While investing in real estate is one of the best ways to build wealth, getting started can often feel intimidating. However, this exciting process is much more accessible than you think. In fact, one of my favorite parts about writing for Pickett Street has been learning from their wonderful team and realizing that investing in real estate is not just for experts in real estate and finance.
I was recently able to talk with Cody Touchette, who is a mortgage planner with Caliber Home Loans and provides clients with expert guidance during their home financing processes. Here’s what he had to say.
1. Why is investing in real estate a worthwhile endeavor?
According to Cody, there are four main benefits to real estate as an investment: cash flow, appreciation, leverage, and tax benefits.
First, investing in real estate through buying your own home, purchasing a property to rent to others, or other options, is a great way to receive immediate cash flow that can help you purchase more property.
Second, regarding appreciation, Cody reminded me that real estate has always increased in value over time, if you look at a long period or time. While the market experiences normal ups and downs, appreciation on real estate is typically about 4% per year over a 30 year holding period.
Third, owning real estate allows you to use leverage to get a far greater return on your money. Cody told me that those invest in real estate “get the benefit of appreciation on a larger asset with less of [their] own cash in it…usually 20-25% down for investment properties, and 0-3% down on primary homes.” It’s also smart to purchase “fixer-upper” properties at lower prices and then add extra value through repairs and increasing the rent.
Finally, property owners can enjoy several excellent deductions, including depreciation, which Cody called “the holy grail of real estate investing.”
2. What is the first step to take in real estate investing?
According to Cody, make sure that you schedule a consultation with a loan officer who has experience in real estate–they should own a home and at least a couple of rentals. During this meeting, Cody suggests that you discuss his favorite investment strategy: buying a multi-family home (up to four units) with an FHA loan at 3.5% down payment. You can then live in one of the units and rent out the other three, which will pay for your mortgage so that you live in your home for free.
3. What are the most common mistakes you’ve seen people make when investing in real estate?
Cody mentions that the biggest mistake someone can make in any market is trying to time it. “People who are waiting because they think the market is too hot right now, or still going down, usually miss a lot…” Cody said. “You have to think, what if I am wrong and the value goes up 10% or more in a year instead of things slowing down.”
Another common mistake is that potential real estate investors engage in “too much study and not enough action.” Again, be sure you don’t wait too long before investing.
Finally, Cody mentions that many individuals fail to hire a professional property manager and that “too many people think that they can do this on their own or that they need to ‘learn that part of the business.’” Again, Cody advises potential investors to seek help from professionals and to avoid trying to “learn a new job.” He add, “your property manager will keep you out of trouble.”
4. Do you have any other words of wisdom for individuals who are nervous about investing in real estate?
According to Cody, “real estate is not for everyone. But the people that jump in and get a great team together to advise them will certainly come out ahead of those that do not invest in real estate.” Again, be sure to work with professionals, including a real estate agent, a loan officer, and a property manager.
To get in touch with professionals who can help you take the leap, contact Pickett Street at (425) 502-5397 or firstname.lastname@example.org or Cody Touchette (MLO 83216) with Caliber Home Loans at (425) 492-1698.