Don’t count on it.
Real Estate is a great store of wealth, and can provide good income in retirement, but it’s typically not something that will make you rich. This message is for young people that have been watching Tic Tok videos about getting rich with real estate investing.
You want to “get into the game” with creative financing and no money in reserve. But if you are trying to buy real estate with creative financing, you are being impatient and foolish.
The people who win in real estate are financially secure. This means they have a steady income, are able to save 25% of their income or more, have 6 months of personal cash reserves, are able to put at least 25% downpayment, and have 20% of purchase price in reserve.
Reserves are necessary for large capital improvements such as roofs, HVAC, driveways, patios, turnover and vacancy. If you don’t have money for a significant downpayment, the property will be difficult to cashflow. If you don’t have money in reserve, you may be forced to sell when you don’t want to.
If you don’t have proper financial resources, you are not only putting your big investment at risk, you are putting somebody’s home at risk. Tenants deserve to have an owner that can pay for necessary repairs and maintenance. If you can’t pay for these, you will lose good tenants. If you can’t attract good tenants, your investment is worthless.
The best owners are in it for the long term. They buy great properties at fair prices, not fair properties at great prices. They also realize that the property is not only an investment, it’s somebody’s home. Thus it must constantly be maintained and improved.
Owners that are constantly improving the property will see appreciation and rent increases over the long term. They will have good tenants stay for long tenancies. This will eventually result in passive income for retirement. It will also be something they can pass on – and the next generation will receive a step up in basis upon inheritance.