The Beginner’s Guide to Investing in Real Estate
Would you rather invest in the stock market or in real estate? As we all know because of the 2020 pandemic, stock investments can be very risky. Luckily, investing in real estate properties is a low-risk investment that can provide reliable returns and a stable income.
You most likely have a ton of questions about real estate investing, no matter if you are a young investor or a seasoned investor looking to diversify your portfolio in real estate. Real estate investing might seem complicated at first, but trust us; it is super simple once you understand it. The biggest requirements are to have a solid investment strategy and the right resources to be successful in real estate investing (REI) properties.
Based on the experience that the customers of Titan Funding Solutions have had, we have broken down the process of real estate investing to a simple step by step list.
Step 1: Plan and Write Down Your Investment Goals
There are a lot of questions to answer before you start on your real estate investing journey. Are you wanting to retire by 35 by making a ton of money quickly? Do you want to manage your properties alone, or do you want a team so that you can have a hands-off approach? Do you want to have higher risk so that you can possibly return big profits or do you want conservative, consistent returns on your investments?
Make sure that you understand what kind of outcomes you are looking for and set your goals. This will help you create a solid investment strategy that will help you successfully invest in real estate. This step is super important and will help you decide among the investments and financing options you might have in the future.
Step 2: How do Your Financial Resources Look?
Then, you will want to take a 50,000-foot view of all of your finances. Take a step back and make sure you can answer all of these questions: Do you own a healthy savings account that could help with a down payment or even pay for the property in cash? How good is your cash flow? What investments do you own in your retirement account? Make sure you know your net worth? How much debt do you have and what forms of payment does each one take? This might include credit cars, personal loans, etc..
By answering these questions and analyzing where your finances stand, you will be able to decide which real estate investment is the best option for you. You might want to live in the home while you are renting it or you might want to purchase multiple single-family residents (SFR) properties. This will help you plan out how you will get a reliable, monthly rental income.
Step 3: Decide on Your Investing Strategy
After you have analyzed your current financial position, you now need to decide on how to make your first investment. You don’t need a full plan right now but should know the best decision between these options depending on your various needs.
Fix and Flip Properties: With this strategy, you will buy a property and then, through renovations, increase the value of the home. The goal of this strategy is to buy the property and renovate it as quickly as possible in order to get the largest return that you can. Most investors research and focus on flipping houses the most. This makes them super skilled at choosing the right properties and managing real estate investing teams.
Residential Rental Properties: This option is available for when you want to buy a property in order to rent it out long term. Most people will buy a multifamily property in order to return reliable and sufficient rent from multiple units at once.
Commercial Real Estate: Most beginner investors won’t begin in this area. The main reason for this is simply that it is a lot more complicated; it usually requires a better knowledge of tax regulations and city codes. If you have enough financial resources and your perfect property is available, commercial real estate could be the best option.
Real Estate Investment Trusts (REITs): This is a good method for you if you want to be hands-off with minimal involvement with the property itself. REITs are a lot like mutual funds because you are investing in a company that owns multiple commercial properties and will share in returns. If you choose this route, we suggest going through a broker.
Step 4: Create a Location Strategy
It is usually recommended to invest in a local area or an area that you are familiar with for your first real estate investments. This allows you to usually already know the real estate market in this area and makes it easier for you to manage the property. No matter what, always evaluate the pros and cons of every location you analyze. Here are some important questions to ask:
- Is the local job market strong?
- Is this area growing?
- What are the average rent prices here?
- How good are the nearby school districts?
- Is there available public transport?
- How is the safety and crime rate in the area?
Step 5: Build Your Team
Now that you have gone through and planned everything, it is time to start building your team of highly skilled and trustworthy people. This team should help you succeed and grow your business to the next level. For the best chance of success, we recommend these people on your team:
A Mentor: Find someone that has already done what you want to do. Try to find someone who has been successful in real estate investment and can help you turn your dream into a reality.
A Lender: This person is one of the most important assets to your team. They can destroy your investment strategy if you choose the wrong person so take your time and find someone that you can trust. Make sure you compare rates and inquire about their turnaround times, pre-approvals, and their fees and down payment requirements.
A Real Estate Agent: Sometimes beginning investors will act as their own real estate agent, but it is highly recommended that you find an agent that you can trust. You want someone on your team that knows the ins and outs of the market.
A Property Manager: As your business and real estate portfolio grows, it will become more and more important to have at least one property manager. They are especially important to have in case you want to buy a property outside of your local area.
Other people that you should think about hiring onto your team are a local contractor, a handyman, a plumber, an electrician, and a painter. You want to make sure you can trust these people to be easy to work with and get ahold of so that you are ready at all times to renovate a property and meet your financial goals. This is really important when you are flipping houses or doing value-add rehab of another method.
Step 6: Planning Your Financing Strategy and Budget
Once you have chosen what direction you want to go with for your first investment and have chosen a reliable lender, it is now time to pick the financing option that will be the best fit for you. Depending on the type of property, here are some financing options you can probably choose from:
Traditional Mortgage: If you are planning on living in your investment property while you rent it out then a traditional mortgage is probably the best option. These are good because they usually offer the lowest interest rates but the problem is you can only take out a few of these loans at a time before hitting a federally restricted limit. This might eventually cause you to need additional financing down the road.
Fix and Flip Loan: A fix and flip loan is perfect for when you want to rehab a property and quickly sell it for profit. These short-term bridge loans provide the capital you need for purchasing and making upgrades to the property.
Rental Loan: These loans typically are full-term, fully amortized loans that are built to make it easier for you to buy the property that you want. These are perfect for when you want to hold onto a property and rent it out for a long period of time. Before getting one of these loans make sure that you understand the amortization, loan term, prepayment terms, and the total monthly mortgage payment.
Multifamily Loan: Multifamily loans are built for properties that have five or more units. Titan Funding Solutions provides the best bridge loans for stabilized properties and value-add projects of all types.
Summary
Now that you have gone through all of the steps above, you are ready to make your first real estate investment purchase. This could be the start of a huge real estate portfolio and the gate to your financial freedom! When you are ready to start investing in real estate or are ready to grow your real estate investment portfolio, contact us immediately. We would be happy to help you successfully invest in the property of your choice.