Summary List Placement
Investment properties are a tried-and-true path to passive income and financial stability for many households.
Financing an investment property takes more cash than a regular mortgage in many cases, as you have to put down a larger down payment and budget for additional landlord-related expenses.
If you have a lot of equity built up in your home, it may be possible to leverage it to buy your first investment property.
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I’m lucky to know a handful of wealthy people, and one commonality I’ve noticed among them is real estate investing. While there are pros and cons to various types of properties, I’m interested in building my own wealth through a strategy that includes residential real estate investing.
So far, I’ve made small real estate investments through REIT ETF purchases and a modest investment at Fundrise. In the long-term, I’m looking to level up my real estate investing with the purchase of whole properties. That takes a bigger chunk of cash than I have in the bank, but that doesn’t mean I don’t have other means to get started. Here’s a look at my plan to tap into my home equity to buy my first investment property.
Why I want to invest in real estate
I have two finance degrees and took college classes on portfolio management, financial institutions management, international finance, and more. With most of my education focused on corporate finance and investments, it’s no surprise that nearly all of my assets outside of my home are invested in stocks, ETFs, and mutual funds.
One of the most important concepts I learned about in portfolio management is diversification. A diverse portfolio can help reduce your overall risk when set up correctly. For a portfolio of stocks, for example, it’s important to not only buy multiple companies, but also to diversify across industries and market segments. That way, if one part of the economy experiences bad results, your entire portfolio won’t be impacted.
I feel like I’ve done pretty well with this, but the next step is diversifying out of the financial markets entirely. Adding investment properties gives me another opportunity for appreciation and cash flow that may be immune to the ups and downs of the stock market.
In addition to diversification, one of the only places I’ve seen people build truly passive income is real estate. I’m lucky to have friends and family who can help me learn the ropes when I’m ready to dive into the real estate markets as a landlord for the first time.
Of course, there are big risks in real estate as well and a lot more money may be on the line. For example, during COVID, many landlords cannot evict tenants even if they don’t pay rent. I definitely don’t want to end up with a rental property where I’m paying someone else’s rent, so I’m planning to wait until at least 2021 before buying anything.
Calculating …read more
Source:: Business Insider