There are countless people who have created and built wealth by owning real estate. The range of individuals goes from famous people you’ve never met, like Warren Buffett, to family members you see each Christmas like your Aunt Jane. The sheer number of people who succeed at this endeavor with ease make this attractive.
I mean, if your cousin was able to get rich through real estate, then you should be able to do it too. Right? Maybe….
Beyond being an Investment Advisor, Mortgage Loan Originator, insurance agent, and mortgage broker responsible individual–I have been investing in real estate for over a decade. I have done many fix and flips and bought real estate to hold it and rent it out. I have won and lost a lot. In my experience, there are three things that every person must know as they pursue earning rental income from real estate.
It takes time.
With our society, we desire things instantly. This desire often gets into our expectations as we buy real estate. This can be a conscious or subconscious mindset. And, the times I lost with real estate, is when I did not have a mindset filled with patience.
You have heard it before, and it also rings true here–there is no actual “get rich quick” situation, especially in real estate rental income.
Patience required to succeed goes beyond the patience required for income; it also gets into patience for the process. Finding the property, closing on the property, getting the home ready, putting all the legal paperwork together, finding tenants, and more, all take time. It’s a process. Some parts of the process take longer than others.
It takes money.
Most people know you need to have money for a down payment when you buy a house. What most people don’t know is that the down payment requirements for an investment property are higher.
When you buy a home you plan to live in, you can sometimes get away with a three to five percent down payment. But when you buy a home for rental income investment, you need a 20 percent down payment. In order to make the finances work (keep the monthly payment well below the normal rental income rates), it’s common to put down up to 30 percent.
That is a lot of money.
You need money for more than just a larger down payment. You also need money to repair or prepare the property for tenants. Once tenants are in, you’ll also need to have money set aside to fix things or take care of issues as they arise.
However, the most important thing you need to have money for is when the home is vacant. Yes, vacancies will happen from time to time. When a lease ends and a tenant moves out, it is next to impossible to get another tenant in without having a gap in rental income. This means you will not only need money to repair the home for the new tenant, but you will need money to pay ongoing expenses associated with the house–taxes, insurance, utilities, the mortgage, and more.
Bottom line–you need money up front, and you need money saved in reserves for the inevitable costs coming.
It takes a team.
Your family member, real estate investor, probably doesn’t have a whole bunch of employees. This is not the ideal team I am talking about. However, those you know probably have an excellent real estate agent, mortgage broker, investment advisor, escrow company, insurance agent, handyman, and much more.
Real estate rentals are complicated. There is no way one person can stay on top of everything, especially if they want to succeed. To be honest, my real estate investment experience does not qualify me as a full-time real estate investor. The private lending side of Stewardship Mortgage has created excellent opportunities to build relationships with some extremely successful folks. One common denominator with these people? They have a team. All of them have a trusted network of professionals who can execute tasks and provide advice.
Rental income through real estate investments is great! But it requires investment up front. No one person or opportunity will help you build wealth.
Sustainable wealth is earned by you—your income earning over time, your saving behaviors, and the team behind you.
