Your First Investment Property
So there you are, you’ve made the decision to begin your new endeavor of investing in real estate. You’ve heard about it, you know it can make you money, and you’ve seen the HGTV shows — which are definitely not an accurate description of the investing world, but then again, that wouldn’t get people watching now would it? So now what?
Interestingly enough, you’re not the only one who doesn’t know where to start, and this guide should at least point you in the right direction. After that, it’s all about taking action! I can’t stress that enough.
Knowledge and education are not enough. If we got paid to think, we’d all be millionaires – but we only get paid for action taken and the results produced. There’s 3 core fundamentals that once identified, you’ll be able to start looking for your next property to invest in.
- Business Plan
The most important question. What are your goals? Looking to build long term passive income through a rental portfolio? Have a desire for some quicker action and looking to cash out on a profitable flip? Maybe you’re just looking for a some extra cash to pay down some debt and wholesaling properties is the route you want to take. Either way, knowing what outcome you would like to achieve will help you plan what you will need to do today in order to achieve that outcome – reverse engineering at its finest. Create your business plan!
- Location
WHERE do you want to invest? A general rule of thumb for beginning investors is to invest in a market/area you are familiar with OR investing in an area that is close to where you live. The better you know the market you’re looking to invest in, the better you’ll understand how to invest in that particular market. What are the characteristics of your target market? Is it commuter friendly? Maybe it’s modern day suburbia? This will help you mold your strategy as your prepare to start investing. The added benefit to you, the investor, is that you can invest anywhere that you like! I know individuals who invest almost an hour or two away from them. I also know individuals who like to invest in other states. It doesn’t matter as long as you understand your target market and personal business goals.
Now that you have your game plan and understanding of which location works for you, It’s time to see if your strategy will either play out fruitful or cause a limiting ceiling. Taking the information and data that you’ve researched about the area you’re looking to invest in, ask yourself, is this a heavy rental-based market next to various modes of transportation and shops? That type of market may reaffirm your buy and hold strategy. You’ll have an abundance of prospective tenants which will give you the opportunity to keep your vacancy rates down which equals more cash flow profit in the grand scheme. On the flip side – pun actually intended – maybe you’re thinking about investing in suburbia where there aren’t a lot of apartments and complexes. Perhaps your market is red hot and homes are being sold in a matter of a few days. That would make you feel a lot more confident in your flipping goals wouldn’t it? It is important to match your strategy with the market demographic you’re looking to invest in to put the odds of success in your favor.
- Financing
This is the aspect about real estate investing that many get cold feet from. The million dollar question – Where do I get the money??
Well, the simple answer is, you can use your own cash, use a second mortgage, a hard money loan, private lenders or just partner with another investor.
If you’re extremely liquid and have the capital to invest using your own money, by all means go for it! If not, no worries, you have other financing options. If you have a good amount of equity in your current home, you can also explore using a HELOC (home equity line of credit) to gain access to cash for a down payment on a new investment property.
Using a hard money lender can be a great way to get your hands on cash to finance your next purchase if you find yourself strapped for cash. Be mindful of the financing terms when dealing with hard money as they will be extremely different from your regular mortgage lending. Lending periods typically range from 1-2 years with interest rates generally higher than your typical lender. I’ll discuss more on hard money lending in another article.
A lot of beginner investors ask “Can I really invest in real estate without any money.” Of course you can! Is it easy? Absolutely not. You might find a deal that you cannot purchase yourself. That’s where a previous network connection can prove to be extremely helpful in this case. Maybe you’re the deal finder and your partner is the funder. However you establish that partnership, you can essentially invest without any of your own money. It is possible, just not as easy as many make it seem.
Use these 3 critical legs of action to start investing in real estate. It is now time to locate that next deal that will bring you closer to your financial goals. There ae various ways to invest in real estate and the points discussed in this article will get you on the right path.