Finding Funding For Real Estate Investing
One of the first steps in getting started in real estate is to build pools of available money to purchase properties. Unless you have an established business or experience in real estate, getting a bank loan to buy properties may be a challenge.
Depending on the type of investing you want to do and the properties you are targeting, different funding sources may be available to you. For example funding for flipping houses will be different than funding for other types of investment properties.
The most popular ways of funding real estate investments are:
- Personal savings
- Home equity loan or line of credit
- Conventional loans and government programs
- Financing secured through a mortgage broker
- Hard money
How To Start A Real Estate Business
Those wondering how to start a real estate business should be cautioned that owning a real estate company is no easy feat. Just like starting a business in any other industry, entrepreneurs should log countless hours conducting research and craft a meticulous business plan before actually jumping into business. Take guidance from the following tips as you open the door to starting a real estate business:
Think Through Professional Goals
Stay On Top Of Leads
Build A Support Network
How To Get Started With Real Estate: Real Estate Investing 101
When you are first starting out as a real estate investor, you might be overwhelmed with the sheer number of options. Within the world of real estate investing, you have a wide range of investment opportunities. Each presents a different opportunity that might be the right fit for you.
Before you get started, it is important to understand a few things.
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Understand How Commercial Real Estate Is Different
The first step as a commercial investor is understanding that commercial real estate is valued differently from residential properties. Unlike residential real estate, the income from commercial real estate is typically related to usable square footage. Also, commercial property leases typically last longer than residential leases. These two factors help illustrate why a commercial real estate investor has a better potential to earn a higher income.
Location is an important factor regardless of your investing niche, with commercial investing as no exception. However, commercial investors also need to pay close attention to their tenant type. The location and intended tenant type are two factors that intersect closely when determining demand. For example, a space intended for corporate offices will likely perform better in an urban center than a primarily residential neighborhood. Analyzing recent comparables can provide you with a better clue of how your property of interest might perform.
By Owning Shares Of Real Estate Investment Trusts
A REIT is a real estate investment trust. REITs have several advantages, the foremost being liquidity. If you own 20% of an apartment building, you cannot get your money out unless someone else buys your share or the property is sold. When you own shares in a real estate trust, it is generally as easily sold like shares of stock. You can buy targeted real estate investment trusts such as those in firms that build medical buildings, nursing homes, malls, and industrial parks. It is easier to diversify your holdings by owning a variety of REITs, and you never have to manage anything.
The modest downside is that they take a chunk of the profits in administrative overhead before distributing the remainder to shareholders. A related financial product is the real estate mutual fund. These mutual funds are more liquid than REIT shares. They are more diversified, too. They may invest in REITs, the publicly traded shares of homebuilders, and companies that sell building supplies. Real estate ETFs are simply ETFs that invest in the same sorts of businesses. A REIT ETF is an E TF that invests in REITs. You’ll have lower returns, but there is less risk than investing in a REIT. In every case, you don’t have to invest in real estate directly, much less manage it.
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Direct Real Estate Investing
A direct real estate investment involves purchasing your own property to either rent out or flip. When youre going this route but want it to remain a passive income stream, you have two options.
You can go into business with someone else who will act as an active investor. You could instead purchase a property on your own but then hire a property management company that will do the hands-on work. With both options, you’ll need to understand using real estate leverage if you don’t have large amounts of cash to put down.
Think About Investing In Rental Properties
Tiffany Alexy didnt intend to become a real estate investor when she bought her first rental property at age 21. Then a college senior in Raleigh, North Carolina, she planned to attend grad school locally and figured buying would be better than renting.
House hacking allows you to live in your investment property while renting out rooms or units.
I went on Craigslist and found a four-bedroom, four-bathroom condo that was set up student-housing style. I bought it, lived in one bedroom and rented out the other three, Alexy says.
The setup covered all of her expenses and brought in an extra $100 per month in cash far from chump change for a grad student, and enough that Alexy caught the real estate bug. Now age 27, she has five rentals and is a broker and owner of Alexy Realty Group in Raleigh.
Alexy entered the market using a strategy sometimes called house hacking, a term coined by BiggerPockets, an online resource for real estate investors. It essentially means youre occupying your investment property, either by renting out rooms, as Alexy did, or by renting out units in a multi-unit building. David Meyer, vice president of growth and marketing at the site, says house hacking lets investors buy a property with up to four units and still qualify for a residential loan.
If you manage it yourself, youll learn a lot about the industry, and if you buy future properties youll go into it with more experience, says Meyer.
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Ways To Invest In Real Estate With No Money Of Your Own
There are many investment deals that transpire throughout the real estate market every year. Most of them are achieved through traditional lenders and institutions like banks, but some are accomplished through less traditional means. In most cases, its because the investor couldnt raise the capital or didnt have the credit score to do so. Here are 11 ways to invest in real estate with no money:
Hard Money Lenders
Its important to note that while investing in real estate with no money down offers numerous benefits, not all cashless deals are worthwhile. Investors equipped with a superb credit score will not only receive a wider array of options for working capital, but theyll have more control over their financial obligations. As a real estate investor, its in your best interest to ensure that score remains top-notch, as it will provide the best money-saving outlet.
There are, however, situations where utilizing these options makes more sense. Consider the fact that cash buyers are viewed as more direct than conventional loan purchases when compared to traditional loans, which are slow to fulfill. With cash in hand, this strategy can provide an unprecedented upper hand at the negotiation table.
Build A Support Network
As cliche as it sounds, no person is an island when starting a real estate investment business. On the contrary, many leads and deals in real estate will come directly from your personal network. Whether your network consists of clients, colleagues, mentors, or even competitors, make sure to invest ample time in cultivating these key relationships.
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Choose A Specific Real Estate Investing Strategy
At this stage, you could create a 30-page business plan that even an MBA would be proud of. But remember, the goal is just to get started. So, lets begin with something quicker. You can create a big, detailed plan later if you want.
For now, just choose ONE real estate strategy that will help you move from your current financial stage to the next stage .
Starting with one specific strategy doesnt mean you wont have detours or even a complete change of direction later. Life happens, and you have to be flexible. But starting with just one will help you focus. And this will give you the confidence to get started.
I wrote an article with the 15 best real estate investing strategies. But below is an appreviated menu of suggested real estate strategies that you can choose from depending upon your wealth stage:
Master Leases And Lease Options
Did you know that you dont need to buy a house in order to get started with real estate investing? Instead, you can just rent it.
Master leasing is a technique where you rent a property and get permission from the owner to sublease the extra bedrooms or units to other tenants.
For example, lets say you rent a 3-bedroom condo for $1,500/month. You then find two roommates who each pay $600/month for a total of $1,200/month. Your portion of the rent in this example is only $300 per month !
And like most rentals, master leasing can often be negotiated with very little upfront money perhaps a security deposit, prepaid rent, or an offer to do some repairs.
And while just master leasing might be good enough in some cases, you can also try to negotiate whats called an option to purchase. This gives you the right to buy the property for a set price during a certain period of time.
For example, you might negotiate an option price of $175,000 for the condo in the prior example for a 3 year period. If the price goes up to $200,000 during that time, you can then buy the property in order to keep it or you could flip it someone else for a profit.
And all of that happened for a small up-front amount of money!
> > Want to use master leasing + options? Check out my YouTube video example.< <
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Chase Ink Business Unlimited Credit Card
Chase Ink Business Unlimited cardholders earn an unlimited 1.5% cash back on all spending. It also offers a sign-up bonus of 750 cash back after spending $7,500 within the first 3 months. A 0% intro APR is available for 12 months on purchases ) and that makes this a great card for real estate investors who need extra time to pay for their purchases.
How To Get A Mortgage For Rental Property
Though a rental property mortgage is basically the same as a primary residence mortgage, there are some key differences. For starters, there are higher rates of default on rental property loans because borrowers facing financial troubles tend to focus on a primary home’s mortgage first. The added risk means lenders typically charge higher interest rates on rental properties.
Then there are the underwriting standards, which tend to be more strict for rental properties. In general, mortgage lenders focus on the borrower’s credit score, down payment, and debt-to-income ratio. The same factors apply to rental property mortgages, but the borrower will likely be held to more stringent credit score and DTI thresholdsand a higher minimum down payment. Additionally, the lender may take a closer look at the borrower’s employment history and income and want to see prior experience as a landlord.
In general, here’s what lenders require from borrowers to approve a rental property mortgage:
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Line Up Your Cash And Financing Options
Real estate is an expensive investing option, and you need some cash and access to funding. If you’re purchasing a rental property, plan for:
- A minimum down payment of 20%. There is no zero down mortgage programs for investor properties. You should plan on a minimum down payment of 20% of the purchase price.
- The initial cost of upgrades and repairs. Buy below market value to get some instant equity, but be prepared that bargain-priced properties typically need repairs. You’ll need to bring the property up to the point where it can be profitably tenanted.
- Licensing and inspection fees. Most states require rental properties to be inspected for safety hazards and licensed.
- The cost of vacancy. There’ll be months, during tenant turnover, for example, where you won’t receive a rental income. You still need to pay the mortgage, taxes, insurance, HOA, and other holding costs.
- Repair costs between tenants. It might be a minor paint touchup and a general housecleaning, or you might need to make extensive repairs and pay a junk service to remove an entire house full of left-behind tenant personal belongings.
- Maintenance costs. Tenants are paying your rent to provide a safe place with working appliances and systems. You need a budget to maintain and eventually replace major systems that keep the house in rent-ready condition.
Get Your Personal Finances In Order
Without a solid foundation in your personal finances, venturing into real estate can be fraught with risk. After all, you want to be able to comfortably afford your mortgage without fear of missing a paycheck.
With that, I highly recommend that you take the time to set up a strong financial foundation before moving forward with real estate investing. Although that might cause a slight delay in building your real estate portfolio, a strong foundation is worth the wait.
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Find The Right Location
The last thing you want is to be stuck with a rental property in an area that is declining rather than stable or picking up steam. A city or locale where the population is growing and a revitalization plan is underway represents a potential investment opportunity.
When choosing a profitable rental property, look for a location with low property taxes, a decent school district, and plenty of amenities, such as restaurants, coffee shops, shopping, trails, and parks. In addition, a neighborhood with a low crime rate, easy access to public transportation, and a growing job market may mean a larger pool of potential renters.
Laura Alamery & elizabeth Klingseisen
We are Laura and Liz, a mother and daughter team, and the founders of this program for women by women. We have combined experience of over 30 years in real estate investing business and are ready to be your guide.
Weve experienced first-hand that it is POSSIBLE to create wealth with real estate while pursuing our bigger WHY and have a POSITIVE impact on the lives of others.
While a lot of women have a strong desire to succeed in their own business, fear or lack of proper knowledge or encouragement become dream crushers.
BMW Investment Properties Kansas City, Missouri
With Lauras supervision our company has made it to another successful close. How would $53,254.26 change your life? We are very passionate about what we do! Having a good mentor makes all the difference.
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Real Estate Profits Through Appreciation
For residential properties, the biggest factor that attributes to appreciation is location. An evolving neighborhood that adds better schools, new shopping centers, playgrounds, or anything that makes the area a more desirable place to live adds value to the home. Home improvements, whether interior or exterior, can also add a significant amount of value. In turn, your real estate business can make large amounts of profit through house flipping or rehabbing. Commercial properties work similarly to residential by gaining profit through developments in location and improving the property.
In terms of underdeveloped land, profits are also generated through development. As a city expands, the land outside its limits becomes more desirable to those who wish to develop it. Once a developer starts to build houses or commercial buildings, the value of the land increases even higher.
Whats Next With Real Estate Investing
Ready to start investing in real estate young and getting a head start on building wealth and reaching financial independence?
Get aggressive with your education, in addition to your networking. Read some of the best books on real estate investing. Listen to some of the best podcasts on real estate investing. Read blogs all about how to get into real estate and real estate investing for beginners.
When you first start real estate investing, youre at a disadvantage in knowledge and network. Your “job” as a young, aspiring investor is to learn everything you possibly can about how to invest in real estate and to narrow that knowledge gap as quickly as possible.
Because the faster you learn, the fewer mistakes youll make, and the more likely you are to walk away with hefty profits rather than losses and regrets.
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How Can You Start In Real Estate Crowdfunding
Crowdfunding platforms connect sponsors and real estate investors. To get started in real estate crowdfunding, research the various crowdfunding sites to find an opportunity that interests youâwhether thatâs an individual property or a fund that owns dozens of properties.
Pay close attention to the platformâs vetting process for deals as well as its sponsors. The top platforms employ high levels of due diligence to make sure that sponsorsâand any deals offered by the sponsorsâhave been rigorously evaluated.
Cons Of Flipping Real Estate
- You need to purchase a property .
- You need to DIY the renovation or hire a company, which can be costly.
- You need to really know the market, or else you could end up losing money on the deal.
According to Albaum, the right real estate investment depends on someones risk tolerance and experience level.
Of course, it also depends on your budget.
Commercial property investors, for instance, should have around $50,000 ready to go. If you dont have anywhere near that much, there are less pricey ways to invest.
Though Albaum mentions $100,000 as a typical starting point, he says there are cheaper ways to in every market.
Bencuya notes that many young investors these days are maximizing their dollars by
looking in suburban-urban locations where there are urban elements in a more spacious and less expensive environment.
These days people are willing to pay more to live near a city, without the hassle of actually being in the city. If remote work is here to stay, this trend might continue.
Real estate research hub iProperty Management recommends smaller apartments, multi-family properties, and suburban homes for the best returns. But the details may differ depending on specific variables in the location where youre investing.
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