Investing in real estate isn’t as hard as it may seem. You don’t need hundreds of thousands of dollars or years’ experience running rental properties. With some motivation, a little money, and the desire to succeed, anyone can invest in real estate. Read on to learn how to get started.
Choose Your Strategy
Before you start investing in real estate, choose your investment strategy. When you purchase a home, will you hold and rent or fix and flip?
The first strategy, hold, and rent, means you’ve bought a property, maybe fixed it up, and rented it out. This strategy requires your continuous involvement but earns you monthly income. As a landlord, you’re responsible for the home’s maintenance and repairs, mortgage, and tax payments, and of course the tenants, who may make emergency calls at 3 a.m. you’ll need to handle. Landlords also deal with vacancies; you may have to find new renters from time-to-time or deal with chasing rent payments.
The second strategy, fix and flip, means you’ve bought a property, fixed it up, and sold it for a profit. The idea is to purchase an undervalued home and make improvements that will secure you a large profit. Follow the 70 percent rule: you shouldn’t pay more than 70% of the home’s After Repair Value (ARV). You’ll need the ability to arrange contractor work, oversee renovations, and market and sell the home. Fix and flip often requires more capital and carrying costs so you can carry out the property renovations and take the time you need to find a buyer.
Figure Out Financing
Once you’ve chosen a real estate strategy, you’ll need to determine how you’ll pay for it. Since real estate costs so much, most people require financing.
Look at how much money you currently have to put down on/invest in the home. Where you stand financially will help you determine the type of financing you need. A few options are:
- Conventional financing
- Hard money loans
- Using your own capital
- Working with outside investors
If you use a traditional bank/loan, you should be putting at least 30 percent down on the home. The more money you invest initially, the better your financing terms will be.
Remember, since you’re buying the home as an investment, there’s more risk to the lender. You won’t find the same low interest rates owner-occupied buyers get. Make sure you shop around to find the best deals.
Find a Home and Close the Deal
Once you’ve figured out your strategy and arranged your financing, it’s time to find the right home.
Using a real estate agent is the best way to find suitable homes that fit your budget and situation, whether you plan to hold and rent or fix and flip. You can look for properties on your own, but it may take longer, and you may not find the best deals.
Once you close on the deal, the clock starts ticking. Fix the home up, find renters or buyers, and complete the transaction. Once you complete one project, rinse and repeat, so you add to your investment portfolio, growing your net worth and stance in the real estate industry.
A Passive Real Estate Investment Opportunity
If you aren’t ready to own real estate or don’t have the funds, consider starting smaller with a Real Estate Investment Trust (REIT).
A REIT combines investors’ money to buy commercial buildings. REITs are the funds pooled to buy, manage, and sell the properties. As a shareholder, you earn a prorated amount of the property’s profits, usually in the form of dividends. You can buy and sell shares daily, just like you can stocks, so REITs are much more liquid than owning real estate outright.
Real Estate Investing Can Be a Lucrative Investment
Investing in real estate is scary and exciting at the same time. Choose your niche and dive in headfirst, ensuring you have the right support. Today it’s easier than ever to invest in real estate, whether you’re purchasing a physical property or investing as part of a REIT. Either way, real estate can be a great way to diversify your portfolio, helping you realize greater profits and meet your financial goals.
The Roofstock Marketplace is a great place to start if you’re looking to invest in real estate. Check out the platform to easily narrow down your options.
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