How to Start Investing in Real Estate

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How to Start Investing in Real Estate

An achievable goal for anyone willing to do the work

If you think real estate investing is beyond you, think again. While it may be a complicated process at times with a lot of details to keep track of and capital to acquire, so long as you take a studied, thoughtful approach and take advantage of the resources all around you, you’ll be well on your way to turning a tidy profit in the real estate game sooner than you think.

We’ve outlined what you need to know to get started.

Starting on the right foot

While it’s not necessary to have any previous experience with the housing market or with managing a property, it helps a lot and it helps prepare you for when it’s time to dive headlong into real estate investing.

In addition to apparent steps such as reading books or detailed articles on real estate, other actions you can take to see if this is the right path for you would be:

  • Manage or supervise home remodeling and renovation projects for other real estate investors. This gives you a good idea as to what you may experience with your future properties.
  • Become a leasing agent and connect tenants with landlords or property managers. This will teach you a lot about managing your rental properties
  • Search for potential deals to present to other real estate investors. This will show you how the investment acquisition process works.
  • Learn the ins and outs of the retail business as a whole by bringing together home buyers with property investors.

What’s your target market?

Where do you want to begin developing your real estate investments? Conventional wisdom suggests that you’d want to buy low and sell high, but how low are you willing to go? The truth is some low-cost real estate opportunities are inexpensive for a reason. In addition to any potential physical problems with the property, what other factors separate a poor investment from a wise one?

A lot of it comes down to location. Research the area. Is it an area with substantial economic opportunities and a high employment rate? Other factors to consider include:

  • Convenience to shopping and other amenities
  • Public transportation
  • Safety and crime rates
  • School districts
  • Recreational areas
  • Local taxes
  • Quality of roads and other infrastructure
  • Neighborhood covenants and HOAs

Any of these could be a barrier or a boon to the desirability of a city and to what return on your investment you can expect from your property.

There is also the question of how far are you willing to travel either to conduct or supervise renovations or to manage as a rental property.

What are your investment criteria?

This is where we get into the nuts and bolts of investing. Decide what sort of properties you’re going to focus on and write out a profile describing your criteria. You’ll need to have a written profile to share with partners, other potential investors, and real estate agents you expect leads from.

When just starting, it’s recommended that you focus on a single niche such as single-family homes within one or two zip codes and a specific price range. Or you could concentrate on rental properties with a certain number of units or even focus solely on features intended for retail space. Whatever your chosen niche will be, write it down in detail and focus your search strictly within that niche.

Other criteria to consider and write down would be your ideal terms—the numbers you expect to work with. For instance, if looking at multi-unit rental properties, how much do you plan to earn beyond expenses from each rented unit? What about single-family house rentals? If looking at retail spaces, how much do you expect to make back each month from each space filled?

These criteria are not set in stone. As you develop and grow in your real estate investment goals, your rules can and should change as well.

Putting together a team

You can’t go into this business alone. You’re going to need a range of people to either be working with or to be able to call upon to make your real estate investment dreams come to life. In addition to a spouse and/or business partner, you may want to have a personal advisor or mentor to help support and guide your way through the real estate investment process. You’ll also want to have on hand a lawyer with a specialty in real estate, a certified public accountant to handle your books, and, of course, lenders of some sort to help provide long or short term financing as needed.

As far as managing or developing a property go, you will also want to consider the following as additional team members:

  • Closing agent/title company
  • Home inspector
  • Property manager
  • General contractor (useful for remodels and obtaining permits)
  • Licensed and bonded electrician, plumber, and HVAC expert
  • Handyman
  • Painter (interior and exterior)
  • Year-round yard and snow-removal service
  • Pest control specialist

How can you find all of these people to join your team? It’s essential to network with other real estate investors and cultivate contacts within the investment community to obtain the names of people who can help you with your plans. See if there is a Real Estate Investment Association (REIA) in your area or check with the local Chamber of Commerce and other business groups for leads.

why invest in real estate

Coming up with the cash

It takes money to make money. Fortunately, you have several options when it comes to obtaining financing for your investment plans. Below are some opportunities to research and explore:

  • FHA (Federal Housing Administration) Loans – Often easy to qualify for and insured by the Federal government. Usually requires a small down payment, fixed interest rate, and a long-term loan
  • VA (Veterans Administration) Loans – Similar to FHA, but for veterans only and features a 0% down payment with a fixed interest rate set for a long-term loan.
  • Conforming Loans – Loans set to the guidelines of Fannie Mae and Freddie Mac. Terms can include a down payment between 5 and 20 percent, a fixed interest rate, and a long-term loan.
  • Portfolio Loans – Rather than being sold off on in the mortgage market, these loans are kept by banks and other lending institutions. They are more often short term loans—between five and ten years—with varying terms and competitive interest rates.
  • Hard Money Loans – Good for short term loans related to renovation projects, these loans rely on you having collateral in the form of physical assets.
  • Private Lenders – Rather than dealing with traditional loans from banks or other lending institutions, private lenders can come from self-directed IRAs and 401ks to wealthy individuals or moneyed partners. These sorts of lenders can be precious and flexible in their terms when handled right.
  • Seller Financing – Sellers with equity and not after an immediate cash grab will sometimes allow you to pay the purchase price of a property with installments over time. Sometimes a lease-to-own or similar agreement can also be obtained. These are not easy arrangements to come by when compared to more traditional financing, but the flexibility they offer makes it worth consideration when the opportunity presents itself.

It’s all within your grasp

Any goal worth pursuing is going to require a fair amount of study, preparation, and work. Becoming successful in real estate investment is no different. The good news is that there is nothing involved with real estate investment that is beyond anyone willing to put in the time and effort.

We’ve covered some of the more critical things to know when starting. The rest will be up to you. Start browsing homes now!