Are you interested in a new source of income? Many people think that having the right job and moving up is the way to get wealthy, but that’s not enough.
The truth is that millionaires have multiple streams of income. In fact, 65% of millionaires have at least three sources of income, and 29% have five or more.
If you’re ready to add another revenue stream, real estate investing is a great place to start. When you invest in real estate, you do more than buy a property and hope it becomes more valuable. You actively work to get monthly revenue.
Here’s the guide to real estate investing for beginners you need!
There Are Multiple Types of Real Estate Investing
Investing in real estate can be as simple as buying a home and renting it to someone else, but it can also operate completely differently.
You can choose to buy a fixer-upper, renovate it, and sell it for a profit. Or, you can invest in real estate related stocks or real estate investment trusts (REITs.)
A REIT allows you to invest in a type of real estate without having to buy an entire property. For instance, you can choose a commercial real estate trust or one focused on apartment buildings.
Every type of real estate investment has its own benefits and costs, so be sure you’re fully aware of what you’re getting into. There are no instant riches – everything takes risk and work.
Consider the Costs
Any type of investment is focused on getting back more than you put in.
Unfortunately, in real estate, it’s easy to get in over your head. No guide to real estate investing is complete without a section about what the various costs are.
If you invest in REITs, your costs might be limited to trading fees. However, you still have risk because the value of the REIT could go down. In particular, rising interest rates can damage the value of your investment.
Rental properties have very different costs. You have to come up with a down payment and pay the mortgage monthly – even if you don’t have a renter. There are also upkeep and repair costs to consider.
Buy-and-flip strategies cost quite a bit as well, and the biggest risk is that you won’t recoup your costs. You can encounter unexpected repair costs beyond the purchase and renovation budget you had planned.
Overall, it’s important to consider all of these costs and make sure you have a plan to ensure a profit. Otherwise, your real estate investment could be a source of loss rather than a source of revenue!
Purchase Property in a Company Name
Making money in real estate is a business, and it’s vital that you treat it that way. That means you never purchase property in your own name.
Instead, create a limited-liability company (LLC) or other business entity and make that business the owner of the property. This protects you financially and legally.
If something goes wrong with your property or there’s a lawsuit from a slip-and-fall or other concern, having the business own the property ensure that your personal assets are safe. You may lose your investment in the property, but your retirement and personal home should be out-of-reach.
You’ll Need Funding
“Leverage” is when you borrow money for an investment because you expect the profit to be greater than the interest you owe.
When it comes to real estate investing, most beginners don’t have the money they need to get started on their own. If you do have a sizeable amount saved up, that’s great – think of what you could do when you pair that money with additional funding!
Real estate is an investment that’s easier to leverage because you can use the property as collateral. However, you still need to shop around and make sure that you get the best deal on funding.
If you’re flipping homes, using a hard money loan is a great way to get started. Instead of relying on your credit to begin, you rely on the value of the property. Since you’re buying it intending to sell it for much more, you can pay off the loan and still have a good profit.
A hard money loan has the additional benefit that it allows you to move quickly. You don’t have to wait weeks for traditional approval, which may cause you to miss your opportunity.
Create a System You Can Repeat
The purpose of real estate investing is not to simply own one property and gain some kind of income from it. Instead, you want to set up a repeatable system that you can do to help you build your income.
For instance, you might find that when you sell the property you renovated, you have a profit big enough that you can invest in your next property.
Or, you may find that once you rent for a while, you can get a new mortgage on the property at a higher valuation, and use the difference to buy another rental.
This is where one of the biggest pitfalls in real estate for beginners exists. Lots of people will promise to teach you a “perfect system” that will allow you to get rich quickly. Of course, they will charge you for the privilege.
Many people in real estate investing, unfortunately, get rich off the desperation of beginners. Don’t fall for it. Instead, create your own system step by step.
Jump Into Real Estate Investing For Beginners
Now that you’re aware of the basics, it’s time to get started. First, look over the types of real estate investment available and decide what’s best for you.
Then, put together your funding and get started. This guide to real estate investing for beginners has laid the foundation – it’s time to move forward.
If you’re getting started on a buy-and-flip, consider a hard money loan from Orchard Funding. We specialize in helping real estate investors and can help you get the cash you need. Contact us for more information today