Those who have some money set aside are always looking for ways to invest it. Who wouldn’t want to turn their money into more money? Real estate investment is a common area of discussion for those looking to create a passive income. Money should never sit and languish in a savings account.
So how can a would be real estate investor get started? A lump sum investment is a great way to break into the marketplace. Perhaps the investor is looking to get the most out of their $10,000 nest egg. Or maybe there is a sudden windfall that the investor is looking to maximize.
Thanks to this guide, it has never been easier to utilize the funds on hand to obtain real estate that produces income. All it takes is a little bit of ambition and a willingness to become more disciplined with budgeting.
Step 1: House Hacking
This is one of the best methods for those who are looking to dip their toes into the waters. Owner occupied, residential financing is available multifamily properties. The real estate investor is then able to enjoy low down payments and low interest rates. It is important to remember one key aspect of this step: the importance of preserving capital.
In other words, do not make the mistake of blowing all available capital on the down payment. Otherwise, the investor will not have the necessary cash on hand to make their follow up investments. Be sure to utilize the lower down payments, as a means of keeping capital on hand for future steps. The new property should offer the investor the necessary income to cover their mortgage payments and additional positive cash flow.
Investors can also maximize their income by moving into the new property and eliminating their monthly housing payments. Funnel these savings back into the savings. This allows the investor to gain valuable experience when it comes to property management as well. Screening tenants and filling vacancies can be challenging. This step offers the chance to learn more about these key aspects of real estate investment.
Step 2: Purchasing Another Unit
Once the investor has the confidence in their ability to handle a property of this nature, it is time to make a follow-up purchase. Taking a year to learn as much about the process as possible is important. By this time, the investor should have the ability to make an investment of this nature more easily. Investment loans are available to would-be investors.
As a rule of thumb, the real estate investor must be able to put 20 percent down. Owner-occupied loans can also be obtained by those who wish to live in this property, too. Bear in mind that two FHA loans cannot be obtained at the same time. Conventional loans are available. An investor can also refinance their past FHA loan.
Avoid any unnecessary lifestyle inflation. Keep the investment fund robust. Spend the next 12 months getting acclimated. This is a fact finding period.
Step 3: Purchasing an Apartment Building
Smaller buildings are a good place to start. A hefty down payment is needed, although commercial financing is available. Offer investment opportunities to family and friends. Don’t make the mistake of offering faulty investments, though. These are monies that will have to be paid back if anything goes awry.
Once the investor arrives at this step, they are going to experience a different form of competition. These are commercial investments and serious minded individuals are going to be involved. Better yields are available but management experience is necessary. The lessons that were learned in the aforementioned steps are invaluable.
Long term goals must be considered before any further steps are taken. Is the investor looking to quit their full time job and transition into a different career? What does their perfect look like? This is a time when the investor should take out a pen and a piece of paper and start writing stuff down.
Those who are satisfied with living off of a smaller amount of money will achieve a greater level of independence more quickly. There are no right or wrong answers here. Each investor will need to make the decisions that are right for them.