tax breaks and the math needed to evaluate investments. Didn’t find that in this guide, but it serves as a starting point. The book has links to biggerpockets blog posts which go more in-depth on specific topics. Why Real Estate? First question and most important. Why would I care about real estate if I do passive investing with the Unconventional Success Portfolio? The two most important things about real estate for me are
- leverage
- tax benefits
Leverage magnifies the gains or losses and the tax benefits are like free money from the government given to people who have money. The Renting vs Buying argument sways toward buying due to tax breaks. Real Estate Niches
- Raw land - buy land and hope someone builds a factory or freeway nearby
- Single-family home - most common investment
- Duplex/Triplex/Quads - less competition, more like single-family home
- Small apartments - more difficult to finance, management-intensive.
- Large apartments - usually owned by syndicates
- REITs - real estate investment trust, hands-off
- Commercial - need solid financial position to weather long holding periods
- Mobile Homes - little money required
- Tax Liens - foreclosures
- Notes - mortgage backed securities
Choose your poison. Business Entity Structure I think this is complicated subject. Main choices are LLC or umbrella insurance. Book has links to more information. The 2% Rule The monthly rent should be approximately 2% of the purchase price. In practice this rule is hard to obtain in most parts of the country. The 50% Rule 50% of income will be spent on expenses, not including mortgage payment. People often underestimate expenses. The 70% Rule Pay only 70% of what the after repair value is, less the repair costs. This keeps you from losing money on a fixer-upper. Financing Conventional mortgage is a minimum 20% down payment, but can be 25-30% for an investment property.