So you’re ready to finally jump into the wonderful world of real estate investing? It’s the most reliable asset class out there and has been used to create countless millionaires over the past few decades.
And more than that, real estate has been used to help many millions of people retire, either early or right on time, even if they didn’t become a millionaire. Real estate allows for passive income, asset appreciation, major tax savings, and many other benefits that set it apart from other investments.
So what are the best ways of making money with real estate?
There are tons of ways, and there’s a good chance that you’ll use multiple strategies throughout your investing career. There are ways you can start earning money today, and obviously, there are ways to buy and hold real estate investments over the long term.
Keep reading to learn what it takes to start investing in real estate and what your first goals should be.
Preparation and Education
Getting started in real estate is the hardest part for most people. However, those with successful investments will tell you that it gets much easier after you’ve done your first few deals.
Many successful real estate investors will say that investing in real estate is easy once you build the right systems.
But if you’re a total newbie and are wondering how to get started, there are a few things you need to do. You can refer to this comprehensive guide covering all of the steps you need to take to get that first property.
For starters, you’ll need to educate yourself. You can give yourself a cheap or free education using books, podcasts, and other free resources. You don’t have to spend money to learn, but you do need to spend time learning.
You’ll then want to prepare your finances. When you get your first property, you will essentially be getting a new mortgage. That means you’ll want a high credit score, cash in the bank for a down payment and reserves, and a steady job.
Take a few months to focus on improving your credit score. Also, set a budget and start saving as much money as possible for your first down payment. Having this in cash will make it much easier to get started.
Take on additional work to earn extra income and funnel it all into a new savings account. If you want something flexible, you can work in the gig economy, such as driving for Uber or delivering for Shipt.
Gain Exposure; Make Making Money With Real Estate Today
As you are taking intentional steps to prepare for your first investment, you can consider other ways to gain exposure to the real estate industry, as well. You can even begin making money in real estate without having a rental property.
You could consider getting a job in the real estate industry. This could mean taking your current skills and putting them to use in a real estate environment. For example, if you’re in marketing, you could get a marketing job for a property management company, a lending institution, or a builder.
If you’re young and not yet established in a career, you can try getting an entry-level job for a property management company or a contractor. Both will give you access to the wider real estate industry, where you can learn and make connections.
Or, you can try wholesaling real estate. If you already have a good job and don’t need to switch companies, try wholesaling to gain experience in real estate and earn extra money.
This is when you find a deal on a property, get it under contract, and then find another investor to sell that contract to. And you get to charge that investor a finders fee.
You want to get to a point where you can afford to purchase those deals, but until then, you can profit from them while learning the market.
First Steps; House Hacking
So you’ve taken some of the steps above and are wondering what the first step you can take to actually owning an investment property is. Well, one of the most accessible ways of acquiring your first property is through house hacking.
House hacking is the perfect method for newbies to get started, as it requires a lot less capital upfront. And it can set you up with the ability to start acquiring new properties much faster later on.
So what is it? When you buy a primary residence and rent part of it out to tenants while you live there. Most people will try to purchase an official duplex or triplex, renting the other units out while living in one.
Though, if those are hard to come by in your local market, you can look for a residential home with a mother-in-law suite and rent that portion of the home out.
The benefit of this strategy is the low down payment requirement. When you buy a primary residence, even if you rent part of it out, you can take advantage of an FHA loan, which requires as little as 3.5% down. So if you were buying a $300,000 home, you would only need to drop $10,500 rather than $60,000 (20%), which would be required for a traditional investment property.
This gets you into a property much cheaper, plus the cash flow from the rental unit(s) will help partially cover or totally cover the mortgage on the property. That means you are getting paid to live in your home.
So then, you start saving a ton of money, which means you can save up for another rental property much faster. And if you make any upgrades to the property, you can increase the equity you have in the property.
Lastly, this process gives you investing experience. Later on, when you get a mortgage on another investment property, your lender will more than likely approve the loan since you already have experience as a rental property owner, investor, and landlord.
Buy and Hold
So what do you do after getting your first property by house hacking? You start looking for the next property. This time, it can be a traditional rental property. A single-family home that will be rented out to tenants.
Most people who pursue real estate investing to build long-term wealth, retire, and enjoy financial freedom, seek to acquire numerous single-family homes and rent them out.
While they are actively investing, they use the cash flow generated by the properties to fund more investment properties, until they have as many as they need.
At this point, they can either start living off the cash as is or take all of that cash flow and start paying off the mortgages of the properties one by one. If you own a rental property without a mortgage, you can make a ton of monthly cash flow. And, you will never be at risk of losing the property if the market goes upside down.
And the icing on the cake of the buy-and-hold strategy is appreciation. On average, real estate appreciates or goes up in value about 3% each year. That means every year; your property is becoming more valuable while the tenant is paying down the mortgage and making the loan smaller.
So your equity increases at a substantial rate, building your overall net worth.
Purchasing Properties to Hold Long Term; Partnerships
So how can you start acquiring long-term buy and hold properties? Well, you can go the traditional route, which is saving up a 20% down payment every time.
Depending on the price of homes in your market, this could take a long time, unless you have a high-paying job.
Another way to speed up the process could be working with a partner. If you know people that have money to invest, they could loan you the money for a down payment, and you simply pay the interest on this loan.
Or, that person could pay for the entire property, split ownership with you while you manage the property. Partnerships aren’t for everyone, but if you find the right people, they can speed up your way to wealth.
Purchasing Properties to Hold Long Term; BRRRR
Or you can try strategies like BRRRR. This stands for buy, rehab, rent, refinance, repeat.
With this strategy, your goal is to buy a rental property; ideally, that is rundown or outdated. You want to get it for as cheap as possible.
Then, you rehab the property to increase the value. Say you buy a home for $100,000, put $20,000 of work into the property, and now it’s worth $160,000. Well, you’ve added $60,000 in equity by only spending $20,000, not too shabby!
After rehab, you rent out the property. Once you do this, you can then refinance the property. Your goal with refinancing the property is to pull out the equity that you just created so that you can use that money to then go and repeat the process.
With this strategy, you can dramatically increase the speed at which you acquire properties. Instead of one property per year, you may be able to get three or four properties in a year. That will bring you financial freedom much faster.
You don’t have to limit your investments to single-family homes. While they are a rock-solid investment opportunity, as they will always be in demand both to rent and to sell, they aren’t the only lucrative opportunity.
Multi-family properties provide the opportunity to make much more monthly cash flow. Imagine purchasing a fourplex with four rental units under one door.
Rather than renting out a single-family home for $1,500 per month, for example, you can rent out each of the four units for $900 per month, for a total of $3,600 in monthly rent.
If you got a good deal, this might mean a lot more cash flow.
Multi-family properties are much harder to find, as far fewer on the market than single-family homes. And when buying one, the only people you are competing with are other investors.
So it can be competitive, and these properties move quickly. You’ll need to be ready to move fast if you plan to purchase one. But with these properties, you will only need a few to make the same amount of money that many single-family homes would make you.
You aren’t limited to buy and hold investments as a new real estate investor. If you are handy, you can flip properties for a healthy profit.
Flipping properties is super popular thanks to the many shows on HGTV. However, it’s harder than it looks.
This is the art of buying a cheap, outdated, or rundown home in a decent or even nice neighborhood. Your goal is to rehab the property and sell it for a profit in just a few months.
If done right, you should be able to pocket at least $20,000 on a successful flip, if not more.
And if you can do a lot of the work yourself, you can make even more, as you won’t have to contract out the work. Or, if you have connections in the construction industry, you may be able to hire affordable subcontractors to handle some or all of the work.
Some people like to flip houses full time. That is, if they can flip just a few homes per year, they can make a full-time income and not have to work a traditional job.
Others like to flip homes to fund long-term real estate investments. This is a good strategy for those who still work full-time and want to build their long-term portfolio.
Build Your Strategy
As a new real estate investor, there’s a lot that you can do. But you can’t do it all, nor should you try.
You need to create a strategy and plan that works for your situation. How will you obtain that first investment property?
Will it be through house hacking, requiring only a small down payment? Or does that not work for your family dynamics? If so, you’ll need to purchase a separate property, which would require a higher down payment.
Write down how much you will need to save up for your first property and what you are going to do to get that money. Set a goal of reaching that by a certain time, and take action on it every day.
Small, daily actions and habits are the keys to building successful, wealthy real estate investors.
Becoming a Successful Investor
Making money with real estate is simple. You buy properties and rent them out. Now, it’s not easy. It’s not a get-rich-quick scheme. It’s a long-term play. That’s why most people don’t even try.
If it were fast and easy, everyone would do it. You need the patience to invest successfully.
But if you can do it right, you can set yourself up for a wealthy life, even retiring as early as your 30s or 40s. Now, start taking steps towards your dream today.
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