Getting Started in Real Estate Investing: A How To Guide

Getting Started in Real Estate Investing: A How To Guide

You don’t need to be a real estate pro to get started with real estate investing.  First time investors can still realize a profit from smaller real estate buys.  In a market where home prices are on the rise, real estate investing could be a great way to put your savings to work.  

Here are a few things to consider before you dive in.

What is Your Financial Situation

First, take a look at your finances.  In most cases, financial advisors suggest putting down at least 20% as a downpayment for a property purchase. So as to avoid having two mortgages to be responsible for, most investors hold off until they can purchase the property outright.  

While this requires a large amount saved, there are ways to find properties at a bargain price by looking at foreclosures listed below market value.

Getting a Mortgage

There are options if you do need to secure a mortgage.  You could always live in your investment property.  Then you can also obtain owner-occupant rates. It doesn’t have to be your forever home, as only one year of residency is usually required to take advantage of the lower rates.  

If you are considering purchasing multiple properties at the same time, finding the right financing is key.  Taking advantage of low 30-year fixed rate mortgages can build wealth at a much faster speed.

Calculate Cash Flow

If you’ve ever watched HGTV, you may thinking flipping a house and getting rich, fast is easy.  What you may not know is that homeowners usually do not make much of a profit when they turn around and sell houses quickly after closing.  

It can be a costly mistake to assume that you can do extensive renovations or remodels if you are not experienced in big home improvements.  A major remodel increases profit but large improvements also have a huge upfront cost.

Consider a Rental

A long term strategy that may be a better fit is purchasing a rental property.  While you may see more of a profit once the mortgage is paid, you can still shoot for a profit in the beginning.

Start with your price point, which you will need to be strategic about. You want to attract as large a pool of potential tenants while still covering all of the costs you’ll encounter like homeownership costs and the mortgage.

One way you can do this is by using an online rental estimate calculator and subtracting all of the potential costs from the rent you will be paid. Then you’ll have a good idea what your cash flow will be every month. Be sure to save a little cushion for unexpected repairs or emergencies that may come up.

Are REITs Right for You?

Finally, you’ll want to decide on your investment type.  While you may not have initially considered it, a partnership or a publicly-traded investment trust might be the right type of investment for you.  

Individuals with similar interests but aren’t ready to take the leap on their own might benefit from a partnership.  REITs or Real Estate Investment Trusts allow potential investors to not worry about daily management while investing in many properties at the same time.

REITs can act a little differently than typical real estate investments but have the opportunity to appreciate as well.  Despite being subject to economic fluctuation, over the past 20 years REITs have appreciated about 13 percent per year, one of the best returns in all equity classes.

Are you ready to start real estate investing? No matter which type of investment you decide to go with, keeping yourself informed on what is happening in the real estate market around you is very important for success.  It is also not surprising that your financial capabilities, choice of investment and estimated profit margins are all tied together and important factors to success.