The world of real estate investing can be quite exciting, but many would-be investors have no idea how to get started. The process is more complicated than simply putting money down on a property and then renting it out. However, once you’ve embarked on the journey, you could have a steady stream of revenue adding money to your bottom line.
Before getting into real estate investing, it’s important to determine your priorities and how your investments will fit into them. A Forbes contributor offered this real estate investing roadmap for those who are thinking about getting into this business.
The first step is to determine what your objectives are for investing. Some investors want to supplement their income with a steady flow of cash, while others are looking for long-term portfolio holdings and equity. Still, others need quick cash, so it’s important to understand what you’re looking for before taking on any investments. Not every type of investment will meet every objective.
Real estate investing is an excellent option for those who are thinking about long-term revenues. It requires a significant amount of cash upfront, and it takes some time to get set up. However, once the ball is rolling, it provides a steady stream of income. It’s a good idea for investors who are thinking about steady, long-term cash flow rather than those who need an influx of cash quickly.
Cash Available for Real Estate Investing
Because real estate investing requires cash upfront, it’s important to determine how much cash you would be able to get together if you decide to move forward. The amount of cash you have will determine what sort of property and how many properties you will be able to buy. It isn’t necessary to have the full amount that’s needed to buy an investment property, but you do need some cash to use as a down payment on the loan for the property.
Before making any decisions about whether or not to seriously pursue real estate investing, it’s important to know whether it’s even a possibility based on the amount of money you have to set aside. Remember, the investment won’t start to pay off for at least a couple of months, and it could be longer if it takes more time to find suitable tenants. You must be able to afford to have your cash tied up for an extended period of time before you can even move forward.
Another big part of real estate investing is financing. If you can put the entire amount of the purchase down upfront, then that’s great, but many real estate investors can’t afford to do that. As a result, financing may be an important piece of the puzzle. There are several options available for potential real estate investors.
Many investors will turn to conventional financing, which generally offers the best loan rates from larger banks. However, one downside to conventional financing is that the terms tend to be the strictest of the available financing options.
A mortgage broker can also be an excellent option for financing because they can connect you with a large number of options and help you find the best one of many. Sometimes having a wide array of lenders makes it easy to find an attractive rate and terms.
Some investors may consider hard money lenders, although a major downside with this option is that the fees are quite large. Many of them charge origination fees of 1% to 3%, plus an interest rate of 7% to 12%. Hard money lenders usually lend between 65% and 70% of the price paid for the property or sometimes the value of the property after repairs are completed.
Hard money lenders require interest-only payments with a term of six to 24 months, and funds can be made available in less than two weeks. They can offer an easy way to get into real estate investing quickly without missing out on an opportunity.
Credit cards are another option for investors, although they can be especially risky, especially for those who have struggled with credit card debt in the past. To use this method, you can call all your credit card companies and ask to have your credit line increased. Then just spread the balance across multiple cards to keep them under 40% of your credit limit, which will maintain a good credit score.
Some credit card companies send checks that come with an introductory interest rate of 12 to 15 months. Such checks can work as a sort of bridge loan if handled carefully. It is a cheaper option than a hard money lender, but it requires a great deal of discipline on the part of the investor. It would also be wise to make sure you have multiple plans to pay it off in case things don’t go exactly as you plan.
Another option is to borrow from family members and friends. In some cases, you could form a solid partnership with them as you enter the business together. However, it would be a good idea to have a presentation prepared to help them see what your plan is for getting your money back out of the property.
Researching the Market
The next step is to research the real estate investing market. One of the main questions is where you should invest. Not every type of property will fit every investor’s needs, and some properties will present better opportunities than others. Studying the local real estate market will enable you to identify where the best parts of the area are to invest.
Some areas may offer better investment opportunities than others because they are emerging markets and are just beginning to become popular with tenants and residents. It’s also a good idea to consider which parts of the city are about to see major development.
Exit and Preparation
Finally, it’s important to have a number of exit strategies ready, especially if using funds from hard money lenders or family members, or friends. Exit strategies can be something like buying the property, fixing it up, and then flipping it. They may also include buying, fixing it up, renting it, and then refinancing it. Knowing exactly how you’re going to get your money back out of the property is important.
There you have it, our real estate investing roadmap. Did you find it helpful? Give your feedback below.