A great way to start with real estate is House Hacking — which involves purchasing a home, living in it, and renting out extra rooms. Another common strategy is BRRRR (Buy, Rehab, Rent, Refinance, Repeat) — steps used to quickly purchase multiple rental properties.
In More Details
Real Estate vs Stocks — Real Estate involves more work than stock, but it also has higher potential for earnings due to leverage, cash flow, and tax savings. You can also use it as an additional asset class to diversify from your stock investments.
- Leverage - using debt to purchase a property. If the returns from a property is 7% and your loan is 3%, you'll earn a 4% difference on the lender's money.
- Cash Flow - the monthly profit you receive from renters, after taking into account expenses like mortgage, insurance, and maintenance.
- Tax Savings - you'll be able to deduct expenses, but the biggest one will be mortgage interest.
- Diversification - Real Estate can be another asset class you can diversify into, in addition to any stock investments
House Hacking — a perfect way to get started with real estate is to purchase a property, use it as your primary residence, and rent out extra rooms. You'll be a landlord to your roommates. This also works for multi family homes such as duplexes. By living in your property, you qualify for an FHA loan which makes it feasible to only save up a 5% down payment instead of the recommended 20%.
Rental Properties or BRRRR — Buy, Rehab, Rent, Refinance, Repeat is a strategy to accumulate multiple rental properties. It starts with buying a property for a good value, usually something with potential but needs work. Then you rehab the property to make it livable and functional, before finding tenants and renting it out. Next, you'll refinance the newly upgraded and cash flowing property for a cash out. After the refinance, you can repeat the entire process. While investors can do this part-time, it requires more time than house hacking or stock investing.
Further Reading
Some resources on Real Estate Investing:
- Intro to House Hacking — a case study from Brandon Turner
- BRRRR Strategy — a primer for investors
- Bigger Pockets Forum — the biggest online community of real estate investors
- House Hacking Book — a guide on getting started with house hacking
- BRRRR Book — a guide on using the BRRRR strategy to attain rental properties quickly
- Rental Property Investing — a guide on getting started with rental properties
- Long-Distance Real Estate Investing — in case you live in a very high cost of living area, where properties are too expensive