A statistic that says a lot about wealth in our country is that 90% of millionaires are invested in real estate. Whether this is in their primary residence or investment properties, it is clear that almost all people with a net worth of over a million dollars own real estate in one form or another. While most people simply buy only their primary residence, many have turned to investment properties to build consistent income and wealth over time. A major misconception about getting into real estate is the difficulty and needing lots of money. A simple down payment of 20% of the home price, or even less in some special cases, can get you started in a real estate investment. I talked to David Dardashti, an immigrant of racist leaders in Iran that got his economics degree from UC Berkeley in 1998. He talked to us about the basics of getting started in real estate and his strategy for creating wealth and generating consistent income.
“It is crucial to know that a big portion of the wealth you will make in real estate happens during the deal”, he says. It is important to find a below market value listing that needs some cosmetic work that the owner thinks is much harder than it is and therefore lists the property below market value”. David says the process of finding a property could take months. He believes it’s crucial to not rush the deal and rather do the proper due diligence to find a property whose numbers make sense in the long run.
David tells us that the renovating aspect could be difficult for first-time rental property owners and it is crucial to stick with a budget that will maximize your return on the property. “There is no need for custom kitchens and countertops, especially when you’re starting”. Once your property is done renovating, it’s time to look for a tenant. David advises rental property owners to screen multiple tenants and make sure the person living in your home is the most qualified. “You want someone living in your house respecting it the way that you would,” he says. A tenant ideally covers all your expenses including your mortgage, taxes, insurance, and repairs with a small bit of income on the top known as cash flow. While this cash flow might not seem like a lot, every month your tenant is paying down your mortgage and putting more money into your pocket.
Once you’re done with your first rental property, it becomes much easier. It won’t be as hard to spot a deal and the renovation progress will be less taxing. David says some people with busy schedules might want to look into hiring a property manager. They generally take around 10% of the total rent but deal with the dreaded midnight calls of repairs and even finding a tenant in most cases. While you do sacrifice some of your rent, it makes the whole process a lot less of a headache and much more passive as a result. Once this is done, just rinse and repeat and see your income and net worth grow.
When we asked David why he prefers real estate as his investment of choice, he told us that being able to control your investment is a big deal for him. “For stocks, you choose what company you invest in but you don’t necessarily choose the direction of that company. With my real estate, I can decide if I want to renovate it. I have a lot more control over my investment”. The best part about all of this he says is in 30 years when the mortgage is paid off you’ll fully own a property that is now generating income without a mortgage and has hopefully grown in value over the past 30 years. All of these aspects contribute to why almost all millionaires own real estate and why David Dardashti, the UC Berkeley graduate from humble beginnings will continue to invest in real estate.
Follow David on Twitter @DavidDardashti