It’s no doubt that real estate has made many people rich, and it has been at work for over a century. But is it the best way to build wealth?
Most people think you need a lot of money to start investing in rental properties, but that’s not true at all. If you have an income, you can start investing in rental properties, today!
Brandon Turner, who owns and manages 300 units each providing monthly flow, gives his opinion on why we should start investing in rental properties. These 11 reasons come from his book, The Book on Rental Property Investing.
“Real estate can provide the best, safest, fastest path to financial freedom compared with any other method used to build wealth.” -Brandon Turner
Here are the 11 reasons why you should start investing in rental properties:
Ability to Purchase With Leverage
In most investments, you have to have all of the capital up-front to be able to make the deal. In real estate, you can purchase with leverage. Leverage gives you access to 400-500% returns compared to what you would have made without it.
How? Well, when you see a property selling for $100,000, you might think, “Wow, I would never be able to afford that.” That couldn’t be further from the truth.
You can, as most investors do, use debt to purchase a rental property, and then collect the monthly cash flow!
If you find a property for $100,000, you could use conventional financing and provide $20,000-$25,000, and the bank will handle the rest.
Or, you can use an FHA loan, and you only have to bring around 3.5% to the party, which would be $3,500. So for $3,500, the property is now yours.
Yes, you will have the pay the mortgage every month, but wait— Do you?
It’s a rental property, so you’re going to have at least one tenant in there paying your every month… Why don’t you just use their payment to pay off the mortgage?
Using this method, you don’t pay any of the debt, the tenant does. Typically the rent is higher than the mortgage, so you profit with what is left! Leverage!
Ability to Hustle for Greater Returns
If you want a passive investment producing returns for you, great! You can do that. Hire a contractor, hire an agent, hire a property management team. All of these things are not only possible, but used often.
But, if you want to produce even greater returns, you don’t need a contractor. You can do the work yourself! If you don’t want to pay a property management team, you can deal with the tenants and property yourself!
If you want greater returns in real estate, you can actively search for deals as much as you want. You can hustle as much as you want, and the more you hustle, the more you make.
Ability to Manage the Investment Directly
When you start investing in rental properties, you will find that you have a lot more control over what happens compared to other investment vehicles. There’s no deadline, there’s no volatility. There may be volatility in the market, but if you’re focused on holding, it shouldn’t phase you.
It’s up to you to make sure the property is ran well and kept in good condition, not some management at a Fortune 500 company that could screw things up in accounting frauds and corruption.
You don’t have to depend on a board of directors, you don’t have to care about anyone else’s opinion except your own.
People Always Need a Place to Live
Remember when Motorola was famous? Remember when Sears was famous? Remember when MySpace was all the rage? Remember when the BlackBerry was one of the most popular tech companies?
Most things don’t last. Except real estate. Your rental properties will still be there 10, 20, even 50 years from now unless a hurricane tears through and rips it to shreds. Even then, you’ll be paying for insurance, might as well put it to use.
People will always need a place to live. Fashion in the home may change, but the home will always be a place that people want to live.
It’s Been a Successful Process for Millions of Others
You aren’t the only one considering a risk in rental properties, it has been going on for centuries. When someone decides to jump into real estate, they either learn the right approach beforehand, they learn from the experience, or they go bankrupt and never come back.
A lot of people are successful in real estate, and a large percentage of Americans own a piece of real estate. You can follow the tradition, and make it even better.
Fairly Stable and Predictable
“I can’t recall ever once having seen the name of a market timer on Forbes’ annual list of the richest people in the world. If it were truly possible to predict corrections, you’d think somebody would have made billions by doing it.” -Peter Lynch
Try timing the stock market. It is one of the worst long-term strategies there is, because there isn’t a way to do it, consistently and reliably. People tried to say that the market would fall into a terrible bear market in April and May of 2020, and guess what? The market is up over 25%!
However, real estate is different. You can’t predict exactly what the market is going to do, but unlike the stock market, the real estate market is fairly rational and predictable. The boom-and-bust cycle never goes away.
In 2007, rental property owner focused on long-term gains didn’t suffer from those who were “punk drunk on greed”. You just need to know where you stand, and have a clear, reliable strategy.
There are a list of different ways to invest in rental properties, and that is the beauty of it: There is no 1 right way to invest, they all have their pros and cons, and they are all good ways of building wealth:
- Singlefamily homes
- Multifamily homes
- Office buildings
- Industrial Warehousing
- Large Complexes
There are so many ways to invest, so many ways to build wealth. This is one of the many beauties of rental properties.
Simple and Straightforward
When beginning in stocks, it can be overwhelming. When you start investing in rental properties, you may find you have a lot to learn, but a lot of it sounds feasible. Some things you will only learn through experience, and others you can learn through books.
When you start investing in rental properties, it isn’t easy. It gets easier as time goes on, as you build experience, connections, and higher amounts of scalability and cash flow.
Buy Below Market Value
It isn’t rare to find a $100,000 property selling for $80,000, and these types of properties are what helps investors boost their wealth quick.
A simple rehab and some time could easily give you a 30% return on your investment—if you paid in cash. If you put down $20,000, you could easily get over 100% on your initial investment just by buying good deals.
Find foreclosures, find motivated sellers, find good buyer’s markets. You can find great deals below market value at almost anytime.
Legal Insider Trading
On Wall Street, insider trading will land you in jail.
Insider trading is when someone profits off of an investment because they had information that the public didn’t have access to.
However, in real estate, you can use any information to benefit your investments. It isn’t just legal, it’s encouraged. If you know that a new light rail is coming to a neighborhood, you can buy up properties in the neighborhood before the market realizes it. If you know that an industry is leaving, you can sell before the market feels the effects.
Multiple Ways to Profit
There are so many ways to profit in the real estate industry, I can’t even name them all. I definitely couldn’t list them here, because the list would stretch for a multitude of paragraphs.
You can say flipping, single-family, small multi-family, etc. But what about the flipping strategies? What about the industrial warehouse strategies?
There are so many different ways to invest in real estate, and there are so many different strategies for any particular type of investment in real estate. Find what works for you!
Passive income is what fuels retirement. When you have money flowing in no matter what you do, that is passive income. You can sit out on a beach and still have money flowing from your investments. That is what most real estate investors shoot for. Maybe not the scene on the beach, but the ability to use their time how they want to use it, not at some job where they’re going to work until they’re 65.
You can be as active in real estate as you want, or you can outsource everything to trusted professionals to take care of the property for you, all you have to do is deposit the checks.
This is the goal, and this is a massive benefit in real estate.
11 Reasons Why You Should Start Investing in Rental Properties
The Book On Rental Property Investing is a handbook for beginner and intermediate investors, delivering both a nice introduction to real estate, along with a lot of number-based and factual-based advice.
The unique thing about Brandon Turner’s book is that it isn’t coming from the perspective of a billionaire, it isn’t coming from the perspective of a genius. It’s coming from what is seemingly a normal dude who is starting real estate in the same era as us, and is only 30 years young.
At the time that the book was published in 2015, Turner had 44 rental units, and has since built up to around 300 units. He is the VP for Growth on BiggerPockets, the largest real estate investor community, and continues to teach people how to invest while he continues growing his portfolio!