It’s no news that one of the most sure fire ways of achieving financial freedom is by investing in real estate. People are often led to believe that real estate investing is just for the wealthy when that’s just not so. Not to imply that it is easy, but with little hard work and dedication, it is definitely within reach.
There are numerous ways to get started irrespective of your abilities, experience or income. But first you need to decide one thing: are you interested in being an active or a passive investor?
ACTIVE REAL ESTATE INVESTING
Active real estate investing allows you to have control over your asset. As an active investor, you are usually involved in every aspect of the deal, from securing financing and finding a property, to renovating and managing the asset as a whole. This side of real estate investing takes a certain amount of knowledge and skill, as well as a lot of your time. For those getting started, house-hacking or wholesaling are two popular strategies.
Wholesaling is a way to build capital relatively quickly and a great way to get started if you have no money. It essentially involves getting a property under contract and then reassigning that contract for a fee. Once you have enough for a 5% downpayment, you can then get a place and rent out the spare rooms or live on one side of a duplex and rent out the other. This is what is now referred to as house hacking. Both options allow your mortgage to get paid down by tenants, while you build equity to use at a later date for your next investment property. More advanced active strategies include flipping, BRRRR and multi-family optimization.
“Entrepreneurship is living a few years of your life like most people won’t so that you can spend the rest of your life living like most people can’t” – unknown
PASSIVE REAL ESTATE INVESTING
Not everyone has the time, energy, experience or interest to play the active role. Passive investing can take many forms, from being the money partner in a jv deal, to private lending or investing in a REIT (real estate investment trust). There is also a way to use your RRSPs, TFSAs and LIRAs (locked-in retirement accounts that hold pensions) to invest in other people’s real estate deals. More seasoned investors might also invest their money in syndications. Passive investing is not for someone who needs to be involved at every stage of the decision making process. Generally, as is usually the case, the higher the risk, the higher the reward. It’s important to know your risk tolerance.