In the past years, thousands of companies have sprung up who are willing to charge you hundreds of dollars to teach you how to earn money in through real estate investing. They've taught millions how to take advantage of homeowner's misfortunes and manipulate the loan system to acquire real estate, but now the overcharged system is falling down around them. Real estate investing can be lucrative and safe, as long as investors don't try to get rich quick. These tips will help you safely invest in real estate.
Have Reasonable Expectations
Like all other investments, your income will build over time, mostly in the form of appreciation. Plan on making a long term investment and paying out several hundred dollars every month. Over time, you may build up enough value so that your income exceeds your expenses, but that is unlikely at first. That said, the wary and resourceful investor may discover opportunities to acquire properties for far below their value, but plan to spend money on the outset.
Save up a Down Payment
The time has passed for loan companies to hand out loans to anyone with any credit score and any (or no) down payment. The wise investor will plan carefully by saving up a down payment. An ideal down payment is 10% of the property value you plan to buy, but that could take you years to save up. You should be able to get a reasonable loan by putting down $5,000 to $10,000. Don't forget to have a little extra for closing costs and other fees.
Build a Strong Credit Rating
While you are saving up, be sure to build your credit score by using other lines of credit. Credit agencies usually want to see 3 open lines of credit that have been used. Credit lines can include credit cards, overdraft protection for your bank account, and car payments, as well as any loan that's recorded in your credit report. In creating these lines of credit, be sure to keep the amounts low enough that you can pay them off easily. Wise repayment practices such as paying loans off early and paying off your credit card every month will greatly increase your credit score. Don't allow your credit to be checked excessively (by applying too frequently for loans) because that will also lower your credit score.
Build a Strong Team
An honest real estate agent and loan broker can be invaluable in helping you invest. Ask around and interview several agents and brokers before choosing one to help you make your purchases. Your real estate agent and broker should be honest and knowledgeable. They won't ask you to do or say anything dishonest or push you to buy above your means.
The drawback to using a real estate agent is that they cost thousands of dollars for every purchase. If you are serious about investing, consider getting your own real estate license. Real estate licenses vary by state, but usually can be acquired with a minimum of time and money. You can expect to pay several hundred dollars and spend between 50-100 hours in classes and studying. In return, you will have a basic knowledge of all the legal requirements for purchasing real estate and have access to the MLS listing system and a broker who can answer your questions. For investors who plan on buying multiple properties, getting a license can save you tens of thousands of dollars.
Choose a Reasonable Purchase Price
The key to a stable real estate investment is not buying above what you can afford. Set the amount that you are willing to pay at several hundred dollars less than you can afford. (This amount can be higher for multiple unit properties.) Remember that you will have other costs such as insurance, taxes, and repairs. However, you can still look at properties that are slightly higher than your planned cost since you can offer a lower amount for them. Don't let an agent, loan broker, or seller talk you into buying a property that costs more than you can easily afford.
Choose a Property
When people think about investing in real estate, the first thing that usually comes to mind is the fix and flip method where the investor buys a run-down property for a reduced price, fixes it up, and sells it for a profit. However, this is not usually the best option, especially in today's inflated market. The first problem you'll run into is a great deal of competition to buy such a property. Many times sellers will accept multiple offers for such a property in hopes of getting a higher price. You'll also discover that the cost of fixing up a place eats up most of the profit even when doing much of the work yourself. If you do have the luck of finding a reduced property, be sure to take an honest look at the costs of fixing it up and make sure you are aware of all the problems the property has.
The best option for first-time investors is buying a duplex, triplex, or fourplex. These are ideal because the rent you will be receiving will be added to your income on your loan application. You will also be able to secure a lower interest loan more easily by agreeing to live in one of the units of the building you will be purchasing. You only have to live in the unit for a short time (usually one year) to fulfill the loan requirements. This allows you to save on your own living costs, gain experience as a landlord, and build appreciation on a higher value.
Another option first-time investors may want to look into is investing in land. This is not as simple as buying a physical property, but the lower cost of land may be within the reach of those who can't afford to buy housing units. If you decide to invest in land, look for property outside a city or town that is on a main road. The property should have legal access to water, power, and other amenities so you have as many options as possible when deciding how to use the land and to make it easier to sell. The plus side to land is the great deal of options you will have when deciding what to do with it. The down side is that you will not receive rent so you will have to make sure your income covers the cost of the land every month.
Commercial property is not recommended for the first-time investor because it is much more difficult to obtain. Not only are the laws more stringent, commercial property loans require a much higher down payment. If you are the average investor with limited resources, save commercial property for a later time when you have more experience and more cash.
If you stick with these basic suggestions, you should be able to purchase a good property that will grant you ample returns. Remember that the true value in real estate investing is usually in the appreciation that the property brings over the years. If you plan wisely, your real estate investments will secure a better future for you and your family.
