Learn how to start real estate investing as a parent with our comprehensive guide. Explore strategies and tips tailored to your family’s needs.
Real estate investing can be a powerful way to build wealth and provide for your family’s future. As a parent looking into real estate investing, you face two challenges:
- You’re likely averse to putting your financial capital in a highly leveraged position. Maybe in your younger, child-free years. When you’re responsible for the well-being of children, that doesn’t fly.
- You don’t have much time outside of work, childcare, or other responsibilities. Like many parents, any free time you have is spent making money using immediate methods like Uber or a part-time job. How quickly can real estate investing pay?
We will discuss both challenges in this guide and give you a comfortable roadmap to real estate investing as a parent.
Understanding Real Estate Investing
Real estate investment involves purchasing properties to generate income through renting, leasing, or price appreciation. The most common forms include:
- Residential Properties: Investing in homes or apartments to rent out. A few options include BRRR, flipping, and even buying and building on vacant land.
- Commercial Real Estate: Buying and/or investing in business-related properties, like offices or retail spaces. There’s been a lot of talk lately about investing in storage units. I first heard about that strategy from Nick Huber of Sweaty Startup.
- Real Estate Investment Trusts (REITs): Buying shares in a company that owns and manages properties
Your first real estate investing goal is to choose an avenue to invest in real estate. Know that when you start, there won’t be such a thing as work-life balance. Be prepared to cut out other areas of your life. Of course, we’re not talking about your children!
You’ll have to sacrifice more, get up earlier, and go to bed earlier than others. But guess what? If you’re here, you’re probably already overworked and tired. If you don’t change things, that may never change.
House Hacking: Your First Investment
Your first real estate investment should be a house hack. If you don’t know what it is, here’s a definition. You buy a house and get roommates, or buy a multi-family property like a duplex or triplex. You can even use an FHA loan to get financing at 3.5% down for a property with up to 4 units. The only stipulation is that you have to live in the unit.
We get it; you may not want to live next to or with tenants when you have kids. Follow our guide to stress-free renting to see how you can do it.
This is 100% the fastest way to acquire your first property. The first thing that will happen is that your expenses will drop substantially when you have one or more tenants paying down your mortgage.
The extra income may allow you to work fewer hours. Or you can work the same, pocket the money, and buy your second property. Does your rent go up every year? Not when you own your property.
The benefits are nearly endless.
Getting Started: Education and Planning
Education
- Learn the Basics: Understand key concepts like cash flow, capital appreciation, property management, and real estate financing.
- Read Books and Attend Seminars: Books like Rich Dad Poor Dad by Robert Kiyosaki or The Book on Rental Property Investing by Brandon Turner offer great insights.
- Online Courses and Podcasts: Resources like BiggerPockets provide comprehensive information and community support.
Financial Planning
- Assess Your Financial Situation: Review your savings, income, expenses, and debt. As a parent, ensure you have a solid emergency fund and life insurance.
- Set Clear Goals: Define what you want to achieve through real estate investing. Consider both short-term cash flow and long-term wealth accumulation.
- Create a Budget: Allocate funds for investments without compromising your family’s needs or financial security.
Family Considerations in Real Estate Investing
Time Management
- Balancing Family and Investing: Schedule specific times for real estate activities that don’t conflict with family time. Consider investing in tools or services that streamline property management tasks.
- Involving Family Members: Depending on their age, children can be involved in simple tasks or decision-making processes, which helps in teaching them about business and investment from a young age.
- Networking: As a busy parent, you won’t have time to do everything. This is where networking with like-minded individuals comes into play. If someone can help your business in any way, exchange information. You’ll want a contact book full of inspectors, builders, investors, buyers, and more.
Risk Management
- Diversify Investments: Avoid putting all your financial eggs in one basket. You can do this by diversifying your investment avenues or owning multiple properties. Personally, I recommend finding one strategy and market and then sticking to it. For example, buying vacant land to build multi-family properties.
- Insurance: Ensure all properties are adequately insured to protect against unforeseen events.
- Legal Protection: Consult a real estate attorney to set up the proper legal structures to protect your assets.
Financing Your Investments
Options for Financing
- Mortgages: Traditional bank loans are a common way to finance properties. On the networking theme again, you’ll want a loan officer in your roster.
- Owner Financing: Sometimes sellers offer financing, which can be beneficial if traditional lending criteria are too stringent.
- Partnerships: Joining forces with other investors can allow you to purchase properties you couldn’t afford alone.
Eventually, as your portfolio and cash reserves grow, you can get more aggressive with how you buy properties. This can allow you to buy more types of properties at a lower price. For example, some homeowners may want to sell their house as-is, with no inspection. You can come in with a cash offer that literally sweeps them off their feet and eliminates all other competition.
Keeping Costs in Check
- Negotiate Purchase Prices: As a buyer, always look for the best deal possible. Before even going into a deal, know how much you can spend, the cap rate, and the amount of lender financing you can get.
- Manage Renovations Wisely: Focus on renovations that increase property value and appeal to renters or buyers.
- Control Operating Expenses: Regularly review property expenses to keep them in line with your budget.
Tax Strategies
Aside from the income potential, the biggest benefit of real estate investing is the opportunity to take advantage of the many tax benefits.
- Depreciation: Take advantage of depreciation to reduce taxable income. Real estate offers depreciation benefits; owners can depreciate the cost of the building over a set period, usually 27.5 years for residential property. This acts as a non-cash deduction to offset income, lowering annual tax obligations.
- 1031 Exchange: This strategy allows you to defer paying capital gains taxes if you reinvest the proceeds from a property sale into another property.
- Deduct Mortgage Payments: property owners can deduct the interest paid on a mortgage from their taxable income, which can result in substantial savings, especially in the early years of a loan when interest payments are higher.
- Deduct Maintenance Expenses: Expenses related to property management, maintenance, and repairs are also tax-deductible, allowing investors to reduce taxable income while maintaining property value.
A Lucrative Career In Real Estate… Possible For Busy Parents
Investing in real estate can help you build the exact life you want. You can create an income stream that continues to pay when you can no longer work. There’s no greater avenue to secure your children’s future while still enjoying life.
Real estate investing requires juggling responsibilities, but with the right approach, you can succeed. Start with solid education and careful financial planning. Involve your family, where appropriate, to help them understand the importance of investing and financial management. Lastly, stay informed about market trends and continue learning and adapting your strategies.
