Ruth Mills Team
San Diego Realtor
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More Frequently Asked Questions
Real Estate 101
Investing in Real Estate
"WAKE UP MONEY"
Have you ever wondered what it would be like to wake up in the morning with enough money coming in that you could do what you want that day? Would you consider yourself "rich"? Here's a definition of "Rich" that we like: "Rich" is the ability to wake up in the morning with the physical health, knowledge, friends, financial freedom, and passion to do what you want that day. Financial freedom occurs when your annual investments are making money just by waking up each day and they exceed your annual lifestyle expenses. At this point you have "Wake-Up Money."
We have many clients who have achieved (or are on the path to achieving) this "Wake-Up Money" lifestyle. Many of them have modest incomes but have become "rich" through their investment in local real estate-specifically homes and condos. Residential real estate offers 5 Major Benefits. Most other investments offer only 1 or 2. Cash Flow-The rent provides income, i.e., "Wake-Up Money". This is your ultimate goal. When your property is "free and clear," you have the maximum cash flow and "wake-up money." Leverage-You can own $100,000 with only 0%-30% cash. You can also borrow cash out of one property to buy another. Your short term goal is to use leverage to acquire a portfolio of real estate. Your longer term goal is to pay the loans off and own your properties free and clear. Debt Reduction-Real estate is one of the few investments where someone else will make your payments. In essence the tenant makes the payments and reduces your debt. Tax Savings-You are allowed to depreciate the house and write off your expenses in order to reduce your taxes. Appreciation-Over time the value of houses and condo's have risen. The average sales price of a home or a home has more than doubled over the past 15 years.
Top Ten Tips for Creating "Wake-Up Money"
Buy residential properties-houses and condos. Stay away from land and commercial real estate unless you are an experienced investor or are buying as a business "user". Buy "mainstream" houses and condos. Buy properties that are at or below the average sales price. Buy properties that appeal to most buyers. Avoid high priced or unusual properties. Buy houses with at least 3 bedrooms and condos with at least 2 bedrooms. If possible, buy properties with a garage.
Don't buy with partners, unless you have to. If you have to have partners, make sure they have the same goals and values, are of similar age, and have a job, geographic, and marriage stability. Believe in the long run. Real estate markets are cyclical but the long term trend has been up. Hang in there for the long run. The great investor's lament is "I should never have sold that property." The other investor's lament is, "I could have bought that property for ____________!"
Take care of your property and it will take care of you… It's your golden goose." If you don't like property management or are too busy, either hire a professional property management firm or buy condo's and townhouses (they take a lot less management).
Get started early. Put time on your side. Albert Einstein was once asked what he thought was the most powerful thing in the world. His reply, "compound interest." Don't wait to buy real estate. Buy real estate and wait! If you don't have the money, make a plan and a commitment to get it. (Consider borrowing your investment money out of the equity in your personal residence).
Know your "enough" point. How much "wake-up money" do you need? Know when you are ready to stop accumulating property and start paying off what you have-and enjoying life? Work with knowledgeable people. Pick Realtors, accountants, attorneys, and property managers who know what they are doing.
Have a goal and a plan. Call me for a simple worksheet that will help you determine how much "wake-up money" you need. It also shows you what you need to do each year to get there.
This information is provided as a service. As every situation varies, it is strongly advised to seek counsel from independent tax advisors, tax attorneys, and/or CPAs.