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Invest in Yourself First
| | Tuesday, February 10, 2004 @ 08:00 AM EST
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Contributed by: Roger Johnson
Roger Johnson Properties
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It sounds simple enough, but many truly overlook this simple statement: Invest in yourself first. Most will hear this when they ask "how do I start in real estate?" and taking the time to educate yourself on some basic investing techniques is definitely a must do before jumping into buying properties. However, this article's title is the answer to the question most asked after reading a few books/courses on REI which is usually, "what type of property should I buy first?" And my answer to that is invest in yourself first.
By that I mean if you do not yet own your own home, then your first investment property should be your new home. Why you ask? You can't make money buying your own home, right? How will that help me in real estate investing? Won't that hinder my ability to buy more
investments? I'm sure that these and other questions immediately pop up in your head, especially with some of today’s writers/gurus teaching that buying your own home is a bad thing. If you notice, however, most of them are writing that from the comfort of their own home. Hmmm.
Why should your first investment be your own home? It gives you a specific goal of what you're looking for in your first property. It gives you the best opportunity to get to understand what is actually involved when you buy a property without the added potential for failure (since you'll be the 'tenant' you won't have to worry about your 'exit strategy'). It also covers you if you have misjudged the numbers a bit. Regardless of your intended type of investing, you can buy your first property through a real estate agent. Doing it this way, and asking several questions along the way, will help you understand a real estate transaction more thoroughly than any course, and you'll have the agent there to guide you through your state's forms and procedures.
Once you purchase your own home, it can be your stepping stone to further investments. If you were practicing your investing strategy, you should have gotten a pretty fair deal off of FMV. That translates into equity. If you bought a property that appraised for $100k for only $80K, then you've got up to $20K in equity for down payments on other investments. If you bought a mult-unit, you've got the other units to rent out that will help you cover your own monthly payment. If you live in this property for at least 2 years under current tax laws, you can sell it and you won't have to pay taxes on the profit. Average appreciation is 3-5%, so you'll net yourself a cool $6-10K just for owning a home.
Won't owning a home make it harder to buy more properties? Truthfully, if you're buying conventionally, it might, but only a little. By now, you should know that the best place to obtain "conventional" type loans is through a mortgage broker. A good mortgage broker should have loan options that greatly reduce or eliminate the debt to income ratio. If you're buying rentals, 75% of the fair market rent will count as income to you from the new rental. So on a $400/month rental, $300 of it won't count as debt. If your monthly payment is less than $300, then you have actually lowered your debt to income ratio. And, making your monthly payments on your home not only improves your credit score, it gives a positive impression to the lender. Homeowners are more stable and dependable.
Finally, take a look at the statistics. Over 90% of people who pursue a career in real estate investing never buy one property. By deciding to invest in yourself first, you've already set a goal which is what most of these 90% fail to do. Of the 10% left, fewer than half ever by more than one property. The reasons for this are many, most of which are eliminated or reduced by the mere fact that this is your home you're buying. And if it turns out that you only buy one, at least it's the one you live in. If you already own your home, take another look at it to see how it can benefit you in your REI career. If you don't yet have a place of your own, then consider my suggestion when cruising for properties.
Roger Johnson
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