Investing 101: Invest in What You Can Afford

October 13th, 2020

When it comes to investing, there’s one rule that’s more important than anything else: never invest money that you can’t afford to lose. It might be tempting to throw your newly hard-earned money into a real estate venture you’ve been dying to get involved with, but before you do, keep in mind that it’s important to have enough cash saved before you do. It’s easy to get ahead of yourself, so it’s important to start SMALL. The last thing you want to do is dump all of your hard-earned money into one investment strategy when you first begin investing (Match Investment Strategies With Your Goals). That’s why we’ve created this guide based on the amount of cash you have set aside. If you follow the strategies and guidelines listed below – and make sure you’re not investing before you have enough cash – you’ll be well on your way to making consistent passive income while building your real estate portfolio.

 

1. $0 – $20,000: KEEP SAVING AND LEARNING

While it may be temping to start investing in real estate once you’ve saved your first $10,000, try your best to hold off. Waiting until you have a solid $20,000 set aside will be greatly beneficial in the long run. While you build up your savings, be patient with yourself, and take the time to learn all that you can about investing in real estate. This is a period where you can gain all the knowledge you’ll need for your future endeavors. Just be patient and realize that it’s okay to not jump into investments right away. 

 

2. $20,000 – $50,000: BUY A TURNKEY RENTAL PROPERTY

Congratulations! You’ve officially set aside enough cash to start investing. At this point, I would highly suggest buying a turnkey rental property (How To Start Real Estate Investing). If you’re unfamiliar with these, you’ve come to the right place. Basically, a turnkey rental property is one that is fully rehabbed and ready to rent out. All you have to do it once you buy it is literally “turn the key” to unlock the front door. Your tenant can move in immediately, and a management company runs it for you, taking care of any repairs or maintenance issues that might arise. This is why people can own turnkey rental properties in an entirely different state and have the process run very smoothly. Because repair costs tend to be so low on turnkey rentals, they’re expected to bring in strong cash flow for the first several years, making this a solid option for first-time investors. 

 

3. $50,000 – $100,000: BUY TURNKEY, BRRRR, OR FLIP

At this stage in your investing, you have a few more options. First, you can keep buying turnkey rental properties (or have waited until now to buy your first). As stated above, this is one of the easiest and least work-heavy investments to make. You also have two other options that I tell people about. Let’s start with BRRRR. This stands for “buy, rehab, rent, refinance, repeat”. Through the BRRRR method, you’ll buy homes quickly, add value through rehab, build cash flow by renting, refinance into a better financial position—and then do the whole thing again. The key to success with the BRRRR method is to buy properties under market value and never investing more than 75 percent of the property’s after repair value (ARV). The third option would be to flip your real estate investment – basically, buy it, spruce it up, and then re-sell it for a higher price. Similar to BRRRR, it’s important to never pay more than 70% of the after repair value (ARV), minus repair costs. 

 

4. $100,000+: BUY TURNKEY, BRRRR, FLIP, OR  BUY MULTIFAMILY

So at this point you’ve saved enough to officially invest in multifamily apartment buildings. At this stage in your investment journey, you’ll have the most options and can decide between the three options mentioned above, or buying a multifamily apartment building. Whatever you do decide, at this stage in the game, you’ll have more flexibility. With multifamily apartment buildings, you’ll generate cash flow, passive income, valuation potential, scalability and tax benefits. At the same time, however, both turnkey and BRRRR will also provide you with most of the same. For more information on the seven benefits of turnkey rentals, check out this article: 7 Turnkey Property Benefits To Know.

No matter where you are in your financial journey, there’s always something to plan for. That’s why we want to encourage you to do your research, save, and whatever you do – do not impulsively invest your hard-earned money. It may take time, but your saving will pay off and you’ll soon be the owner of an impressive real estate portfolio. 

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