Investing, Laid Back Investor

Once you’ve decided that you want to diversify your portfolio with some real estate exposure, the next step is figuring out how. There are many ways to invest in real estate. Let’s talk through the primary ones.

Buy and hold – This is the most common and straight-forward investing approach. It’s simply buying a house, renting it out, and holding on to it for the long term.
Fix and flip – The method popularized by TV shows where you buy a house under market, rehab it, sell it for a profit within a year
Turnkey – Similar to fix and flip except the companies will place a tenant after remodeling and only sell to investors instead of the open market.
House-hacking – This is where you buy a small (typically 1-4 unit) building and live in one of the units while renting out the others. This is a great way to reduce or eliminate your personal housing expense while also getting your feet wet on becoming a landlord. This method can also include renting out individual rooms within a condo or single family home too.
BRRRR – This stands for Buy, Rehab, Rent, Refinance, and Repeat. The key to this method is accurately estimating your rehab expenses and the after repair value (ARV). If you’re able to find a property where the purchase price and the rehab costs combined will equal 70% or less of the ARV, you can refinance the property and get back all of your invested money to reinvest again somewhere else.
REITs – REITs are purchased and traded just like regular stocks. You generally get paid higher dividends though.
Crowdfunding / Syndications – If you don’t want to own property directly, you can invest with a group that is buying rental properties and pays out over several years. Crowdfunding is generally open to the public with some financial requirements, while syndications are generally smaller groups that you sometimes have to be invited into.
Wholesaling – Work with motivated sellers, contract with them for a certain price, and then sell the contract to others at higher price. You’re essentially paid a finders fee and never own the property directly.
Buying notes – Take over a distressed loan and become the bank. You then have to work with the homeowner to come to new affordable terms that make the investment worthwhile.

I’ve tried out a ton of different apps or tools to manage my investments, from change round-ups to bank monitoring services, from individual stock investing to various fund investments, and the biggest lesson I’ve learned is to keep everything SIMPLE, for ease of maintenance and to keep your own sanity.

I’ve devised this ladder of how I handle my money. Nothing Earth-shattering here, but I think it’s important to start with this for the investing category.

First and foremost, you must contribute to your company’s 401k program to at least the percentage that is matched by your employer. That matching is free money and a great multiplier on your own investments. For example, if their match is up to 3% and you contribute that 3%, you are getting an automatic 100% return on your investment right away, which you will not get anywhere else.
Next, you’ll want to ensure you have around 3-6 month’s worth of expenses in an emergency fund of either cash or less-risky investments that you can sell quickly if needed. A wise uncle once told me that with a proper cash cushion you’ll be more comfortable taking risks at work which can help catapult your career.
Once you have those two basics done, next you should prioritize paying off all credit card debt that has an interest rate higher than 5%. Reason being is that you’re not guaranteed more returns than that (or anything really) in any other investing options. In other words, if you do steps 4-6 before this one, you’ll be earning less than you’re paying in credit card interest, so you’re actually losing money overall.
With no looming debt over your head, now’s the time to take the money you were paying towards credit cards and increase your 401k contribution by 1-3%. You could start with 1% more, see if you’re able to survive easily, and if so, keep upping the percentage until it starts to feel a little uncomfortable.
Once you’re at a good place with your 401k, or potentially even maxing it out ($19,500 per year as of this writing), the next investment you should consider is contributing to an IRA. There are two types, a Roth IRA and a Traditional IRA. A Roth IRA is better because the earnings grow tax-free while a Traditional IRA grows tax-deferred, meaning you pay regular income taxes at your future retirement tax rate. There are some eligibility requirements for contributing to a Roth IRA, so check those to decide which one is right for you. With either type of IRA, you can pocket up to an extra $6,000 per year and save on future taxes.
Lastly, once you’ve gotten this far, you can start looking into investing in stocks directly using a brokerage account. This used to be hard for the average person to do, but there are lots of companies that make this easy and cheap (or free!) these days. You can invest in individual stocks, index funds, or better yet (in my opinion), a robo-advisor, which I’ll cover in a future post. There is no cap to the amount of stocks you can buy, so as you get pay increases or bonuses throughout your career, you can continue up this investment ladder rather than falling prey to lifestyle inflation.

Different types of real estate investing

Simplify your investments