They say taxes and death are the two certainties of life, but they left something out. It should be taxes, death, and that real estate is the best investment.
No matter how much time passes and how much technology advances, people will always need a place to live. If you’re looking into becoming an investor in real estate, here’s what you need to know.
Prerequisites To Becoming An Investor In Real Estate
While local laws and regulations and lender policies will vary, the prerequisites to get involved in real estate are actually pretty low. In many cases, a 15% downpayment is enough to get you started. Your financial standing and credit history will also play a role in your ability to get a loan, but if you’re able to secure one, you’re in good shape!
In some cases, you may need 20% to 25% down, or even more, if you want to avoid paying high interest or for extra insurance coverages.
You just need to make sure that the numbers make sense before you make the investment. For example, if a 2-unit house is $300,000 and you put down $75,000, you’re looking at a $1,250 monthly mortgage for 20 years if your interest rate is 3%.
Because of this, the two units will need to cover that, your insurance, your property taxes, and maintenance or repair costs. This means you’ll want about the cost of your mortgage paid per unit if you want to see any profit in the next 20 years. Remember, a water heater can break or a basement can flood at any time, so you need to be prepared for that.
You will need to look around and find the right rental loans for you, as lower rates will give you the best bang for your buck.
Types Of Real Estate Investments
There are a few ways you can invest in real estate at the start, and they’re all reasonable investments. When you’re just starting out, it’s best to know your options to see what fits your financial power, as well as your long-term goals! Here’s how to invest!
Flipping
Buying houses for cheap and selling them for a higher price is known as flipping, and it can be very lucrative. This is a good short to medium-term investment that gives you one big payout as opposed to an income.
There are two ways you can do this. You can buy a house when the market is low and find a really good deal, then hold out until a seller’s market returns, making an easy profit.
The alternative would be if you’re handy and you buy a fixer-upper and make repairs as necessary before reselling. This could mean changing some drywall and doing some landscaping or completely gutting and redoing the house. Either way, it’s profitable if you know what you’re doing. You could also fix up an old house and turn it into a rental investment, which brings us to the next point!
Rentals
This is the one people think of most often. There’s a reason there are over 8 million independent landlords in the US. It’s a solid investment with relatively low entrance costs for a lifetime of income. The benefits of this are enormous.
This is one of the safest investments you can make with your money, as it will likely generate passive or semi-passive income for the rest of your life. You can set your own rental prices, keep up with inflation, and add plenty of income to your retirement. The best part is that if you start early enough, they can grow like bacteria.
This means that if you put 20% down and use the income to pay down your mortgage in 10 years, you’ll free yourself up to buy a second and pay it off in 5 years with the extra income. From there, it’ll be easier and easier to keep building your assets and growing your income.
This means that if you put the money you earn from your properties into future investments, you could easily be earning hundreds of thousands a year by the time you reach retirement age, assuming you start early enough. Of course, things happen and unexpected expenses arise all the time, but every time you buy one, your ability to pay it off quickly will increase drastically. Just learn how to apply for a mortgage and you’ll be able to get started!
Trusts
Real estate investment trusts (REITs) are the easiest way to invest in real estate. You’re helping another landlord pay for the property and you receive dividends in return. These dividends could be paid annually, quarterly, or even monthly like rent! These can pay anywhere from 4% to as much as 8% in dividends every year, making it a great way to get started with limited cash.
The issue here is that you relinquish all control over your investment into a blind trust. As an independent landlord, you set your own rent, make your own schedule, and make adjustments as needed.
Can Anyone Become A Real Estate Investor?
In a nutshell, becoming an investor really is open to anyone who saves up the money for a downpayment. It’s one of the safest investments you can make, and as little as 15% can be enough to get you started on a secure financial future. Figure out what type of investment works for you, stay up to date with our latest real estate investment news, and check out the advantages of hiring a private lender for your mortgage!
