There are many ways to build wealth in real estate. You can develop raw land. You can invest in commercial real estate or REITs (Real Estate Investment Trusts). Another option is to make money by holding onto a piece of property or home and selling it when its value appreciates. However, there are more popular ways to build wealth with real estate. Let’s explore rentals and house flipping. Then let’s hear Dave Ramsey’s advice on both.
Rental Properties
This is the most common way that people invest in the real estate market. According to Entrepreneur.com, “The potential for steady cash flow from tenants provides investors with a continuous income stream, which is a form of passive income.” Investors purchase a property either with cash or a mortgage, and then rent it out. They charge rent depending on several factors—size of home, number of rooms, and location. The rent covers the price of the monthly mortgage payment, insurance, and property taxes, and any additional monies are income for the investor. Obviously, you bring in more money each month as an investor if you paid cash for the property.
To give you an idea of the average price of rent in Montgomery, Texas, RentHub figured the amount by zip code. 77356 has the highest average—$2,044. While 77357 is slightly cheaper at $1,872 a month. Of course, if the home is waterfront, you can command a much higher monthly rental fee.
Renovating & Reselling Homes
HGTV would not have many programs if it wasn’t for people flipping houses. This is simply the process of buying a distressed property, renovating it, and then reselling it for a great price. It has the potential for high returns in a relatively short amount of time. However, there are many factors you have to consider. First, it takes time and hustle to find these properties. Then you have to secure the contract with an offer that is conducive to you making money. The cost of materials and labor for renovating the home must be considered as well as how fast you can get the house on the market and close the deal. Let’s just say…television shows make it seem easy. However, there is money to be made.
Real Advice from Dave Ramsey
In this video, Dave Ramsey fields a call from a gentleman who is looking to wisely invest his money. He is already comfortable with real estate as his family has been in the business for some time.
First, Dave debunks the myth that exists in the quote above from Entrepreneur.com‚—the term “passive income.” Real estate investment is not passive income, in his opinion. You have to deal with people regardless if it is residential or commerical rentals. In house flipping, you have to deal with real estate agents, contractors, inspectors, and more. It is more involved than rentals for sure, but Dave argues that neither are truly passive. So definitely keep that in mind if you decide to build wealth in real estate.
Second, if you follow Dave Ramsey for any length of time, then you know his stance on debt. He believes that any real estate investment should be purchased with cash. He acknowledges that leveraging debt can make you grow at a faster pace, but it is not worth the precarious situation debt brings.
In conclusion, you can build wealth in real estate by investing in rental properties, renovating homes and reselling them as well as many other ways. That said, know that it is not a truly passive income stream. It does require time and interacting with people. And, the only real way to secure this wealth is to pay cash and not take on huge amounts of debt. Real estate is still and will probably always be a real way to build wealth.