“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” – Franklin D. Roosevelt
Are you looking for a new investment opportunity? How about real estate?
I guess you know many famous real estate investors, both past and present. Some of them are Donald Trump, Sam Zell, and Warren Buffett. They have made a significant fortune by investing in real estate, and their success has inspired others to follow in their footsteps. While there is no one formula for success, these leaders have all demonstrated an ability to identify profitable opportunities and successfully capitalize on them.
The real estate market is booming, and now is the perfect time to get involved. Let’s discuss why investing in real estate is a smart move, and go through some practical tips on starting out!
Top 3 Reasons Why Invest In Real Estate
Is real estate a good investment? The short answer is yes! Here are the three key reasons why you should start investing:
1. Stability and passive income
The real estate industry is a stable investment. Unlike stocks or other investments that can fluctuate wildly, the value of real estate tends to increase steadily over time. That is why the property niche is much less risky than some others out there.
Making a passive income is a dream business model for most people. Real estate makes this dream a reality once you purchase a property and start collecting rent from tenants. For those looking for a hands-off investment, this can be a great option.
2. Tax benefits
Investing in real estate can offer a number of tax advantages. In many cases, investors are able to deduct expenses related to their investment property, such as mortgage interest, property taxes, and repairs and maintenance costs. This can result in a lower tax bill at the end of the year.
3. Building equity
Building equity is one of the key benefits of paying down a property mortgage. Equity is essentially the portion of the home that you own outright – it’s the difference between the appraised value of the property and the amount that you still owe on your mortgage. As you make your mortgage payments, you gradually build equity in the property gaining a greater degree of control over your home and increasing its value as an asset.
How Do Real Estate Investors Make Money?
Real estate investors typically make money in one of two ways:
- Income (it is generated by renting out or selling properties)
- Appreciation (it is created when the value of a property increases)
Most investors focus on income-producing properties, as they offer a steadier stream of income than appreciation-based investments. For example, with non-QM mortgages, you can finance multiple properties simultaneously and rent them out to increase income.
However, appreciation can provide a larger return on investment over time, making it an important part of any real estate investor’s portfolio. Ultimately, how much money a real estate investor makes depends on a number of factors, including the type of property they invest in and the current market conditions.
How to Become a Real Estate Investor
1. Plan your journey beforehand
Before investing in any business, it’s critical to have a clear plan in place.
Start with your own research. Look at the local market, understand the trends, and get a feel for what type of property will be most in demand.
Save money for a down payment. When it comes to investing in real estate, it is great to have some funds. This will help you to get a lower interest rate on your mortgage and will also protect you if the property market takes a dip.
However, if you don’t have a lot of money saved up, don’t worry – there are still ways to get started.
Some mortgage programs require investing from 5% to 10% of the house cost to buy an owner-occupied property, and from 15% to buy an investment property.
Say, you decided to buy a $200K house, so you will need to save up as low as $30K to start investing in the rental property.
Not too much, right?
Another option is to find a partner who can help with the down payment. Also, you can consider looking for properties that need some work at a lower price.
2. Decide on a strategy
It’s important to choose the right strategy in order to maximize returns and minimize risk. Some popular real estate investment strategies are:
- Investment property
The easiest way to get started in real estate is to purchase a rental property. By becoming a landlord, you can easily start an Airbnb business generating income from rent payments and building equity over time as the property appreciates. And with the help of a property management company, being a landlord can be a relatively hands-off experience.
- Fix-and-flip investing
It involves buying properties that need repairs and then selling them for a profit. This strategy can be profitable, but it’s important to have a good understanding of the Real Estate market and the repairs that need to be made in order to make a profit.
- Buy-and-hold investing
It means buying property and holding onto it for the long term. This strategy is less risky than fix-and-flip investing, but it can take longer to see profits. However, the rewards can be greater if done correctly.
It involves finding properties that are being sold below market value and then selling them to another investor for a profit. This strategy requires little money to get started, but it’s important to have a good understanding of Real Estate law in order to be successful.
3. Find a mortgage partner
When it comes to buying an investment property, it’s important to find a mortgage partner who can help you navigate the process and get the best possible rate.
Sometimes clients who come to LBC Mortgage are frustrated about their past experience with a broker. Working with random people can take your time and money while bringing nothing but stress. So, there are a few things I advise you to keep in mind while choosing a partner.
First, make sure to shop around and compare rates from multiple lenders. It’s important to ask about fees and closing costs, as these can add up quickly.
Once you’ve found a few potential partners, be sure to ask about their experience with investment properties. You’ll want to work with someone who understands the unique challenges that come with this type of purchase.
Your mortgage partner will help you go through a pre-approval process and understand how much you can afford more deeply.
4. Find and purchase your first rental property
To find the right property start with the analysis of the best cities for investment in your area or out of the state. In case you decided on the preferable location start to look for properties that fit your criteria. Make sure to consider the potential return on investment, mortgage payments, insurance, taxes, and repairs and maintenance.
When you find that very property it’s time to take action and make your move!
5. Think globally and never stop
Remember the real estate investors I mentioned at the beginning of the article, like Donald Trump, or Sam Zell? They achieved success because they set global goals. Same advice to you.
Purchasing your first rental property is a great move. But that doesn’t mean you should stop. Here is what I recommend you do next:
- Do a cash-out refinancing (in most cases you will have to wait for up to three years to do it)
- Get some cash and invest in another investment property
- Find tenants for your new property to pay your mortgage costs
- Repeat the process.
With a clear plan in place, you’ll be well on your way to success in the world of real estate investment.
Real estate can be a great investment opportunity, but it’s important to understand the basics before you get started. Hope this article will help you to do the first step as a real estate investor. In case you need more details on how to start feel free to contact me anytime.