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How’s it going today guys so what we’re going to be talking about today is investing in real estate for complete beginners now before i get into the video i just wanted to mention i’ve been messing around with my camera settings yet again i know i had a couple of videos that were kind of dimmed because i didn’t have my brightness adjusted the right way so i think
This is good and it does not make sure you guys let me know but they should be good uh i did some trial clips with it and look at it and this seems to be a good brightness that worked so let me know how that looks on your end anyways just to give you guys an overview on what we’re going to talk about in this video because it will be quite long i think i just
Wanted to point out what we’re going to be talking about in case this isn’t what you’re looking for i don’t want to waste your time here but we’re going to talk about first of all direct ownership and and within that we’re going to talk about people who buy and hold real estate as well as buy and flip that we’re going to talk about real estate investment groups
Then real estate limited partnerships and then real estate investment trusts and real estate mutual funds which kind of are similar from time goes in under the same group there but the first thing we’re going to talk about is direct ownership with the buy-and-hold strategy so direct real estate investment has the highest potential risk and the highest potential
Reward obviously that’s because you’re buying that piece of real estate yourself you’re responsible for making those mortgage payments and if you can’t get a tenant in there to rent that property to you’re responsible for making that mortgage payment direct real estate ownership is not a passive investment a lot of people try to sell real estate as a passive income
Source and at first if anything buck passes because anytime you need to make repairs any time toilets get clogged light bulbs need to be changed things like that you’re going to be getting phone calls from your tenants and your ease are going to have to call somebody to go make those repairs or if you’re handy you’re going to have to go make those repairs yourself
So if you’re not somebody who wants those late-night phone calls about toilets being clogged or furnaces being broken or whatever maybe real estate direct ownership is not for you the thing is though real estate even with direct ownership can become tacit once you have enough properties because at that point it’s cost effective to bring a property manager but if
You’re on your first unit or your first couple of units it’s probably not cost-effective yet to have property management so you’ll be managing those properties yourself as well as getting tenants in there and renting out the property itself so you do have to consider that when you’re investing in real estate and you’re owning the property itself you’re responsible
For all that so at first it’s definitely not a passive income source the best strategy for a complete beginner if you’re looking to get into this method of real estate investing would be the owner-occupant method which is basically where you would live you basically buy a multi-family building maybe a two family or even a period or four family building you would
Live in one of the apartments and rent out the others the advantage to that is anytime that you need to make repairs you’re already there and instead of getting that phone call maybe they’ll just knock on your door you just have to run upstairs and change your lightbulbs or whatever it is you have to do maybe you’re gonna like eat and you’ll have good tenants
Who are going to maintain the property and treat it well but in most cases just with talking to people who do this a lot of tenants will not treat that place that they’re renting the way they would treat their own home and they may not be willing to do things like changing light bulbs or unclogging toilets or fixing leaks in the drains things like that so you’re
Going to be responsible most likely for all of those things but basically here’s how a direct ownership works a person buys a property and rent it out to a tenant the tenant pays the landlord rent each month and then the landlord pays taxes on the property the mortgage and the maintenance with the rest money now there are three common scenarios with this the
Best case scenario is where the landlord has a cash surplus each month at that point you have money left over that you can set aside for foreseeable repairs in the future one of the biggest ones is if let’s say you need to put a new roof on the house that’s going to be a lot of money so you should start saving money for that in the beginning the common scenario
Though is where there’s no money left each month and you’re just getting the free equity because basically they’re paying the mortgage for you so a long term that’s going to be a great investment because once that mortgage is paid off you own that property free and clear and if you decide to sell it at that point you get whatever it sells for or if you continue
To rent it from that point forward you don’t have to worried about making that mortgage payment because you paid off that property and the best thing with that is you didn’t even pay for your tenants paid for it now the worst case scenario which unfortunately is common as well is that your expenses exceed your mortgage and the landlord will pay the difference
Because you’re responsible for that mortgage payment at the end of the day and you’re going to be having to make it regardless of the scenario maybe you’re unable to rent it for a number of year or a number of weeks or a number of months or maybe there’s a lot of repairs that need to be done because you have bad tenants unfortunately you’re responsible for that
When you’re the direct owner of that piece of real estate and like i said once the mortgage is paid off you own the property free and clear at that point you can continue to rent it and keep that cash surplus or you can sell the property get your money out of it and get all that equity out of it if the property value appreciates while you own it the landlord has
A more valuable asset when they sell it that’s why one of the most important things when looking at these real estate in the location you want to make sure you’re buying a house in a good area where the housing market is doing good and hopefully the value of that house will go up over time naturally house prices have gone up obviously except for the 2008 crash
Housing prices really suffered there but other than that if you look at the trends house prices have generally gone up so they are a good investment as long as you pick a house in a good area so like i said at that point once you once you basically own that piece of real estate your surplus is just whatever the rent is minus the taxes and the expenses on that
Property you don’t have to worry about that mortgage at that point now if the property value that appreciates like we said it’s a more valuable asset for you and the most important factor is when looking at a piece of real estate there’s a lot of factors in fact there’s like ten common ones and i’ll probably do a video on that in the future the best factors as
Far as what you’re looking at when investing in a piece of real estate but the two most important factors are definitely the location of the property as well as the eventual rates so you want to make sure you’re in a good location where the property value is going to appreciate and you want to make sure that you’re in an area where a lot of people are looking
To rent so there’s a high demand for bertie’s that way you get more for rent and hopefully you can end up in this best case scenario where you have a cash surplus each month now bad tenants can turn your investment upside down resulting in negative cash flow this is very common because maybe they’re bad on the property and they’re causing a lot of damage and
You have to paint every time you change tenants and actually some states it’s a law where if there’s a tenant in there for longer than a certain duration of time you’re required to paint so you want to make sure you consider all these things before investing in this it’s a lot more complicated than people think it is so you want to make sure you understand what
All the laws are surrounding being a tenant or being a landlord in your state or wherever it is that you live and then like we said property management is expensive but it may become cost-effective once you own multiple units because at that point you can have that one property manager represent all of your properties and they should be able to give you a better
Rate because you’re offering them more business at that point something else you have to consider as well as landscaping and lawn care and snow removal those are all things you have to consider i may be the case where you have to deal with your tenants where if they take care of that you knock some money off the rent or you just have to contract that out or you
End up just doing it yourself if you’re looking to put your own sweat equity into your property and do all the work yourself if you don’t mind going over there and mowing the lawns and shoveling the sidewalks and plowing out the driveway then that means there’s going to be more money in your pockets at the end of the day next we have the direct ownership buy
And clip strategy for investing in real estate this is basically real estate traders who buy a property for a short term old but there’s two types of these people generally you see out there what i think is more common than the other but type number one these are the people that make improvements and upgrades on the property that’s what equity – the investments
By introducing the work themselves or contracting out the work and then the problem is is at the time intensive investments and typically people who are doing this type of investment are able to do one property at a time unless they have a number of people working underneath them now the second type of person who doesn’t buy and flip type strategy is somebody
Who does not make improvements but they’re investing based solely on the intrinsic value of the property what that basically means is they’re hoping that if they hold that property for a short duration of time you’ll be able to sell it for a higher price because the market value is not representing what if the property itself is really worth so they’re buying
Properties that they feel are undervalued and they’re hoping that in a short term period you’ll be able to sell that property for a higher value without having to make any improvements now i’m sure you guys watched like those hg tv specials you’ll see like the house flippers that’s exactly what that is the type one right there people who buy properties make
Upgrades and improvements and hopefully sell it for a profit now there’s one problem with this and that is that flippers often do not have enough to cover months of mortgage payments which kind of get them into trouble so let’s say you were fixing up a property and you ended up way in way over your head and you had a lot more work than you expected and you set
Aside enough money for three months of mortgage payments and next thing you know you have to have that house for six months and fix it up during that duration of time that might be a problem if you don’t have it up saved up to those mortgage payments so that’s where some people get into trouble i feel like the second type is even more dangerous because if you
Bought a property because you felt it was undervalued and it ended up that it was fairly valued and you couldn’t sell it for any more or worst case scenario you had to sell that property for less you could be taking that loss and that can be dangerous for you especially if you don’t have the money to cover that loss now the third type is a real estate investment
Group this is where you can own properties without the hassle of being a landlord basically how this works is a company will either build or buy apartment buildings and then investors buy one or more units through the company basically the company that manages the units and the property for a percentage of the rent in return so this is good for people who don’t
Want the hassle of being a landlord if you don’t want those phone calls at night if you don’t want to worry about renting out the apartments or dealing with anything like that you might want to consider a real estate investment group now the best strategy for a real investment group is where all the owners pool a portion of the rent to protect against vacancies so
If somebody who owns units has a vacancy for a prolonged period of time they still get their mortgage payments paid out of that pool of money collected from the other people who are owners of units within that building there may be some that don’t have this strategy in place so if there was a vacancy for a period of time you’re still responsible for that mortgage
Payment on your own so there so there’s a good side to this one is a bad side of this the good side to this is that it’s a much safer way to get into real estate because you have the protection of against the vacancies if you do have rent collected in the pool you also have somebody else managing those properties but the bad side of this is typically a very high
Fee investment because the companies that own and manage these take a large percentage of the rent so you’re not going to make as much money as you would you were a direct owner of that piece of real estate and what’s important to remember too is a real estate investment group is only as good as a company managing it and if you’re being managed by a bad company
And they’re not getting good tenants in there and there’s a high turnover unfortunately there’s nothing you could really do because you are part of that company and part of that group and you don’t really have a say in who they’re bringing in or what strategies you’re using and getting tenants or whatever so you’re really at the mercy of that company when it
Comes to a real estate investment group so that’s something you should consider as well before getting involved in something like that but for many people who don’t want the hassle of being a tenant and i don’t want something as passive as a real estate investment trust which we’ll talk about in a second this isn’t really a bad option but if there’s definitely
More might be made if you’re a direct owner of real estate okay now the fourth real estate investment strategy is a real estate limited partnership this is basically like a real estate investment group but with an exit strategy essentially what you’re doing with this is you’re actually financing the construction of a building or of an apartment building or any
Piece of real estate doesn’t have to be multifamily you could be anything but basically how that works is a property manager serves as a general partner and that outside investors finance the project as limited partners at that point after the building is constructed investors may receive cash payments as the turn on investment so if that property is generating
Income that income may be share to the investors but the lion’s share of the income comes when that property is eventually sold and then the investors take a profit because they were the ones who financed that project the only downside to this is if that piece of real estate does not sell from what’s expected or if it’s had to save a hard time selling it you might
Get run into trouble with that there but basically with this you’re essentially financing the construction of a piece of real estate and then number five is a real estate investment trust and also under this is a real estate mutual project they’re so similar i kind of tighten it together here but this is basically real estate as a publicly traded investment this is
Where a trust is forms to use money from investors to buy operate and sell income generating properties reits are traded on major stock exchanges it’s just like investing in a stock and then rhys must pay out ninety percent of taxable profits in the form of dividends to investors so it’s almost identical to a dividend stock but the underlying investment is actually
Based on real estate so this would be the lowest risk way to get involved with real estate as an investor but it also will have the lowest possible yield because it’s so low risk reits often represent non-residential properties so a lot of them actually represent shopping malls you’ll also see commercial office buildings as well as healthcare facilities are common
That’s what’s represented under a reit and then a real estate mutual fund is essentially a diversified pool of these reaps i mean the last thing i wanted to do here is that kind of drew a line here to demonstrate like what the risk is of each one of these what the potential income is from these as well as the liquidity and by liquidity i mean how easily could you
Get rid of that investment if you had to so first of all direct ownership fall all the way on the left here there’s the highest possible return on investment the highest possible cash flow from that investment there’s the highest risk associated with that investment because you’re responsible for making those mortgage payments and this has the lowest liquidity
Because it can be extremely difficult to sell a piece of real estate especially in a bad market then pretty much real estate investment groups and real-estate limited partnerships they fall kind of in the same place here they’re kind of in the middle here and then all the way on the right side here we have real estate investment trusts and real estate mutual funds
These are highly liquid investments because they’re traded on public exchanges it’s very easy to unload that investment there’s very low risk associated with these when you compare them to the other two here or the other three and also there’s the lowest potential return on investment because there’s such a low risk investment but anyways that’s pretty much real
Estate investing for beginners this is like the most common ways people get involved with real estate and based on your risk tolerance you may pick one of these over the other personally i have not invested in any real estate yet but i do want to invest in real estate in the near future and what i plan on doing is the direct ownership method because personally
I’m kind of handy i know how to fix stuff up so i wouldn’t be it wouldn’t be a problem for me to have to go fix stuff or have to fix toilets or whatever it is i can do basic plumbing left to work things like that so for me it wouldn’t be such an issue to have to go out there and be fixing those properties myself but for other people if you don’t want to do that
There’s definitely other options out there and a lot of people don’t realize that you can invest in real estate without actually owning the property so that’s why i kind of wanted to make this video to explain the different ways that people commonly invest in real estate and there are other ways people invest in real estate as well i just kind of wanted to make
This as the most common ways people invest in real estate well that’s pretty much all i got for this video guys if you enjoyed it please drop me your like on this video and feel free to drop me a comment with any feedback on this as well as any other topics for future videos and if you guys are new to the channel please consider subscribing to be notified of any
Future uploads and as always i thank you guys for watching this video
Transcribed from video
REAL ESTATE INVESTING FOR BEGINNERS 💰 How To Invest In Real Estate (5 Ways) By Ryan Scribner
