Becoming a real estate investor is not an overnight, get rich quick, thing. You are investing for the long term. The benefit to owning stocks is that you can get in or out tomorrow. There is lots of liquidity associated with stocks and bonds. Real estate investing is different. You have to think long term with real estate. You can’t get in or out in one day. You can’t buy a property today, slap some paint on it and sell it next week. Unfortunately it doesn’t work that way. Real estate investing builds upon itself. You can increase your earnings beyond what you think with the proper mindset.
That is what I like about the buy to let or buy and hold strategy to real estate investing. It creates a long term plan for you. It provides a monthly income stream and at the same time gradually increases your equity and long term growth. Your real estate profits build on one another.
Short term real estate investing
With short term real estate investing you are more focused on your cash flow. This is how you can supplement your income and help pay all of your bills. The cash flow is usally your profits from a sale or your monthly rental payments. You should keep in mind that the lower your loan amounts, the higher your cash flow is. There is an inverse relationship between the two.
You also have positive and negative cash flow. Obviously you want positive cash flow. Positive cash flow is when your income generated is greater than your bills. Negative cash flow is just the opposite. It is when your bills are greater than the income generated. There are simple formulas you can use that can help you keep in the positive cash flow. A little common sense is always a big help to in this situation.
Just subtract your operating expenses and mortgage payments from your gross income. This is your net cash flow.
These days investors can structure loans, especially if they properties are owner financed, to make sure they have the cash flow they want. If you buy to let a property, this makes sense. Structuring the loan so that you can easily make the payments and have some cash flow will be important. It may mean a longer term loan at a lower rate, but it is worth it if you can have a comfortable positive cash flow.
Real Estate Tax benefits
I have talked about the various tax benefits associated with buying investment property before. These benefits can save you a lot of money and help you create more equity much faster. You are allowed certain deductions on your taxes. Operating expenses, depreciation, and the like are deductions for the real estate investor. You also have the 1031 exchange that I have mentioned earlier that you can use for your benefit. The 1031 exchange lets you reinvest your profits from one sale into another real estate purchase without having to pay taxes on your profits of your sale
