The greatest path to wealth is through real estate. Time will do most of the work if you can get into the market. Over time, home prices appreciate, and rents inflate along with the economy.
Many people own homes but are deathly afraid to become real estate investors. However, the truth is that you are already a real estate investor; you just didn’t know it.
Welcome back to the Defeat Limiting Beliefs series (101, 102), where we break down the barriers of entry to your success.
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The three fears. I own three homes along with my wife. Over the years, we have heard three main concerns from talking to people. Let’s address each of these in turn.
- I don’t have the money to get started in real estate.
- I don’t want to be a property manager or deal with tenants.
- What if someone destroys my home?
I don’t have the money. You don’t need any money to become a real estate investor. Zero. Real estate is a mindset (beginner, intermediate, advanced).
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The main goal of owning investment real estate is to generate rental income. Ideally, everyone should have four types of passive income: rents, dividends, business, and royalties.
But Josh, you said real estate investing requires zero money. I sure did. If you have SPACE, you can create rental income.
The easiest, fastest, and most lucrative way to make some rental income is by renting rooms. We call this house hacking. Most people will not even consider this a path to wealth, but I can assure you it works.
My wife and I accumulated over $200,000 in our dividend portfolio, mainly off the back of renting rooms. The math is incredible. Read the book “The House Hacking Strategy” to see the math in action.
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On top of rooms, you can rent your garage space (or convert it to Airbnb), attics, basements, and land. Again, the main goal is rental income, not necessarily rental property. Think outside the box, and you can become a real estate investor in less than a week.
I don’t want to deal with tenants. Yes, tenants are mostly a nightmare; however, it’s something you’ll need to come to terms with quickly.
Over my 23 years in the Marine Corps, I have met many people with real estate regret. They bought a home during a change of duty station and sold it as they transferred.
They did not want to deal with tenants or the financial issues of being a landlord. I have buddies that bought and sold homes during 2009-2013 in California. These homes are now worth $1 million+ (they sold around $350,000).
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The first step to overcoming the fear of being a landlord is reading a book on property management. You don’t need to manage your own properties, but it’s good to understand how to find a good property manager.
The book I recommend is “The Book on Managing Rental Properties.” This is a massive book that covers everything you need to know.
Next, when you buy a home, save $10,000 into a high-yield emergency fund. This will be your house fund but can still earn you 3-9% interest. The two main concerns for homeowners are your roof and air conditioners.
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Once you have a good property manager and a $10,000 house account, you can sit back and let the money flow. To build significant wealth, you must have real estate investments.
Your wealth grows as you serve more people. Thus, if you try to get wealthy by yourself, you’ll do it slowly. The more tenants you have, the faster your wealth can compound.
What if someone destroys your home? I’ll keep it simple—who cares? I know we all have sentimental value for our homes. We got married or raised kids in these structures.
All said and done; homes are a means to an end. My wife and I attached to our first home in 2008. Today, it is just a rental property. We have the memories saved in photos, and that’s all we need.
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We want that sweet passive income for rent. Homes, stocks, businesses, pokemon cards, etc., are just assets. Once you become rich, you can buy & hold things for sentimental value, but that comes much later.
Don’t confuse your memories with the structure of your home. I love all three of my homes, but if someone offered me 100% over their values, I would sell them immediately.
Why would I sell? I could parlay that money into more investments. It’s the same with my business, Military Family Investing. I’ve been working hard for two years on my blog and books. They hold enormous sentimental value to me.
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However, if someone came in and offered me $2 million, I am selling out—without a doubt. I can exchange that money for real estate, another business, and dividend stocks. Then I can start my new website from scratch.
Because of real estate, my family is in a better financial position. That’s real estate’s ultimate goal: to make your family rich. Don’t let emotions get in the way of building great wealth.
Tenants (along with children and dogs) are rough on your property. You have your $10,000 house account, and you’ll need to use it from time to time, don’t overthink it.
Real Estate vs. Inflation. Hopefully, I have soothed your fears a little. One major topic about real estate is that you don’t have a choice but to get involved. Inflation is coming for everyone, and we need to use real estate as a hedge.
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You can’t let fear prevent you from making these difficult decisions. My three homes inflate along with the economy, ensuring my home values and rents continue to increase. This isolates me from the effects of real estate.
If you rent, your rents are increasing. Your bills rise if you own a single-family with no roommates or additional income. You’ll need rents to ensure your livelihood going into this recession.
Conclusion. But Josh, what if the housing market crashes? It’ll be fine. You still own property. We bought a house in October 2008, at the top of the market.
The market proceeded to crash from 2009-2013. Our home value decreased by almost 40%, wiping out our cash down payment.
However, it wasn’t the home crash that wiped us out; it was our lack of financial education. I didn’t know about renting rooms, dividends, or passive income.
I could have easily got two roommates to make things run smoothly. It wouldn’t have been ideal, but we would have had more income during this time.
Standard Employee by Day, Passive Income Hero by Night
Don’t let fear of the future cause analysis paralysis. If you own property, you are better off than someone who doesn’t—plain and simple.
Start by renting one room to an older person with social security. There will be more and more of these living situations soon. You can help them, and they can help you.
Once you get a taste of making an extra $800/month with little effort, it’ll hook you. That’s the magic of rental income.
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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