We have a question about real estate. He says, “Hi Money Guy, you guys have mentioned it’s good to have deep pockets before going into real estate and investing, but how deep are we talking? In other words, how do you know when I can get into real estate investing in some capacity according to the money guys take?”
We’ve talked about our journey into real estate and how one of the things you want to do, is you want to make sure that this is a more more mature step in the Financial Order of Operations. When it comes to real estate investing, it’s often recommended to have deep pockets. But what does that actually mean? How deep do your pockets need to be before you can start investing in real estate?
Having deep pockets means that if your real estate investment goes wrong, it won’t break you financially. It’s important to stress test your investment and run a business plan that considers the worst-case scenarios.
Real estate investing is not a passive investment and requires a level of entrepreneurship. Don’t be fooled by social media posts that make it seem easy and hands-off. Every real estate transaction requires work and effort, whether it’s commercial or residential.
One thing to keep in mind is that low-purchase price properties in less desirable areas may come with a lot of transition and repairs. Transient residents can cause damage to the property and require rehabbing every time a tenant moves out. This is why it’s important to have enough financial cushion to cover the mortgage, utilities, and repairs.
In 2009 through 2011, a successful individual with 45 rental properties found themselves in a difficult situation due to the high turnover rate of tenants during the housing market crash, particularly in South Atlanta. This is a prime example of why it’s important to have deep pockets and be prepared for the worst-case scenario.
In conclusion, before diving into real estate investing, make sure you have the financial means to weather any potential storms. Run stress tests on your potential investments and have a solid plan in place. And remember, real estate investing is not a passive investment and requires effort and work. To learn more about our Financial Order of Operations course, click here.