By biden If you study wealthy people and the things they pursue financially and professionally, you’ll typically find yourself in a real estate rabbit hole. Real estate is one of the preferred methods for accumulating and growing wealth.
In particular, successful people are often drawn to rental properties. And while it’s an extremely lucrative way to invest, there are some things you should know before getting started.
5 Things They Don’t Tell You
Real estate investing is potentially lucrative, but it’s not for the faint of heart. To succeed, you’ll need to equip yourself with the facts. Here are a few that you won’t hear just anywhere:
- It’s All About Cash Flow
When buying a personal residence, most homeowners are thinking about value from the standpoint of how much appreciation they can expect between the time they buy and the time they plan to sell in the future. But with a rental property, appreciation isn’t the goal. Cash flow is what it’s all about.
When running the numbers on a rental property, focus on how much monthly cash flow you generate as a percentage of the equity you have in the property. This is known as your cap rate. Any appreciation that occurs is just icing on the cake.
- You Don’t Want to be a Landlord
You want to be a real estate investor – not a landlord. What’s the difference, you might ask? A landlord manages the day-to-day operations (and problems) of the rental property, while an investor is usually uninvolved after the initial investment.
The key to being a hands-off investor is to hire a property management company to handle all of the day-to-day issues, like screening tenants, collecting rent, scheduling repairs, and keeping the books.
- Avoid Buying With Friends
To divest risk, many people will partner with a friend to invest in a rental property. And while this sounds good in theory – sharing in the down payment and risk – it’s usually more trouble than it’s worth.
When you own a piece of real estate with a friend, you have to be 100 percent on the same page. One person might want to use all of the profit to pay down the mortgage, while another might use it for personal income. There may be disagreements on how long to hold the property. If a major repair is needed, it might be hard to agree on which route to go. No matter how good of friends you are, things can get sticky in a hurry. It’s best to invest on your own and preserve the friendship.
- Rental Properties are Recession-Proof
Now for some good news: Rental properties are one of the few recession-proof investments in the world. While home values might suffer, people always need a place to rent. If anything, more people will sell their properties and find rentals. This creates steady demand that continues to rise in the face of turmoil. So if you’re looking for a place to shelter some of your wealth in uncertain times, rental real estate is a great choice.
- Expenses Are Higher Than You Think
It’s not as simple as calculating the property taxes and mortgage payment and subtracting those numbers from the rent payment you collect each month. There are lots of hidden costs associated with owning a rental property. If you don’t account for them, your cash flow could be much lower than you’re anticipating.
As a general rule of thumb, you should assume that your costs will equal roughly 50 percent of your gross annual income from the property. So if you generate $2,000 in rent per month ($24,000 per year), you can expect expenses to be roughly $12,000 per year. This obviously isn’t a perfect calculation, but it gives you a conservative estimate.
Gather the Facts
Real estate investing is one of the best ways to build wealth. You won’t find very many people who will argue that fact. However, it’s important that you go into the investing process with the right mindset. There are good parts, as well as very challenging aspects.
Once you understand the basics, you’ll be able to make smart and calculated decisions.
Lorenzo Billie 
Veronika