How to Start Investing in Rental Properties
If you’ve ever been curious about how to start investing in rental properties or how to become a landlord, you’re not alone. Millions of people each year take the brave first step into real estate investment, and some are highly successful. What separates the investors who make the lucrative returns and those who can’t seem to get it off the ground? Patience, self –discipline, and a few secrets discussed in a recent podcast on how to go from 2 to 72 properties in 12 months. In this podcast, we interviewed our very own Jack Gibson to find out how he got started, why he got started and dove into the key elements of his success.
The Jack Gibson Story
Jack got started in real estate after reading Rich Dad, Poor Dad. He learned the benefits of buying an asset vs. a liability and building a business that creates multiple avenues of passive income. For him, the largest driving factor to start investing was quality time with his family. He wanted a way to never miss a baseball game. He wanted to enjoy trips with his kids, and live a life of abundance. After a few financial setbacks, Jack realized depending solely on the stock markets to provide for his family was not the best option. He started listening to real estate podcasts and soaked in as much info as possible about the industry; from there he was hooked. He was able to channel his excitement and motivation into rapidly growing his real estate profile. He implemented a variety of different strategies in the beginning, including:
- Increased his income to have the cash to pay for his first few investment properties
- Sold his secondary home and used the equity to apply to new rental real estate
- Refinanced two properties to leverage additional properties
- Sold all of his stocks from his brokerage account and transferred funds into a self-directed retirement account
- Used funds from his retirement account to purchase two single-family homes for rent and a quad
- Got approved for a HELOC on his primary residence and pulled out $150,000 in equity to buy properties in cash and get better deals.
Make Your Money Work For You
Many potential investors out there are wondering how to get rich in real estate. The key is making your money work for you. By being creative with how you find the funds, you set yourself up to make an infinite return on your investment. We talked recently about the power of cash investments. Investors who use cash to buy their first investment property are a step ahead of those who rely on traditional financing.
Another secret that successful investors won’t tell you is that investing is all about the economics, not emotions. Analyzing the hard numbers and market conditions when trying to find investment property is one way to avoid major financial pitfalls. Don’t look at each investment as a place you’d like to live “one day.” Remember that the rental property is not one that you personally will be living in. Always keep the target market in mind when rehabbing and buying investment property. Investing with your head instead of your heart will keep you focused and on track for exponential growth. Maybe you’ve bought and sold properties before. Or maybe you’re buying a house in your 20’s as your first investment. Either way, a clear game plan that focuses on facts and figures is a great place to start.
Investing With Other People’s Money
One thing that makes people nervous about investing is doing so with OPM (other people’s money.) As an entrepreneur in real estate, who you know is very important. Successful investors surround themselves with individuals who are smarter and richer than they are to better themselves. Pitching private lenders for money to invest is a good option when:
- You have plenty of rental income coming in to offset the payback. Remember: private lenders often require higher interest rates OR
- You know you’re doing this on a short-term basis to refinance them into longer term lower interest rate lending.
It’s All About The Presentation
When you pitch your ideas to private lenders, your success is based on how present the offer. The reason any investor is successful in securing OPM is that they structure the situation in a way that benefits the private lender significantly. When you can show the private lender that you’re putting them in a high return, low-risk situation, your chances of securing that money increases drastically. You can’t simply ask for thousands of dollars without providing evidence that this business relationship is going to be mutually beneficial. Framing your request in a way that will motivate them is the first step in investing with OPM.
There are two primary strategic methods to managing your money; offensive and defensive. Some people choose to increase their income while others choose to decreases their expenses and liabilities. So which one is better? They’re both right! Combining both strategies is what results in the most money coming in and the least amount of money going out. This ensures a steady stream of funds that you can use to expand your real estate portfolio.
Investing: Creating The Life You Love
Owning rental properties is not just about owning houses; it’s about creating the lifestyle you’ve always wanted. Successful real estate investors travel the world, buy their dream cars, treat their parents to Caribbean cruises, pay for weddings and college tuition for their kids and grandkids, all because they have the money and freedom to live the life they love. They work hard while always keeping the end goal in sight; passive income that generates flexibility and fortune at the same time.