torstai 4. heinäkuuta 2019

FIRE or Hard work and hustle

Everybody wants to get rich and FIRE (financial independence, retire early) is getting more and more popular. There are no shortcuts to wealth and riches. But there are some househacks and so on that one can use, especially in real estate investing. In this post I will go through a couple of them.

1. Probably buying undervalued property is one of the most common way to wealth in real estate business. It is always a good thing to buy something below market value. It is not always easy to find mispriced properties but it is one of the key components for a real estate investor. You buy something for -50%, for just some reason, and if you manage to sell it later for 100% appreciation, it is like a goldmine. Probably the first seller is in a hurry and you are the good samaritan... It is possible that one needs to do a little facelift before listing it again... It is possible that those are the "only" things you need to do. Yet, it is not easy, it is always hard work and hustle.

2. Using leverage. In Finland loans are considered very often as a bad thing and investing with leverage is even worse. People see only risks and if not risks then leverage is like cheating. Less is more, none is even better. And if you have to take a loan to buy a house of your own or if you want to finance you first real estate investment, people want to pay the loan off as quick as possible. Even if the borrowing cost is 1% and the investment itself creates like 4-5% yearly income and in addition some real estate investments might even gain up some appreciation. Loan is something that creates costs but as an investor one needs to create more income than there are costs. Using leverage is always a calculated risk but that risk comes with a price, more loans = more income stream possibilities or higher income possibilities.

3. Househack. In Finland it is common that the tenant pays of the debt used as leverage. It is a househack of sorts, but more commonly househack means that the tenant and the landlord might even live in the same property. One landlord might even own the whole property and just live in a tiny part of it. So basically one can buy a house and rent some part of it and use that as an extra income stream to pay of the loan. This is rather rare in Finland. More commonly rental apartments are found from landlord's hometown: familiar area, they are easily managed and the tenant pays off the mortgage.

4. Househack vol 2. Buy an apartment live in it for atleast 2 years in a row (and then rent it) and later (if you want to) sell it without taxes for the capital gains. Repeat the cycle. I would say I don't want to move that often... Some people does this for a living.

5. Thinking bigger. Many have only 1-2 real estate investment apartments to manage and to make few extra dollars/euros. Imagine buying bulk, instead of 2 apartments one might buy a whole block or a whole building. Naturally risks and maintenance or renovation costs grow bigger but high risk high reward. 100e cashflow/month/apartment x30 is a whole lot more than x2. You get risk but you get discounts and other management and tax advantages. Risks needs to be acknowledged and everything has its ups and downs. This is a way many real estate investor thinks nowadays, buying bulk opens new possibilities and risks. 

Semi easy leverage and tax advantages are the highest selling points that have brought my interest more and more towards real estate investing. Real estate investing is not that often easily scalable, it takes time, money and effort. Of course diversification is also a must so there is a lot to learn. Hard work and hustle to find deals, hard work and hustle to be able to apply for loans, hard work and hustle to manage tenants, properties and apartments. Nothing comes free but if money costs 1%/year and one can create 4-8%/year with it, it seems like a nobrainer. I don't care if it is considered cheating, investing with leverage is like investing with steroids. 

Vuokranantaja has left the building...

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