There is a lot to learn when you enter the real estate game. More importantly, there are many things that nobody bothers to tell you. Here are four of the most essential realities that new investors may not know. Read on to save yourself some headaches and set yourself up for success in the real estate game. Follow these tips, and you will likely fare better than if you had never read this article.
The idea that entering real estate with no capital is easy is perpetrated in many places online. The reality is, having enough capital to sustain your business through unexpected startup costs is always a wise move.
Personal loans tend to have far better terms than commercial loans. The same investor can walk into one bank for a personal loan and receive much more favorable terms than if they had walked into a bank and requested a commercial loan--or even mentioned using an LLC to manage real estate assets. Once your transaction is complete, we recommend transferring the property into an asset protection structure. These types of transfers can be executed using land trusts to avoid triggering the due-on-sale clause found in most loans.
Some investors may be experienced in other asset classes, but new to real estate. If this describes you, understand that while the goal of real estate is passive income, it is not an effortless endeavor. You will either be pounding the pavement, securing a mortgage, sourcing tenants, and managing the property. Unless, of course, you choose to outsource these tasks to professionals, who naturally will need to be paid. While it’s great to have professionals on board, the cost of outsourcing property management can eat up to 10% of your income from the property. Don’t get us wrong: real estate is absolutely a rewarding and worthwhile type of investment. We are simply suggesting that you have realistic expectations about real estate investing and what “passive” income actually means. These assets are not like stocks or bonds. If you’re brand new to real estate, study the asset class in detail to understand what you are getting into and how to succeed.
Your asset protection strategy is an investment to figure into your overall budget. If you have spent time and effort building a business, it makes sense to spend a relatively small amount of money to defend those assets from potential lawsuits. Remember, real estate investors only lose money in two ways: bad deals and lawsuits. Nobody can guarantee you won’t encounter a bad deal, but an effective asset protection plan can help prevent you from seeing the inside of a courtroom. Don’t skimp on asset protection, as it may be the component of your investing strategy that saves your backside if you are ever threatened with a lawsuit.
If you aren’t sure which asset protection strategies are best for you, that’s okay. That’s why professionals like the experts at Royal Legal Solutions exist. We are happy to evaluate your personal situation and make recommendations about the best asset protection plan for you so you can enjoy the peace of mind of knowing your real estate investments are defended.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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