How To Buy Your First Real Estate Investment
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According to new survey data from Gallup, real estate investing is still the top pick for investors (31%). Interestingly, even though Baby Boomers and Gen X love real estate investing, Millennials are getting in on the game as well. Foreign investors also covet the real estate market in the United States.
Another thing you will want to consider when purchasing your first investment property is the location and the rental market in said location. The property should ideally be located in an area with a great school and/or lots of job opportunities. Also, it should have a great transit system nearby or be close to a highway for easy commuting.
Fixer-uppers are a great investment property, as you can make a ton of money in a short period of time. BUT, you will want to stay away from these sorts of investments on your first deal. Buy a fixer-upper (if ever) when you have a few properties under your belt already.
It will be less stressful and much easier on your mental health if you can already have a pre-approval sitting in your pocket before looking at and buying your first investment property. This is because it will give you a clear idea of how much money you have to invest and how much property you can afford.
And it will also give you leverage in your negotiations since you are already pre-approved and can buy the property faster than someone else who would need to wait for the approval. Time can be of the essence in buying valuable investment properties, so this pre-approval can be your ticket to getting in there quickly.
We are here if you need help finding your first investment property in Memphis. We have a portfolio of properties that you can choose from to start building your financially free future. Contact us today and buy a property from us no matter where you are located.
The truth is, each property investment has unique risks. When you are getting started as a real estate investor, you are probably going to start with one property. Later, as your investment property portfolio grows, some of the risks can be reduced with diversification and cash flow from other properties. However, in the beginning, when you are not diversified, the risks to your personal finances are highest.
Since people will always need a place to live, real estate tends to hold its value as long as the property is maintained well and the area is appealing. Which makes getting started in real estate investing a smart choice.
There's also a decent amount of flexibility when you own real estate. You can decide whether to rent out your property, sell it, subdivide it, rezone it for a different purpose, and so on. That way, you can respond to changes in the economy in a way that still makes your investment useful.
Especially when it comes to real estate investing for beginners, it's wise to proceed with caution. You don't want to stretch your finances too far before you're ready and end up with debt that you struggle to repay.
Instead of a long-term endeavor managing renters and adding properties to your portfolio, it's meant to be a temporary one. Flipping houses can be a fun way to get into real estate for beginners if you do your due diligence.
This one is a unique and fairly new method of real estate investing. Through real estate crowdfunding platforms like Fundrise and RealtyMogul, you can invest in specific real estate projects whose buyers are seeking loans. The platforms vet the buyers and projects to make sure they're legit before presenting them to members.
There are two basic types of real estate crowdfunding: debt or equity investments. It sounds strange to invest in debt, but it basically means that you're investing in a mortgage loan on a property, and receiving a set share of the interest as the loan is paid back.
Real estate syndication is another way to start real estate investing for beginners. It's where investors put their money together to buy or build real estate. With real estate syndicates, there is greater buying power than investing as an individual.
They start out with a sponsor who originates the transaction. The sponsor makes money from rental management fees, monthly cash flow from rent, and capital appreciation. Sponsors solicit investors who make money from the monthly cash flow from rent and real estate appreciation.
Another great way to get into real estate investing for beginners is with real estate investment groups (REIGs). It's a way to combine your money with other private investors' money and then invest in many types of real estate.
So, those are your six basic options. If you're interested in REITs, REIGs, real estate syndication, or crowdfunding, you can do it from the comfort of your home. For ownership or flipping, you'll need to hit the pavement and start hunting for deals!
Of course, this involves a ton of location-specific factors and enough information to fill a book. That is why the next section has some real estate investing for beginners information using real estate investing books for you to check out! As a jumping-off point, here are some quick tips for buying your first property.
Ideally, you should have little to no debt and a lot of liquid savings to use for a down payment. You also need a good credit score to qualify for good loan rates (aka real estate leverage), and the time to dedicate to the work involved.
Have someone experienced to examine the property with you to assess it for damage. They may notice things you didn't and help you to ask the right questions as you're getting started in real estate investing.
It's not a smart idea to start your beginner real estate investment journey by flipping a house if you have no experience with it and don't know anyone who does. It is helpful if you know real estate agents, plumbers, electricians, contractors, etc.
Learning real estate investing for beginners is just the beginning of a long and complex journey. But if you're committed, determined, and willing to keep learning, it can be a rewarding and life-changing decision.
We all know that property generally appreciates over time, so your investment will increase in value while the tenants pay off your mortgage. Seems like a win-win situation! Not to mention the various tax benefits that come with owning a rental property, among which are the extremely low taxes for rental income.
Another option for financing is asset-based loans which revolve around the asset itself (the investment property) and not your personal qualifications. The conditions for loan approvals from lenders like this can vary quite a lot from the banks, and in many cases, applying for funds through companies like New Silver can be easier and much quicker.
When someone purchases a property correctly they are setting themselves up for future options such as taking out a home equity line of credit, cash out refinance, or even selling it if the market is that good! There are many options available for you to extract some of the equity/all of it, and use that to buy your next property. This makes rental property extremely attractive compared to other investments. Could you take out equity from your stock portfolio to buy a property, and the value of your holdings remain the same NO!
Leverage is one of the most powerful mechanisms for building wealth; it's the concept of using other people's money, or in this case the bank's money. It's the idea of getting more for less, like when you borrow 80% of the money to buy 100% of a cash flowing property. The low, fixed interest rate and high Loan-to-Value of the mortgage means that you get a larger return on your investment, especially over time as your rents increase and the mortgage payment stays the same.
Cash flow is the difference between the total rental income that your investment property generates minus the operating expenses required to maintain the property. The beautiful thing about cash flow is that it is real cash paid to you, the landlord, by the tenant every single month. That is money that you can use to live and over time if you grow your cash flow basis enough it can completely cover all of your personal living expenses.
The fourth advantage of owning real estate which is also a builder of equity is the appreciation of the property over time, whether natural or forced. With the exception of economic recessions and natural disasters, real estate tends to increase over time and in fact over the last 50 years the average price of a home in America has increased sevenfold. You can also force appreciation by making necessary repairs that increase the value of the property because of its increased desirability and livability. This means that you are likely to sell your property for more than what you paid for it.
Real estate investors are entitled to numerous benefits by way of deductions and tax breaks that allow you to save lots of money over time. The tax law allows you to deduct ordinary and necessary expenses for managing and maintaining your rental property. In other words, you can deduct expenses like the interest portion of your mortgage payment, your property taxes, your insurance premiums, maintenance, repairs and depreciation.
Now that you understand the tremendous benefits of owning real estate and are intrigued by the wealth-building opportunities that are available to real estate investors, there are several questions that you need to ask yourself.
You can choose to buy cash, not involve the bank, not get into debt, bypass the whole mortgage payment expense and own the property outright; it's an option available to whomever can afford it. The advantage of buying cash is that you eliminate the risk of defaulting on your loan and potentially losing the property and your investment to the bank for lack of payment. You also see the elimination of a big expense and an increase in your cash flow.
The disadvantage of buying cash is that it requires more cash at the time of purchase and thus may delay your ability to make your first investment. Additionally, you also lose out on the benefits of leverage and the fixed low-rate mortgage payment. If the investment makes sense, financing the property with a low interest rate will only provide you with better returns and allow you to potentially spread your money across multiple properties. For instance, instead of paying cash for one property you can use that same amount of money and buy two or three properties with the help of the bank. 59ce067264