I have been a real estate investor for many years and built my net worth to more than 10 million dollars from almost nothing mostly thanks to real estate. However, I did not buy my first rental property for many years after I decided I wanted to be a landlord. Right now, it is especially hard to invest in real estate. Interest rates are high, housing prices are high, and there is a lot of competition. Many people are stuck wanting to invest in real estate but do not have the money or are not in the right position to invest yet. I was in the same boat more than ten years ago not having the money to invest. I learned how to make and save money so I could invest. If I was starting out and needed to build wealth or make more money before investing in real estate this is what I would do.
Was it easier to invest in real estate 10 years ago?
I bought my first rental property in 2010 and prices were very low compared to now. A lot of people tell me it was easy to invest back then and that I got lucky. I was fortunate that prices were lower, but most people were telling me I was an idiot to invest in rentals after the market had just crashed. Many of those people were in the real estate industry as well. It was harder to get loans and a lot of people were predicting an even worse crash would come soon.
Even though many predicted a crash, I bought rentals anyway because I was not relying on prices to go up or down. Prices ended up skyrocketing and that made me a lot of money but that was a bonus. Even if prices had not gone up, I still would have made a lot of money with my rentals. We can’t go back in time but I will say it is very hard to time real estate markets. While prices were lower in the past, I have been buying every since and still buy real estate today.
Why is real estate so hard right now?
It is harder to invest today because prices are higher and interest rates are higher as well. The higher the prices and the higher rates are, the more money you need and the bigger the risk. If you are investing in houses, it is also harder to make money. The more expensive the house is, the higher the price is, and the less rent you get compared to the purchaser price in most markets. This is why there is a shortage of rentals. Despite what you may hear, investors have been selling more than buying in the last few years. The fewer rentals there are the higher rents go.
While rents have been increasing the high prices make down payments huge for investors. Higher interest rates make the payments higher and Inflation has been increasing costs which makes repairing properties more expensive. If you already own rentals, you are most likely in decent shape but if you are trying to buy them, it is hard…. but not impossible.
Can you still invest in real estate?
While prices are higher in most areas, there are still many places with properties in the $100k range. However, many investors do not live in those areas, and buying out of your area takes work and is risky. There are also other types of real estate that may be less expensive, like small commercial properties. The cash flow can be much better on those and on multifamily properties as well. There are options to invest in real estate now but that doesn’t mean everyone can do it at the moment. Some need to save more, be in a better position, or find the right market.
Some people sit back and wait for a crash but I do not see a crash coming. It could happen, but I think the chances are very slim, and waiting for that is not the best option.
If you can’t invest now, figure out what you need to invest
I know some people are waiting for a crash because real estate investing is not easy and it takes work to figure out what you want and how you are going to get it. Waiting for a crash is not a good plan. If you really want to invest in real estate you need to come up with a plan assuming prices will stay where they are now or even higher because it might take some time for your plan to come to fruition. If prices do go down, great you will be in an even better spot and if they don’t you will still be able to buy.
The first step in building this plan is figuring out what you want to invest in and where. How much money will you need? What knowledge will you need to gain? What people will you need to meet? A lot of people think that real estate will magically fix their money problems, but often it is best to fix your money problems before you invest in real estate.
Do you have access to cash that you don’t know about?
I used a cash-out refinance on my personal house to get the money to buy my first rentals. I had a lot of equity in the home because I got a great deal on it in 2009, not because the value increased. Now, many people have a lot of equity because of value increases. Interest rates are much higher and refinancing may not be the best option for many people. However, you may be able to get a line of credit on your home in addition to your mortgage. It is possible to keep your current mortgage which may have a much lower rate, and get a line of credit (HELOC) for additional cash.
How can you increase your income?
I think most of us want to increase our income and that could help us invest sooner or better. This is a constant goal of mine and higher incomes make everything easier. Inflation is causing the prices of most things to increase as well as wages. If your wages are going up great, but you want them to go up more than inflation to be able to get ahead. You cannot depend on your job to magically pay you way more money without doing something different on your end.
Here are some ideas for increasing your income:
- Make more money doing what you are doing now. I said you won’t magically make more money doing the same thing you are doing now, but you can go above and beyond. Get out of your comfort zone, work smarter, and talk to your boss. Ask people who make more about how they got into that position, including your boss, and figure out what you can do to change your position. If you are self-employed or own a business, do you have goals and plans for making more? Are you digging into the numbers and taking action to improve things? This may sound like simple ideas but many people do not do these things. They expect things to happen to them instead of making things happen themselves.
- Start a side gig. Side gigs can make you extra income but make sure they don’t take away from your main source of income unless that is your plan. Losing too much focus can be disastrous if not planned out. I lose focus a lot and have to remember what the most important activities I do are. If I have extra time for other things great, but I get the important stuff done first. Side gigs can consist of so many things. A vending business, a blog, a YouTube channel, or starting a business based on what your main job is and the knowledge you have gained.
- Start a new business or job. The best way to increase your salary is to get a new job. This can take work and sacrifice but new jobs often pay more for the same position because they have to attract talent. You may be able to negotiate a better salary where you are now based on new job offers as well. A new business can make a lot of money as well but it can take a long time to become successful and may never be successful. I love new businesses but they are not easy and you must be all in.
- Whatever you do, try to do something you are passionate about! You are so much more likely to continue it and put all your effort into it when you care about it. Other people can see that you are passionate about it as well which will make them want to be a part of it.
Once you increase your income make sure you don’t spend it all!
Along with making more money, you want to make sure that you are keeping more of that money as well. Here are some ideas:
- Look at everything that you spend money on! A lot of people do not want to do this because they are scared of what they will find. Many people have subscriptions they are paying for that they don’t need. Don’t be afraid to find out you can save money. It is okay that you are not perfect and may have paid for things you don’t need but don’t keep doing it! You may also be able to cut back on things you don’t need or be paying way more for things than you thought you were.
- Shop around for insurance, cell phone plans, cable, and other services you need. Insurance on cars and houses and health go up all the time. Many companies assume once they have you as a customer they can raise rates and you will not notice or change.
- Talk to your spouse about your spending habits. Do not be afraid of what they will say. Bring up things you can save money on first to show that you are trying as well.
- Use an accountant to see if you can save money on taxes or get a bigger refund. They cost some money upfront but often save you much more.
- If you have credit card debt, work to pay off the small balances first to stop paying as much interest. Then work towards the big balances.
- Many credit cards or other services will look for coupons or cheaper options when you buy online. Install a plugin on your computer and it is easy to save.
- If you need a car shop around and find the best option at the best price for you, which may even be used. Cars are often one of our biggest expenses and there are ways to save a ton.
Why not just take the easy way and invest in stocks?
A lot of people say you don’t need much money to invest, you just have to start and in 30 or 40 years you will be set. If you are interested in real estate investing you most likely do not want to wait 30 or 40 years! Real estate is amazing but it is hard and it takes time. I only have one life and I do not want the easy way, I want the best way. You can invest in stocks and hope you have enough money to retire in 40 years without inflation eating it all away. You could also put in some more work and make the life you want now.
Saving and investing the easy way for 30 or 40 years works for some but not for me. If it doesn’t work for you either I created a 9-step program about investing to create cash flow now and to educate people about money. This helped me get to where I am now by focusing on making more money and investing as much as possible. You can learn more about this program in the video below: