I've been self employed for almost my entire life. Understanding what NOT to do has helped me grow more real estate investments more effectively.
Here are three things that small business owners should stop doing if they want to invest in real estate.
- Paying rent to someone else. It's common for small businesses to budget 5%-10% of their gross income for rent. Those are funds that could be used to build equity for your business as opposed to someone else's rental income. Don't need a lot of space? A small business that needs limited amounts of space could end up collecting rent from additional tenants, reducing their cost (and building equity). Worried about making a large down payment? SBA loans can help invest with as little as 10% down (on the total cost of the project). If you're looking for a live/work property, FHA financing could be available for as little as 3.5% down (read more here).
- Using only post-tax money to invest in real estate. Many small business owner are eligible for self-directed retirement funds that can be used to purchase real estate. These self-directed accounts can help you use pre-tax funds to invest in real estate, helping you save for your next property even faster.
- Putting 25% down on investment properties. The BRRR method helps investors purchase rental properties for little to no money down and build their rental portfolios more effectively. Investors don't need to put 25% down to purchase rental properties (and pay more out of pocket for rehab costs).
One quick reminder: I'm sharing models and systems that have worked for me. They may work for you as well, but you should take the time to understand your own comfort level when it comes to your investments and consult with your accountant or lawyer about any impacts. I'm not an accountant or an attorney - and sharing an idea or telling you about my experience shouldn't be taken as legal or tax advice.