Investing in real estate does not have to be hard. There is an opportunity out there for everyone. Anyone, anywhere, any age, people can learn real investment tips. First, we are going to cover the basics of investing in real estate to generate money.
Real estate investments are providing average families more return than the stock market.
Stock market investments are more common than real estate investments. While the stock market is a great investment tool, the average Joe does not understand how to use it.
Rather than putting tens of thousands of dollars into a “trusted” accountant why not build your own wealth? Real estate investments allow you to be in control of how much you want to spend and when.
It is very rare that the property you invest in will lose value. Unless you install a swimming pool with a pink carpet you are in a win-win situation. The value of the land only increases over time. Stock market values are unpredictable when it comes to how much companies will make that year. Basing your wealth on someone else’s success is a big risk in its self. Do you want to do that?
Here are five tips on how to start real estate investing:
- Talk to other real estate investors
- Find a willing real estate investing mentor
- Subscribe to a real estate blog
- Educate yourself about investing in books
- Finding money for buying a rental property
Let’s be honest. Between paying for unexpected emergencies, daily expenses and paying back student loans people do not have enough money for a home down payment. Most mortgage companies ask for an average of 20% of the homes total value. What does that even mean?
Say you’re interested in buying a $250,000 home with three bedrooms and 2 bathrooms. It’s in an ideal neighborhood, not to fair from work, friends, and family. Mortgage companies want you to put up at least $50,000 before they agree to loan you money. While putting down more cash upfront reduces the amount of money you must borrow. Who the heck has $50,000 laying around?
What are your options for financing rental properties?
Getting loans from trusted banks are great. But, if your situation is like the example above I would not go through with it.
Buying your first home should be fun. It’s a great way to prove your independence and grab adulthood by the neck. We are not asking our parents for money to buy our rental property.
The Federal Housing Administration is offering first time home buyers the opportunity to secure a mortgage loan with low down payment requirements. First time home buyers are allowing to put down small down payments of 3.5% for credit scores of 580 and above. Down payment amounts rise if credit scores fall below 580.
That means that all you need is approximately $9,000 to buy your first rental property. Not including your insurance premiums and other taxes. Using this method that $250,000 home seems more workable.
FHA loan programs differ from state to state. It’s important to view your states specific guidelines and requirements before enrolling.
Saving up money for buying an investment property
Work on your credit score
Required credit scores can vary by the lender for home loans. The better the credit score the lower the down payment.
Here are 5 ways to raise your credit score:
How to use FHA loans to buy an investment property
Now that the basics of using an FHA loan were explained you can now buy your first rental property. To use FHA financing you must live on the property being financed. This does not mean you cannot use FHA loans to buy your rental property. You have two options!
You may buy a multi-unit home and occupy one of the units as a primary residence. Under the FHA loan restrictions, your building is now owner-occupied. The benefits of using this method are your down payment amount does not change. The property that you buy must stay within your approved amount. Unless stated otherwise this includes an apartment/ condo building.
After you have lived in the unit for 12 months, you can rent out the entire building and repeat the process.
This option is my personal favorite. it’s the DIYer in me that loves this idea. Buying a house that is either foreclosed or in need of home renovations. This option is a little riskier but allows you to invest more money into your property. Since you must occupy your home for some time, you can fix it into a show stopper.
Through this option, you still can buy a multi-unit building or a home. You will need more upfront money for renovations.
Investing in rental properties takes a lot of work. Buying a rental property with little money down is easier when you are younger. To qualify for certain loan programs you need to create owner occupancy with your property.
People with growing families are also not ideal candidates for living in different rental properties each year. It will become hard convincing family members to move to fulfill loan requirements.
Rental properties are an awesome investment for early retirement. Real estate investing takes time, not the best option if you are looking for a get rich quick scheme. The sooner you start investing the greater your return.