Real Estate Investing Advice
In this article, we share real estate investing advice from investors who have made millions with their real estate investments. If you have a self-directed retirement plan, such as the Self-Directed IRA or Solo 401(k) for owner-only businesses, you can use your retirement funds to make real estate investments tax-deferred. Using a retirement plan to make any investment, whether it be real estate or stocks, is more tax-favorable than using personal funds.
If you have a Self-Directed Roth IRA or Roth 401(k), the investment will grow tax-free. That means any income or gains the investment makes over the years will go directly into your pocket. The government can’t take one cent!
Why Invest in Real Estate?
You know that using a retirement plan to purchase investments is a savvy decision, but what makes real estate such a wise investment? Let’s take a look at a few “obvious” reasons.
- Real estate is a hard asset, which satisfies investors on a psychological level. It is an asset they can see and touch, unlike stocks.
- Real estate acts as a hedge against inflation. During times of inflation, rental prices increase.
- The investment offers a steady stream of income by renting out the property.
Many of us know these reasons and don’t have real estate experience. So let’s take a look at this investment from the POV of entrepreneurs who have made millions off of real estate and discover what they did to accomplish this.
1. It’s Important to Own the Property
You have to live somewhere, don’t you? Rather than renting property, you may find yourself in a more favorable position later down the road if you purchase the property. For example, Barbara Corcoran, founder of The Corcoran Group, had purchased a studio apartment, which later doubled in value. She was able to collect the rewards of the studio appreciating in value because she owned the property.
Corcoran isn’t the only millionaire who says “buy” before “rent”. Peter Hernandez, president of the Western Region at Douglas Elliman said that most millionaires he knows made more money from owning real estate property than other investments. His real estate investing advice is to buy when everyone else is selling, and to sell when everyone else is buying.
2. Choose Residential Property
When it comes to generating income, we all wish for a steady, consistent outlet. By investing in residential property, you get just that: a property that produces rental income each year. When it comes to investing in residential property, Bethany Frankel, founder of Skinnygirl and BStrong, advised in an article that investors must be fully aware of the “associated legal fees” and be “prepared for unexpected costs.”
One unexpected cost you might face when using a Self-Directed retirement plan to purchase real estate is UBIT tax. The Unrelated Business Income Tax applies when you use a nonrecourse loan. The tax, which can be as high as 37%, will be applied to the debt-financed portion of the property. This is just one example of the types of expenses you must prepare for financially.
3. Don’t Pick Any Property – Pick the Right Property
Grant Cardone, sales expert and New York Times best-selling author, evidently goes by the mantra: Location, Location, Location. In a recent article, he explained the importance of choosing real estate property in an “upscale location” that not only provides consistent cash flow, but has the ability to appreciate in the future. He prefers multifamily properties in upscale neighborhoods over single-family homes in low-income locations. However, he would gladly put his money in a singly-family resident over having it sit and do nothing in the bank.
4. Enjoy Unlimited Options by Real Estate Investing
If you’re the type of investor who likes options, then real estate is the investment for you. Real estate provides virtually unlimited opportunities, according to Daniel Lesniak, founder of Orange Line Living.
When you invest in the stock market, in general, you have two options: buy or sell. However, when you get into the real estate industry, you can buy, sell, rent it out, subsidize the property, buy a plot of land and build the property from scratch, etc. According to Daniel Lesniak, real estate’s “flexibility is one of the reasons it has created more millionaires than any other asset class.”
5. Real Estate is Always in Demand
As long as there are people, there will be a need for property; a place to live. For this reason, it creates an opportunity for investors to gain greater and more consistent returns, according to Robert Martinez, founder and CEO of Rockstar Capital. His real estate investing advice is for investors to look toward multifamily apartments, as this market is rapidly growing.
More people are interested in renting apartments over buying houses, as apartments are becoming more attractive. He also adds that, with multifamily apartments, “you continue to generate increasing income over time.”
You just heard real estate investing advice by some of the biggest players in the industry. Now, it’s up to you to get started with either a Self-Directed IRA or Solo 401(k) retirement plan.
Just remember these key points when investing in real estate:
- If you have the capital, you should buy property. If it appreciates in value, you might gain double of what you originally invested.
- Residential property has the ability to produce steady income year after year, compared to commercial investments.
- Location really does matter – when looking at property, choose an investment in an upscale neighborhood with the ability to appreciate over time.
- More people are renting multifamily apartments over buying houses- this is the market you want to pursue!