Fortunately for everyone out there, you no longer have to be the top 1% to invest in real estate. All you need is some capital and some drive.
How Much Capital Do You Need?
Unlike other assets like stocks and bonds, the housing market only requires that you pay a fraction of the cost up-front (which is known as a “down payment”). Therefore, you have more opportunity to really get your money’s worth. Especially once you’ve paid off your mortgage, real estate offers the chance for infinite growth.
In terms of how exactly you get the capital, you have a couple of different options. If you currently own a house, your equity can be used to finance your investment venture. By refinancing your house, you can get some extra cash to fund your investment and avoid having to pay out-of-pocket. If this is not possible, you can also raise enough money simply by setting some money (about 20%) aside on each paycheck. Different ventures have different capital requirements, so there are definitely ways to invest if you cannot afford to buy a whole property by yourself. Within real estate, there are many ways to invest. It just depends on what kind of “hat” you want to wear.
Are you prepared to maintain your property? To have a vacant apartment from time to time? To have to deal with tenants and, potentially, the havoc they wreak on your units?
Landlords lease out their units to tenants on either a long-term or short-term basis. They must then do the work of maintaining the property. They must be invested enough in their property as well as their relationships with tenants to be around on a regular basis. Whether it’s a leaky faucet or a misplaced house key, you will need to make yourself available to take care of things. Even if you don’t plan on fixing the problems yourself, this job still requires that you make the proper appointments, ensure that all the maintenance people have access to the units, and follow up with your tenants to make sure that the job is completed correctly. You could also hire a manager or property management company to run the property for you, but this will cut into your profits.
A popular option in recent years is to post on short-term rental or vacation sites such as AirBnB and HomeAway. This is a bit more hands-off, but still requires some coordination. Guests will still need to be catered to in order to ensure they have all the necessary amenities. In addition, they must be monitored to prevent noise complaints or damaged property.
You can also choose to purchase an apartment unit or condo through a real estate investment group. They will handle all the day-to-day maintenance and tenant interactions, while you just supply the capital. You will collect a majority of the monthly rent, but a portion of it will go to the investment group.
This is a much more hands-off approach, but it does require giving up some profit in exchange for more convenience. It also means trusting your investment group not to screw you over. However, it is also a more conservative option since it allows you to get regular income, even if your unit remains vacant. This is because a portion of the money collected by the investment group will go towards covering losses in the case of damages or vacancies.
This approach often means getting in and out as quickly as possible. This will maximize the amount you make in profit by minimizing the number of monthly mortgage payments you make.
House flipping is a fast way to get money, which means not having to deal with liability in the long run (as long as you actually sell the house, of course). However, it also means that you will be somewhat exposed. After all, even hot markets cool fast. In this type of venture, risk is not spread out across a bunch of investors, meaning both the risk and the reward increase exponentially. Lastly, before you attempt to flip a house, you should understand how real estate is appraised and how to market your house effectively.
Before You Invest
Make sure your capital is utilized properly by doing research, research, research.
If you’re a landlord, are you renting this property out to college students, families, or businesses? Is it for short-term occupancies, or long-term stays? Or, if you’re investing, what do you know about this real estate investment group? How did you hear about them and what references do they have? If you’re flipping a house, find out what your buyers are looking for. Also, scope out how rentals are doing in your area. How much are they charging and what do they offer? That way, if you want to charge more, you can strategize on how to make your property worth more than other rentals in the area.
For more information on how you can invest in real estate, reach out to a Mortgage Consultant today!