You may have heard that investing in real estate can be profitable. You might have also heard that the barrier to breaking into real estate investing isn’t always easy. Unless you have piles of cash sitting around, you’ll have to be strategic about your investment plan. We have created this ultimate guide to investing to help beginners start the path toward building their portfolio.
What Is Real Estate Investing?
Real estate investing is any strategy or transaction that involves putting money into the real estate industry. For most, real estate investing includes buying properties. If you decide to invest in real estate, you might purchase a home and then rent it out to tenants. Instead, you might purchase a home in need of repairs or renovations and then flip it, sell it for a higher price, and earn a profit.
Real estate investing doesn’t technically have to include purchasing or selling physical real estate properties. You can invest in real estate through stocks, bonds, or real estate investment trusts (REITs).
Investing in real estate is kind of like starting a new business, meaning to be successful, you’ll need to create a business plan and establish how to fund it.
Why Invest in Real Estate?
Investing in real estate can offer you the following advantages:
- Quick returns: Investing in real estate can be one of the fastest ways to earn profits. Whether collecting monthly rent payments from tenants or building equity in your rental properties, real estate investing offers a number of ways to profit.
- Passive income: In many ways, real estate investing is a source of passive income. While properties do typically require maintenance and repairs, some investors may outsource these tasks to a property manager.
- Tax benefits: Investing in real estate offers many tax advantages, including the ability to write down many of your expenses.
- Appreciation: People will always need somewhere to live, making real estate a safe investment strategy. Additionally, the cost of homes will continue to increase.
How Can You Finance Your Real Estate Investment Project?
One of the most common questions that new real estate investors have is how they’ll fund the project. Most people don’t have thousands of dollars available to purchase a home. Even once you buy the home, you’ll need money to repair or renovate.
Cashing in on your current home’s equity or taking out a home equity line of credit may be an option for some beginner investors. Both of these options, though, depend on you having sufficient home equity to cash out and buy another property. Additionally, you’ll still need money available for any carrying costs.
Hard money loans were once the main choice of investors since they have fewer eligibility requirements and allow you to access funds faster. However, hard money loans come with high interest rates and fast repayment periods. Debt service ratio coverage (DSCR) loans are an excellent option for real estate investors who want to fund a long-term investment project.
DSCR loans calculate how much an asset is likely to earn rather than your current debt-to-income ratio. As long as you can demonstrate that the property you’re interested in purchasing will likely be profitable, you should qualify for a loan. Additionally, DSCR loans tend to have lower interest rates and fees than when compared to hard money loans.
Many lenders today also offer DSCR loans, making them easier to access. VisioLending has DSCR loans New Mexico residents can benefit from. Of course, real estate investors in other U.S. states can also find access to DSCR loans.
How To Find Real Estate Investment Properties
How much money your investment project earns depends on things like the home’s size, how much you pay, and location. Some parts of the country are higher in demand, whereas others may take longer to find a tenant to fill your property. Of course, the home type you choose also affects the success of your property. For example, vacation rentals do better in some parts of the country than others. Figuring out your real estate investment strategy before home shopping is always a good idea. Determine the type of property, your budget, and the location.
Once you have a strategy in place, you’ll begin home shopping just as you would if buying a property for you and your family. Take note of any “For Sale” signs in the community in which you want to invest. You might also work with a local real estate professional who has access to your local area’s multiple listing service (MLS) databases. Networking with other real estate professionals can also be beneficial as a newer investor, as this allows you to learn about new properties as they come on the market.
You don’t have to be a real estate professional to invest in the industry. In fact, the most successful real estate investors all had to start somewhere. By narrowing down your investment strategy and determining your financing options, you’re already well on your way toward a successful real estate career.