Too much real estate advice is geared to the full time investor. How about the full time software engineer looking to make passive income? Ok, you don’t have to be a software engineer, but the point is, you have a full time job, you understand technology, and you want to create passive income streams in real estate. Here’s how you do it.

Do yourself a favor and bookmark this post because the manual is long–but it is definitely worth your time:

Getting Started

Without distress in the current housing market, it’s tough to get properties at prices that will supply return. Waiting for a downturn is one way to get started with a lower risk profile to your initial investment. But who knows when that will happen? (Maybe within the next 2 years? 2019 or 2020 seems to be the consensus. But again, who knows?)

At the peaks of the housing cycle, you’re not only battling high home prices, but construction costs are climbing. Getting a good general contractor will take months. Just ask my friend David Fefferman. His home landscaping projected hasn’t started yet and he’s been working with a landscaper for the last 4 months. When the housing market is flush, contractors are hard to get. (Thanks for being the butt of my joke David!)

Now’s a fantastic time to study property and build your real estate investing system. This is not a time to rush in the market to buy. Unless you find your dream home like David did where you’ll raise a family and go through multiple housing turns and swings. Point is, buying and renovating in a healthy market is hard. Keep that in mind.

Financial Housekeeping

You need to be certain you’re covering the fundamentals before we get started with real estate. You need to set up a Roth IRA.

It is critical that you live beneath your means as cliche as the information sounds. Savings provide you the security if you think you’re not being treated fairly, to walk away from any situation or property deal. Your life will be full of constant stress without having the ability to walk away from situations. At minimum, you will need to save six months’ worth of living expenses in the bank so that in the event that you lose your job you may stay afloat during those hard times. You may remain on unemployment for three to six months, but that time can double through a recession.

Risk and Protection

In addition, you need enough insurance to provide support if something happens to your nearest and dearest to you. All of us think we are invincible, but there is always that danger something terrible can happen to you. Your company should offer you the choice to enroll in various accidental death, short and long-term handicap, and long-term health care coverages.

You will need to set up beneficiaries and make it clear what your directives are if you not able to act on your own behalf. Who will make health care decisions on your behalf if you are incapacitated? Who should be responsible for keeping your assets? Where do your assets go? All these questions will need to be answered and you need to talk to an attorney. Let’s call it estate planning light.

Finally, you will need to prevent yourself from becoming caught in a consumption trap of purchasing things you do not need. Take a year to trim your lifestyle after your home purchase so that you can rebuild a healthy level of liquidity. You will need to concentrate on your targets rather than get sucked into other people’s fantasies. If you follow these tips, you’ll be there.

Hear that David? Less custom parts for your Lotus Exige and more responsible parts to your insurance, finances, and estate.

High Net Worth But Low or No Money Flow

I have come across many techie workers who have stock portfolios worth millions of dollars, but they do not have a single asset that is producing cash flow. They’re net yet cash flow positive as far as personal finances go. Countless paper millionaires and they never diversified their holdings to make the most of their wealth.

For stock dividends, you need to hope the corporation’s business model enables them to earn huge returns on funds to pay a dividend, expect the provider’s products remain relevant in the future, expect a competitor does not steal market share, and expect the management team is capable.

For real estate, you will need to purchase a fantastic property situated in a desirable place for a nice price to be able to attract the perfect tenants for your property to be cash flow positive. Naturally, it does not guarantee cash flow, although this reduces your risk exposure.

The Advantages of Working in Tech

This is an advantage that many investors lack, and this must be used by you. While full-time property professionals will need to buy and sell properties at a frothy market to cover their debts, you have a fantastic job that lets you wait till a frothy market cools off and then swoop in when the property cycle hits a trough.

In this current market, the returns are not as large as they used to be, and I am seeing people do silly things in the marketplace such as taking out home traces of equity or loans on their stock portfolio to purchase low yielding property investments. Right now, money is cheap, and homes are being purchased at a premium, which isn’t a good sign for investors since the risk/reward equation is currently skewed towards greater risk for each marginal unit of reward. After the cycle slows down and house values start retreating, which makes it much more easy to locate investments, that is when you should make your move. In the driver’s seat, you’re at that point and you’ll have your chance to purchase real estate.

Every Investor Hates Sitting on Money

Losing a small proportion of buying power because of inflation hurts, but being knocked out of the sport by losing all your money is much worse. The way to play real estate is to keep in the long game so that you can buy at prices that advantage your portfolio.

Preparing Your Emotions

Some folks buy property as soon as their bank account would allow it. Why? What’s the rush? Take a breath. Keep earning money crushing it at your full time job. Build the reserves. When the time feels right, scoop up some great real estate investments.

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