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Five Tips to Build Wealth Through Real Estate Investing

Happy New Year! We’re excited for a brand-new year of The Executive REI Show! We’ve got a lot of amazing content coming your way, with new guests and topics that will help you on your journey. We know that real estate investing is one of the best ways to build and create generational wealth and we want to walk you through it in 2022. As always, you can keep up to date with all the content at www.executivereishow.com this year.

While we often dig into some complex topics and ideas, we also want to keep things simple. Too often things are overcomplicated and unnecessarily confusing. A lot of real estate investing is being able to focus on and understand the basics and really get a handle on that before growing and expanding.

For this reason, we’re keeping it simple here with five top tips to build wealth through real estate investing in 2022. If you are diligent and focus on these tips, you’ll be on your way to success!

1. The only way to get in the game is to get off the sidelines

We’ve had a ton of amazing guests on The Executive REI Show, ranging from coaches to educators to syndicators to business owners. We always ask them the question, “What advice would you give to new investors?” Virtually all of them answer with some variation of “just do it!”

To succeed in real estate investing, you have to get yourself off of the sidelines and get in the game. There will never be the 100% “right” opportunity or a time when you feel confident that you know every single thing. Even real estate investors who have been in the game for a while are still learning and growing, so you should not fear lack of knowledge.

To overcome any fear or hesitation you might have, focus on these tips:

  • Learn the basics. You’ll never know everything at the start, and experience is one of the best educators. However, you should feel comfortable and competent with the basics of real estate before jumping in.
  • Get a mentor. There are people out there who have been where you currently are! Work with them, learn from them, and follow their advice.
  • Start small. You don’t need to take on a huge multi-family unit in the development stage just yet. Start with something small, perhaps become a passive investor, and grow from there.

2. Take some time to understand the tax advantages of real estate

Don’t click away from this just because you read the word “tax”! Even though most people don’t find it very exciting, it is a fundamental part to your success as a real estate investor. Not only that, but understanding the tax advantages of real estate can help you earn more money than you might have thought was possible.

So many people look at real estate—or other investments—and only evaluate it on the basis of returns. So, a new real estate project might have an IRR (Internal Rate of Return) of 18%, which most will see as a good opportunity. But the tax advantages from owning real estate are those “hidden” benefits that you can only realize if you understand the details.

All of this comes down to: talk to a CPA or tax expert before making real estate decisions. Then, educate yourself on the different tax advantages. Here are some of the main benefits that you need to know about:

  • Depreciation versus cash flow. Because of the way you can write off depreciation, it’s possible to show a “loss” on the books while still receiving cash flow out of a real estate project. This reduces your tax burden, which is essentially free money!
  • 1031 exchanges. Converting 1031 exchanges into a syndication can help you build a small fortune through deferring taxes. We did a whole episode on this, which you can check out here.
  • Invest through a self-directed Roth IRA or 401K. By investing in real estate through a tax-sheltered account, you can make significant gains on your investment.

3. Flexibility is key in the coming months and years

We’ve all had to be very flexible over the last few years because of the uncertainty of the pandemic and all of the changes it brought to our lives and work. Real estate also requires flexibility, especially in the coming months and years.

People often speculate on when the next recession will be, and the truth is that no one knows. But our economy is set up in a boom-and-bust cycle, so it is inevitable that there will be some downturn in the future. This shouldn’t scare people away from real estate investing, but rather show the need for flexibility and a willingness to pivot to different projects.

To best prepare for a future downturn, consider these tips:

  • Diversify your portfolio. Holding a single asset class may be detrimental if that is the hardest-hit real estate during a recession.
  • Look at longer projects instead of only short-term ones. If you can hold something for a few years, it’s usually able to bounce back after a recession.
  • Consider active investing through development. As a passive investor, you are not part of all the details of the project. Active investment, where you have some say and knowledge about it will help you be flexible, gain knowledge and be flexible during potential recessions.

4. Do your due diligence on the sponsor

Real estate has the potential to build great wealth, but it usually relies entrusting your investments with someone else. If you are a passive investor, putting your money into syndications, you are trusting them with your money and future wealth. Therefore, it’s absolutely essential that you do your due diligence on the sponsor and trust them.

The sponsor is the person who does all of the work on a deal, they are the ones who understand all of the details. They are also the person who has the ability to make or break the deal. Doing your due diligence will give you peace of mind that they are working on your behalf.

Here are some things to consider with a sponsor:

  • Talk to them and ask the hard questions. It’s okay to gather information through questions, even if they are challenging. Consider asking, “What is something you invested in that didn’t do as well as you thought and why? Or “What is a time you failed and what did you do?” How they answer these questions will tell you a lot.
  • Never go with a sponsor who doesn’t have some “skin in the game.” They need to put some of their own money into the project to show that they are committed and confident in the success of the project.
  • If possible, talk to other investors who have worked with them in the past. This will give you insight into how they have acted in the past and their failures and successes.
  • Read your paperwork. Read and understand everything your sponsor gives you!

5. Don’t fear failure

Similar to the advice of “just do it” and an encouragement to get off of the sidelines and get into the game, many of the guests on our show also talked about how important it is to push past fear. Every successful real estate investor has had a failure in the past—it happens to everyone! The question is not if you will fail, but rather, how will you react to that failure?

Failure signals a need to pivot and continue learning, not to give up. It’s also important to recognize that a lot of the fear of failure is just that—fear. It can oftentimes be irrational and based on untruths, so you need to push past it and take the first step anyways.

Real estate investing is not a perfect science, so you need to take some risks and learn to fail well. It is also helpful to remember that the gains from real estate are like no other investment vehicle. The risks and failures are absolutely worth the pay-off!

Conclusion

We hope you are as excited as us for a new year and new opportunities to build wealth through real estate investing. If you’re new to real estate investing, keep it simple and remember these five tips. Start by just getting yourself in the game! Then, learn what you can about the tax advantages of real estate investing, be flexible, and do your due diligence on the sponsor. And remember not to fear failure, as that fear will just hold you back from reaching your goals.

We have a lot in store for you in 2022. Make sure you are following along with us at www.executivereishow.com to keep up with new podcast episodes, full of tips, tricks, and advice on how to build wealth through real estate investing.

Michael Holman

Michael Holman

Michael has extensive financial and operational experience. He is a licensed Certified Public Accountant and has a Masters of Accountancy from Brigham Young University. Before working at Overland Group, Michael worked at Ernst & Young on some of the largest real estate and technology companies in Utah.
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