Now is the perfect time to consider investing in the real estate market. But, you should NOT just run out and buy the first property that comes along. There is some planning that you should do first.
With that said, don’t put all your money into one basket. In order to invest smartly, you need to distribute your wealth to your advantage.
Security. Your security basket is what you fall back on in case your world comes to an end. Let’s say you lose your job, your tenants move out and you’re stuck. This should be a liquid asset.. Stocks are great for this, since they will continue to make money and are fairly accessible.
Many people say three to six month’s worth of expenses is a good number to keep on hand. Being in real estate where my income is less certain, I like six months or more. As you collect more investment properties, that number could be cut down, but it depends on what you are comfortable with. Let’s say you own 20 rental properties throughout 5 states, how likely is it that all those renters will leave at the same time? Fairly unlikely. The point is, make sure you have enough in reserves in a liquid account in case you need it.
Emergency. The emergency basket is what you use if the water heater breaks, car needs repair, etc. If you have had credit card debt in the past, this basket should be your primary concern. I like money market accounts, or something that is accessible right away.
I have tapped into my emergency basket on more than one occasion. One winter, the water line to the house froze and needed to be replaced, the stove went out and the furnace stopped all within a couple weeks (don’t people say things happen in threes?) That was a cold year, but we pulled through because we knew there would be repairs needed and had planned ahead. Then, we just worked to replenish that emergency fund incase something happens again.
Income. The income basket is where it gets fun. These could be both stocks and real estate. This is your passive income stream, the money you don’t work for. It could be your investment properties, a business investment or something else that makes you money. This is what sets you financially free.
Growth. The growth basket is the one that takes advantage of equity and appreciation. Real estate is the easiest way to build your growth basket in the long term. See my article about why I prefer real estate over stocks as a general statement.
Risks. The high-risk basket is for gamblers who can afford to go out on a limb. These are the deals that are “too good to be true.” If you are secure in your wealth and have a little money to gamble, then I wish you the best of luck. For me personally, I prefer to stick with more proven methods that will increase my wealth over the long term. I’ve got plenty of time to accumulate my wealth and property. Why risk it all?
If you’re thinking about investing in real estate, stay tuned for some great tips on where to start. Or, get started now and give me a call to discuss the Northern Snohomish County and Camano Island, WA market.
Jen Hudson, GRI (360) 652-1200 or firstname.lastname@example.org
Just getting started? Stay tuned for items you should consider as first time investors. (Part 1)
Considering foreclosures? What you need to consider before purchasing one.