This week, I continue my series of beginner real estate investing strategies. I’ve decided to share this information as I know the beginning of Real Estate Investing is often the hardest part. There is so much information out there, and I want others to have all the facts to take those first investing steps, so they begin building a strong portfolio from day one.
The strategy for this week is probably the most natural way for people to become a real estate investor. And a lot of people accidentally become real estate investors by using this strategy. It's called "Live in and rent."
This happens when you're living in a house that will eventually become a rental property. Hence the strategy name ‘Live in and Rent’.
Many things can happen in our lives as the years pass, and we will find ourselves wanting, or needing, to move into different homes. When then happens, for the most part, people will sell their assets and use any proceeds from that sale to do whatever it is that they're gonna do next.
In this scenario, instead of doing that, you hold on to the property that you have, and rent it out to tenants.
Hopefully when you do this, you have some equity built up in that property from living there for a certain period of time.
You can either take a loan out against that property, or perhaps a home equity line of credit, where you can take a little bit of money from the property, use it towards a future purchase or whatever it is you decide to do.
And over time, this is a great way for you to build a small portfolio of properties. It happens naturally as you go about living your life, and instead of just selling properties as you move on, you hold onto them instead.
One of the advantages of this strategy is that is can happen quite naturally, and it's easy to build up a small portfolio of properties that could really make up your entire retirement plan.
Also, you don't have to live in the property with other tenants, like in other strategies like house hacking. So, it can be ideal for people that are not interested in that at all.
The one thing that I want you to be aware of, is when you are purchasing a property, you are purchasing it through the lens of a homeowner. Not necessarily an investor.
You are going to to want to lean on your local team of professionals. In this case it could be your accountant, your financial planner or perhaps your mortgage broker & lender. If you have a great real estate agent you could also consult with them as well.
Also, you’ll want to make sure that keeping this property as a rental makes sense financially.
You’ll need to look at the local rental comparables to be able to see what you could rent the property for and factor in any costs of borrowing against the home and/or taking out any equity to purchase your next property.
Make sure all those numbers make sense, and that the property is cash flow positive.
That is going to be number one in any sort of real estate investment purchase that you make. You want make sure that all the numbers work because not all properties should be investment properties. Be sure to do your due diligence on the numbers before you make your decision.
As with any other strategy, you have to look at the pros and the cons, and determine what makes the most sense for you.
In this particular strategy, it may take you a bit longer to get to that portfolio of properties, because you could be living in a property for five or ten years before you decide to move, and move on to the next property.
So, take into account your goals, your time horizon and when you want to achieve the things you want to achieve.
The 'Live in and rent' strategy could be a great way to get started as a real estate investor, if you already have your first property and can start looking for your next one.
Do you think this strategy could work for you? Leave a comment below, I'd love to hear that you're ready to get your portfolio started.