Recently Matt Clark, CEO of Amazing.com, interviewed real estate expert Jason Hartman about the most important things to know when getting started with real estate investing.
We pulled the 5 major key takeaways to help you jumpstart your real estate business:
1. Single-family homes are the best type of property to invest in.
Apartments and mobile home parks are much more complex. The good old single-family home is a fantastic asset class. Condos are at the bottom of the list – they have a whole range of new problems associated with them.
2. There are 3 basic types of markets to consider.
The types of markets are: linear markets, cyclical markets, and hybrid markets that are a mix blend of the two. The top markets that are recommended now are places like Memphis, Atlanta, Houston, Indianapolis, and many others but those are the primaries.
To distinguish the 3 types:
- Cyclical markets go way up and have really ugly lows. They get a lot of news. All of California, Florida, and expensive northeastern markets whether it be Boston, Washington D.C., or New York are all cyclical markets. These don?t really make sense from a cashflow perspective.
- Markets such as Austin, Phoenix, and Las Vegas are hybrid markets so they could be good or bad depending on timing.
- The linear markets are the boring markets that just chug along. As they continue to do that over a few years, they?ll generally appreciate between 4% and 6%. You can tell if a market is a linear market by looking at:
- The land value: high land value markets are all cyclical and are all dangerous with high risks. Remember whenever you buy a property, you have to break it up into two components: land and the structure on the land. If you have a high land component in the valuation, you are in a risky cyclical market.
- The cash flow: in a high land value cyclical market, generally rent to value ratio – meaning business value of the property vs. what you get every month, also called RRV ratio – is about .3 or .4% per month but in linear markets you get about 1% per month.
3. You?re going to need about $20-$25k to acquire your first property.
If you?re deciding between going through a mortgage broker or a bank, it depends on the borrower and on the market you?re buying, but ideally, a broker can help because they can give you more choices.
4. There are many tax advantages to real estate.
Income property is the most historically proven asset class in the world and the most tax-favored asset class in America. As far as tax advantages there are several:
- Depreciation allows you to take one of the 2 component parts (land & the structure) and instead of taking a reduction when that house is economically obsolescence, they allow you to take that on a schedule called a depreciation schedule of 27.5 years.
- The other thing you get to do in terms of tax benefits is when you trade your income property you don?t have to pay taxes at the time you saw it. For example, I just sold a big apartment complex I owned and bought two other properties – another apartment complex and a mobile home park – and didn?t pay any taxes. With income properties, you can reinvest with pre-tax dollars.
5. When you look at the real estate market you?ve also got to think of the 3 basic economic scenarios: inflation, deflation, and stagnation.
The U.S. is currently in a very modest moderate inflation and the likelihood is over the course of three more decades, the length of someone?s mortgage if they get a mortgage today, there?s going to have a good amount of inflation baked into that equation. Between a time where the equation of land and house and population are increasing it?s a great time to be a real estate investor.
Here’s the full video of Matt Clark’s interview with Jason Hartman:
Want to learn the in’s and outs of real estate investing? Are you looking to generate substantial, long-term wealth with the power of real estate?
Learn from the expert himself, Jason Hartman, in his Amazing.com course Amazing Real Estate Investing. This course is actually included in the Amazing.com membership, and you can try it out for free today!
Let us know in the comments if you found these tips helpful!
Matt Clark is the Chairman and Co-Founder of Amazing.com, a serial entrepreneur, and investor. He’s been featured on Forbes, CNBC, and Entrepreneur.com.