Only invest in real estate as a baseline consumer once – and make sure you purchase the home as your primary residence. (After you own your house for two years you can sell without paying any capital gains tax.)
Here is what I mean…When you purchase your own home you learn all sorts of stuff. You learn that you hate cleaning, that paying bills is stressful and that maintenance is a pain in the ass. You wish you had a maid, a gardener, an accountant, a maintenance guy and people to take care of all the things you don’t like.
When you’re starting out you can’t afford all that stuff… you have to do it yourself. You learn how to do everything efficiently and you learn that you’d rather pay someone else to do it.
But the number one thing that you learn when you buy your first home is leverage.The amazing thing about leverage is that you have the ability to make tremendous amounts of money without risking much.
It’s why many savvy stock traders use options – they can make a lot without investing a lot.
So here is a great strategy to use leverage to your advantage, when you are buying your first home:
First… buy your first home as your primary residence. Put a small amount down and make improvements to your home. Work your butt off. Figure things out. Fix things. Break things. Make stuff work. Sell your home after two years and get a lump sum of money.
***Buying a home is just a forced saving plan. When you sell your home you’ll be fortunate if you can walk with much profit over the price you originally paid. You’ll likely be walking with the amount that you paid off from the principal of your loan.
Then… use that lump sum of cash to leverage yourself into a new venture. It can be a real estate business, a tree trimming business, an auto repair shop, or whatever. As long as the business is scalable, interesting to you, and of course, profitable. The key is that you are using that lump sum of cash to leverage yourself into a new business that has endless potential.
If real estate is where you want to focus your life on, then create a business around that. It is very difficult to efficiently scale the purchase of many real estate assets – it just takes too much management.
However, if you properly set up a business first (with that lump sum of money you have and all that knowledge from buying your first home) you can hire people to help you build an empire which can potentially grow to the sky.
A smart man once told me:
“Cody… let me tell you something… The amount of work it takes to buy and manage one house is the same amount of work it takes to create a business that buys and manages many homes. You can choose which strategy is right for you.”
A relative, when asked about his experience in rental properties, said being a landlord is only worthwhile..worth the hassle..with three properties. Makes sense. Forces you to set up and use a system. One house might be worth it if you have 10 years left on a 15 year mortgage and can rent to cover Piti and then some.