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The Fast Company Executive Board is a private, fee-based network of influential leaders, experts, executives, and entrepreneurs who share their insights with our audience.

Three ways to be a successful real estate investor

How to get started in real estate investing.

Three ways to be a successful real estate investor
[Freedomz/Adobe Stock]

If you asked anyone from new college graduates to working professionals to people looking to retire early to be really honest about their goals and aspirations, being wealthy and successful would probably make the list for most people.

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In my experience, real estate investing can be one way to accomplish those goals—if done correctly. Before you dive in, you need to know what you’re getting yourself into.

First, here are three reasons why you should consider real estate investing.

REAL ESTATE CAN OFFER PASSIVE INCOME

Real estate is essential: People are always looking for a place to live, and land is a finite resource. Most people who invest in real estate have well-paying jobs that more than cover their bills, and they don’t depend on real estate income to get by. Instead, they use the income from real estate investments to pad savings accounts or build up another down payment to acquire their next property. Remember, this is not a get-rich-quick scheme — it’s a slow, steady process.

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REAL ESTATE IS A HARD, TANGIBLE ASSET

Inflation is part of our reality, and real estate aims to keep up with inflation. The average inflation rate is typically between 2%-3%. Let’s say you owe the bank $100,000 for a property. You go into debt now to pay for that property, and you pay the bank back over 20 or 30 years.

That will feel less painful than if you had to pay them back immediately because a core tenet of inflation is that erodes the value of currency over time. Put another way, the cash you have on hand now is worth more than the cash you’ll have in 20-30 years.

For people who tend to be debt-averse, this requires an attitude shift. But as inflation proves, sometimes there are long-term benefits to going into debt now.

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REAL ESTATE CAN PROVIDE TAX BENEFITS

Rental real estate is one of the few asset classes that allow you to deduct any depreciation in value over the life of the property. That helps it stand out from other popular investment options, like crypto, stocks, or mutual funds.

Real estate investors can deduct the price of building improvements over 27.5 years. With the new bonus depreciation laws, you can do what is called a cost segregation study. This segregates all the components of the building and allows you to accelerate depreciation deductions.

From the above, you can see how real estate investing can help you accomplish your financial goals. Now, let’s talk about how to do it right.

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ASSESS YOUR NET WORTH

Net worth is determined by deducting all liabilities from assets. Assets are anything claimed that has money-related worth, while liabilities are commitments that drain assets, such as debt, accounts payable, and home loans. Establishing your net worth can help you determine if you are qualified to enter deals.

Note that when you decide you want to be a real estate investor, you need to be equipped financially. Nobody goes to a battle empty-handed.

EDUCATE YOURSELF

Your knowledge about real estate investing is as foundational as your financial preparedness. There are different types of real estate investing, and you need to find a deal that fits your objective.

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For example, do you prefer to operate as a sole proprietorship? Do you want to join syndications? Are you more interested in flipping or in real estate investment trusts (REITs)?

For example, what will happen if you decide to buy property every three years? As soon as you get to five or six properties, you could be making $30,000 or $40,000 in passive cash flow a year. At that point, it might be time to buy two properties every year instead and grow from there.

The bottom line is, you need a strategy before you get started—and developing your strategy starts with education.

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JOIN A MASTERMIND GROUP

Multiple minds are better than one. Having the right mindset on your own can help you get started, but the key is to sustain your success. A big part of that is surrounding yourself with people who can help you continue your education—people who are more experienced, wiser, and more affluent than you.

Listen, if you are the most intelligent person in the room, you should leave. Why? Because you may not be able to learn much from the people you’re surrounded by.

I like to explain rental real estate by asking people to imagine a rocket ship blasting off into the atmosphere. If you make the right moves, at some point, you can reach massive passive income (velocity) and achieve a breakthrough, reaching zero gravity and growing faster by the minute.

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Lane Kawaoka is Podcaster for SimplePassiveCashflow.com & Real Estate Syndicator of 6,000+ rental units.

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