How to Invest in Real Estate
Investing in real estate is not complicated, expensive or difficult. There are so many places to put or invest your money such as bonds, stocks, mutual funds, savings, commodities, and real estate, among others. Each form of investment has its advantages and disadvantages. Here, the focus is on real estate investment.
Many people resort to real estate investing mainly because they want financial freedom. Others are in it for the following:
- Tax benefits
- Leverage
- Cash flow
- Depreciation
- Appreciation
The decision and reason for each individual is personal. Just ensure that you are committed before you start. Can You Invest in Real Estate While Holding a Full-Time Job? You can. There are so many kinds of real estate investing, not just what you hear from experts or the TV. The ways to make money are also numerous. Some of the strategies and techniques may be demanding (40 hours a week) and others less demanding (less than 40 hours a year). The length of time you will need to grow your business depends mainly on your personality, investing strategy, timeline and knowledge.
Real estate does not have to be your full-time career for you to amass wealth. You can invest on the side. Benefits of Investing While Still Holding Your Full-Time Job. If you keep your day job, you will enjoy some benefits that full-time investors do not. The first benefit is that you do not need to spend the money you make on your investment. If you reinvest all your profits, your business will grow exponentially. Another thing, the stable income of your 9-5 will give you access to long-term financing from banks.
To invest while still maintaining your day job you can:
- Serve as a hard or private money lender
- Buy-and-hold property
- Invest in notes
Do You Need to Pay an Expert to Be Successful?
You do not have to. There are so many investors who have attained success without the help of experts. Most of these gurus just want to sell you the get-rich-quick dream. They prey on desperate people and they can be dangerous. Their main business is to sell you the dream. You can learn a thing or two from gurus but be careful.
Can You Invest in Real Estate if You Have No Money?
It is possible. However, you should understand that every transaction in real estate requires money. You can, therefore, invest without using your own money but other people’s money. This is a complex but important strategy. If you have no money, bring something else to the table such as education, connections, time, creativity, and intelligence. A lot of aspiring real estate investors begin their journey by working in the industry first. They earn income while acquiring hands-on education. Here are some real estate careers you can look into:
- Mortgage broker
- Real estate agent
- Title/escrow agent
- Appraiser
- Resident manager
- Project manager
- Construction worker
Some people can make a lot of money in a short period of time—but this is rare. A good real estate investor is patient, persistent, and plans ahead. Aim at growing steadily over time until your dreams and goals are achieved.
How much do you need to invest in rental properties? Most likely less than you think. Many people have allowed their dreams to be crushed by thinking that they do not have the amount it takes to venture into real estate investing. Some people do not know that you do not need to have 100% of the purchase price to invest in real estate. This is where leverage comes in. Some investors can afford to pay the full price of a property using cash but most investors make use of leverage. In simple terms, leverage is applying a little effort for great results.
In real estate, leverage refers to loans. You, as the borrower, supply a small down payment and the lender pays the rest of the amount for you. Every month, you make a small payment to the lender until the loan is cleared. For instance, for a piece of property worth $200,000, you could only save $40,000 and borrow the rest of the amount from the bank. Despite the fact that you have to make a payment to the bank every month, your income will exceed the loan.
Leverage is not all perfect. Using more leverage may mean a greater risk. If you pay the full amount on your own, you will not have the monthly burden of paying off the loan. In that case, if your property is vacant for three months you might still be okay. Also, if you only make a 5% down payment and the property depreciates by 20%, you will be “underwater” and the amount you owe will be bigger than the property’s worth. This can be very limiting.
So, how should you use leverage? How much should you put down? You can increase your security in certain ways when using leverage. Here are two of the main ways: First, the deal you land is way more important than the down payment. For example, say you buy a piece of property worth $100,000, get a $70,000 loan and only put down 30%. Another investor buys a similar piece of property for $70,000, gets a $70,000 loan and puts 0% down.
You will be at a greater risk in this case. Although you owe equal amounts of loans, you have invested more money. Secondly, having enough knowledge while investing in real estate can help you reduce the risk that comes with leverage.
If you understand the investment, how to manage it and the market in general, things are likely to go well for you. For a small multi-family house (two to four units), you can get a loan from the bank for as low as 3.5% using the FHA program. You have to live in the house for at least a year, though. Most banks require a minimum down payment of 20% if you qualify for the loan. Real estate investing can go wrong. Cash reserves are important to help you take care of any problems that may arise.
