Menu #19: Building wealth through real estate, one property at a time

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13% of Americans are gearing up to purchase a new home in 2024, despite the hurdles they might encounter. Potential buyers are feeling the pinch of limited inventory, with 62% worried about finding the right home. To stay competitive, some are even willing to forego home inspections, a move embraced by 1 in 3 Americans facing multiple offers. (Source: IPX 1031).

27.5% was the average return on investment (ROI) for house flipping in 2023, with an average gross profit of $66,000. However, despite its popularity, house flipping has seen declining profitability in recent years. The percentage of financed flips has also declined, dropping from 43% in 2017 to 37% in 2023, signaling a changing landscape in the housing market (Source: The Motley Fool).

170 million Americans, or approximately 50% of the U.S. population, live in households that are invested in REITs through investment accounts and retirement plans (Source: Nareit).

DEEP DISH 🍕

Building wealth through real estate, one property at a time

Have you ever found yourself deep into a social media rabbit hole, watching video after video of folks telling you how real estate is the golden key to your financial freedom? Investing in real estate can be a fantastic way to beef up your net worth and bring in some nice extra dough.

Keep in mind that there's a side to real estate investment those online gurus aren't showing you. Spoiler alert: it's not all passive income and chill. Whether you're thinking about getting into rental properties, flipping houses, or just hustling to pay off your own home, real estate demands your time, energy, and, yes, a lot of that hard-earned cash.

We’re all for investing in real estate but you've got to be in it for the long haul, ready to roll up your sleeves and put in the work. So, if you're interested in diving into real estate investing, we’re rooting for you! Let's break it down and tackle some big questions like, "How do I even start with real estate investing?" and "Is this really a good idea for my wallet?"

Option 1: Buy and own your home like a boss

First up, your own home is real estate investing 101. Owning your home and paying it off quickly is not just about having a roof over your head; it's your first foray into investing. Every mortgage payment is like a forced savings plan, slowly but surely building your equity and net worth. And when you finally make that last payment? Pure bliss. No more mortgage payments means more cash for other investments.

Here’s a pro tip a when starting your home-owning journey: clear out any debt first and save up a solid emergency fund (we recommend 6 months of expenses). Then, aim for a down payment of at least 5-10%; 20% if you're feeling extra ambitious to dodge that private mortgage insurance.

Option 2: The rental property adventure

If you’re debt free, you might be ready to explore rental properties. This can be a fantastic way to generate some extra income and, if the stars align, score a hefty profit down the line. But remember, being a landlord isn't for the faint of heart. Late rent payments, unexpected repairs, and the 2 a.m. "my toilet exploded" calls can haunt you.

Option 3: Flipping houses - not as easy as reality TV makes it look

If you’re not excited about being a landlord, flipping houses is an alternative path. Buy a fixer-upper, renovate it, and sell it for a profit. It may sound simple, but house flipping is a beast of its own, with risks and costs that can turn your flip into a flop if you're not careful. Cash is king in the flipping world, helping you steer clear of the debt trap and giving you a fighting chance at a solid profit.

Option 4: REITs - real estate for the stock market savvy

And then there's the REIT route. Think of REITs as mutual funds for real estate, minus the hassle of managing properties yourself. They've come a long way and can offer solid returns. But here's the deal: dive into REITs only if you're already maxing out your retirement accounts and are debt-free. Also keep your REIT investments to no more than 10% of your net worth.

There you have it. The lowdown about real estate investments. It's not all sunshine and passive income, but with the right approach and patience, it can be an incredibly rewarding journey. Stay savvy and keep building that wealth, one property at a time.

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Million dollar cities — The latest data from Zillow reveals a record-high of 550 "million-dollar" cities across the U.S., showcasing a notable increase of 59 cities compared to last year. Despite persistent affordability challenges, home values continue to soar, driven by intense competition in a tight housing market. However, there's a silver lining for buyers as new listings rise and the potential for mortgage rates to decrease later in the year, sparking further demand.

In your single season — To live "comfortably" as a single person in major U.S. cities, you'll need around $93,933 annually, with New York City topping the list at $138,570. High living costs, especially housing, drive up the required salaries, despite higher wages offered by employers. Overall, living solo in major cities often means facing a significant "singles tax" due to elevated costs of essentials like food, housing, and transportation.

Why so high? — Historical data suggests that when consumer spending slows, prices tend to drop. Even though many Americans feel financially worse off than five years ago, they're still spending. Retail sales were up 2.1% year over year in the first quarter, and consumer spending spiked in February and March.