Real estate is one of the best ways to earn extra, and even passive, income in today’s economy. A lot of people, many of whom would make fantastic and successful investors, shy away from the world of real estate investing because it can be challenging to get started. To help you break into the field and decide whether property investment is right for you, read on to learn how to get started in real estate investing.
Types of Properties To Invest In
First and foremost, you must decide what properties you want to invest in. To simplify things, we’ll break down the types of properties into two main categories – commercial and residential. Commercial real estate is property used for running or housing a business, whereas residential real estate functions as a living space. While commercial real estate can make you more money faster, they are more expensive to invest in and more vulnerable to market trends.
For example, those who invested in office spaces before the pandemic saw massive vacancies with the switch to remote work, something completely unpredictable and unforeseen to investors. While residential real estate is vulnerable to market trends and demands, and may not make you as much money as fast, people will always need homes.
Real Estate Investment Strategies
After deciding what type of properties you want to invest in, it’s time to develop your plan of action, and there are a few different routes beginners can take. You can own a rental property, flip a home, buy a real estate investment trust (REIT), or join a real estate investment group. These are not all the strategies available to you, but they are the “safest” strategies for those new to the investment field. Let’s go a little more in-depth by breaking down each one.
Owning a Rental Property
This is the most traditional strategy where you simply buy a property and rent it out, and either manage the property yourself as a landlord or hire a property management company. In this way, you make money by collecting rent. To make money using this strategy, you can sell the property for more than you paid for when the property has increased in value or charge rent for more than you pay in expenses.
With house flipping, you find a low-selling house that needs repairs and fix it yourself or have contractors do it for you. When the repairs and updates are complete, you sell the property for more than you paid and spent on it. If you don’t have skills that can get this process done quickly and affordably, you may spend too much time and money for what it’s worth. But if you’re handy and have relevant connections, you have the potential to make a high profit, especially if you’re flipping multiple houses a year or every few years.
REITs are the safest way for beginners to make money through real estate investment. Companies buy properties already generating income, such as residential buildings, hotels, offices, and more, that you can then buy a share of. You make money by receiving dividends through the shares you own or by selling the shares later at a higher price than you initially paid.
Real estate investment groups, also known as REIGs, allow you to buy or construct buildings through them, making you part of the group. The company takes care of, manages, and operates the buildings. While you make a profit through collecting rent, the company will receive a percentage of it as payment for management.
How To Fund Your Investment
There are many ways to fund your investment, regardless of your chosen investment strategy. Which suits you best depends entirely on what resources are available to you, the investing you’re doing, and the type of property you’re investing in. For beginners, credit cards, personal savings, conventional loans, government programs, or working with a mortgage broker are your safest methods.
Credit Cards and Personal Savings
Credit cards are a great way to pay for expenses, especially if you use a card that lets you earn purchase rewards or a zero percent APR card. With this strategy, you can pay things off over time without having to worry as much about interest.
Personal savings is the cheapest, easiest, and safest form of financing, as it’s simply your money that you’ve set aside. This strategy is best for those using investment methods such as REITs. For example, REIT shares are accessible and affordable, with most being under $100, making it easy to use your savings to invest.
Conventional Loans and Government Loans
Conventional loans and government programs are best suited for those living in the home while fixing it up or waiting for it to go up in value. You can use the money to refinance the house, but keep in mind that conventional loans are not insured by the government, which means a stricter credit score requirement. With government loans, you can receive insured funding through programs such as the U.S. Federal Housing Administration, the U.S. Department of Housing and Urban Development Loans, and Veteran Affairs.
Additionally, you can work with a mortgage broker who can help find the best deal by gathering the best options. Their job is to crunch the numbers and evaluate financial variables. They’ll review factors such as the income, credit reports, and employment documentation of the borrower to ensure the potential lender of the borrower’s ability to secure financing. They’ll do all the work of finding a mortgage for you for a commission fee.
Now that you know how to start investing in real estate, it’s time to ask the ultimate question– is real estate investing right for you? If it is, and you want to start renting out properties as soon as possible, Excalibur Homes can help! We understand how much goes into investing, prepping, and renting out property. That’s why we’re dedicated to providing property management services in Jacksonville, Florida, for residential properties. We can help you market, show, and inspect your property, as well as handle all the aspects of tenancy.