How To Start Investing
You've built up some money, you got a raise, you inherited some money, and now you want to get into investing! You've seen your friend, your uncle, and your Facebook friend make great returns without working a 9-5 job and you want to join?
Investing is the surest way to reach financial security. In fact no matter how much the highest paying salary is, the best investor will always make more. Not because they are smarter, or harder working, it is because investing allows you to produce unlimited streams of income, or appreciate in value without time management. The highest paid employee still has to work for a period of time and can only do that one job. An investor can own 5 businesses, real estate, mortgage notes, stocks, and tax free investments all working at the same time......while they are on the beach!
So we all can agree investing is a great way to accumulate wealth. The problem is, its very daunting trying a new task especially with your hard earned money! The first step people make is seeing what is making people rich, and copy that. WRONG! The key to investing is understanding yourself. There are so many ways to be an investor. You don't have to copy the new trend, or the rich guy at the party. Figure out what your skills are and work backwards. Once you figure that out, you have to understand all the available investment options. That is what I'll be discussing with you!
Real estate has many avenues for investors. Everyone has watched HGTV and seen the large corporate buildings downtown, but I want to go through the real options to enter this business as a professional investor.
Landlord - Being a landlord allows you to purchase property and rent the building out. This is a long term play. It generally takes decades to pay down the mortgage, but you are hopefully receiving cashflow along the way.
Rehabbing - Flipping houses is a short term way to build capital. It also is much more risky. You have the ability to make large paydays in 6-12 months, but there are big construction risks. These are high capital projects that can easily go over budget. Also, if the market shifts or you don't analyze properly, you could be sitting on a house that won't sell paying all the expenses wondering what to do.
Development - This is investing from the ground up.....literally! Purchasing land, or demolishing a distressed building is how you enter this game. New construction can be extremely profitable but generally takes years longer than rehabbing houses. You also run into risks with utilities, the city, permits, and local communities. This is the highest risk, but highest payouts in real estate.
If you're thinking about entering this investment market make sure to watch this BEFORE you buy anything! https://www.youtube.com/watch?v=9CfPVu7wRxw&t=182s
The financial markets has hundreds of options for people to begin investing. It is also liquid which means you can easily buy or sell as opposed to real estate. There are too many options to go through in one post, so I'll limit it to the major categories.
Stocks - Owning stocks involves taking a very small ownership in a publicly traded company. This allows you to reap the benefits of the company and the profits, without the liability. The prices are very volatile as they can be bought and sold every second! When you own a company in the market, it is imperative that you understand the financial statements to make a decision on how sound the company is besides just the brand to the public.
Bonds - Investing in the bond market is essentially buying somone's debt, or lending money. You are loaning money to corporations, governments, local municipalities, or mortgages. You then can collect interest as a bank would for providing that financing. If a company or borrower is unable to make good on these debts and defaults, that is the risk you take in these markets.
Investing in businesses can be extremely profitable, but has a ton of moving parts. This is not a hands off approach, at least until the company is stabilized and most of the tasks are outsourced. Here's some ways to can invest in private businesses.
Startup - Starting a business from nothing is the American dream! This involves an idea, a need, and an entrepreneur to make it happen. Starting a company can require a large investment, or can be as small as paying the legal fees to set up the entity. You as the entrepreneur are in full control. You reap the benefits and also the liabilities.
Venture Capital - VC as most call it, is either a group of investors, or one investor providing capital to take ownership in a company. This can also be done at the startup phase, which is commonly known as Angel Investors. A VC generally has money to invest to help a business, resources to make it grow, and tons of experience to help the business owners and staff. This is a way to take ownership in multiple companies that you don't personally start.
The golden question is.....WHICH IS BEST? Well I can say one thing for certain. People have gotten filthy rich doing each and every one of these. So you at least have a 100% chance of making money! The key here is researching these options to learn the ins and outs of how it works. Then from there, take a step back and evaluate yourself. See how your strengths could help or hurt you in that particular investment. I believe each of these options hold merit and should be invested in if possible, but it's important to figure out what would fit best for you.
Going on this path can be hard if you do it alone! Contact us here for guidance along the way www.ThePittsburghInvestor.com