There is no doubt that investing in real estate has become a highly popular way of earning whilst breaking away from the grind of the nine to five working world. However, many people perceive there to be an invisible barrier between wanting to invest in real estate and actually being able to do so – finances. The most common misconception about real estate investment is that you need a considerable lump sum (think a trust fund or investment portfolio) to get you started. In fact, many potential investors immediately dismiss the idea as they think the initial investment needed will be well beyond their reach. Fortunately, there are many ways to be successful in real estate, irrespective of your starting point.
How much capital you will need to start your real estate investment journey will depend on several things. These are:
- Your location
- How much profit you aim to make
- How much your initial project will cost to finance
Fortunately, there is a range of resources that can make these costs viable. Something else that you will need to take into consideration is the type of real estate investing that you are going to begin your journey with.
If home improvements are your thing and you don’t mind getting your hands dirty, fixing and flipping homes may be the best way for you to start investing in real estate. As you may have guessed, this means fixing up properties that need a little (or a lot!) of TLC to make them homes. This isn’t a job for the faint-hearted, and you will need plenty of drive, determination, and passion, as well as some rock-solid financing in place to turn your visualization of the property into a reality.
Neglected and run-down properties are fairly easy to find – you probably have some practically on your doorstep. Their condition usually makes them a good price. The key is to get in there early before there is much competition for them. Once you have fixed your property, you can flip it into an income-generator, be that from the sale of it, or from renting it out.
- the cost of acquiring the property
- renovation costs
- appraisal costs
- insurance costs
- permits and fees
- costs relating to financing your investment
Whilst it is unfortunate for the homeowners selling their property, sometimes circumstances arise whereby the seller is forced to try and secure a sale on their property as quickly as possible. This could be a death in the family, divorce, relocation or something else entirely. Whatever the reason, this instance provides real estate investors with an opportunity to purchase property for less than market value.
If you don’t have the full financing to buy the property yourself, you could become a property wholesaler. A wholesaler is someone who identifies distressed homeowners who are willing to sell their home at less than market value, place the home under contract and then locate an investor who will actually buy the home from the seller. In doing so, a wholesaler can charge a fee ranging anywhere from $5-$50k for the coordination of the transaction.
Since you don’t have to find the financing for the property itself, the financial outlay of becoming a property wholesaler is minimal. This usually involves a small marketing budget for sourcing both the property and potential buyers, and a small earnest money deposit of up to $5k payable to the seller to secure the property and give them confidence in your ability to secure a buyer. This deposit payment can then be recovered later in the process.
Although many people who buy properties to investment and fix them up to do go on to sell them, there are others who would prefer the promise of a steady income rather than a lump-sum return on their investment. Becoming a landlord is one of the most effective ways to achieve a regular, fixed sum every month for a pre-determined period of time, and since the price you paid for the property will always stay the same if rental prices increase over time, so too will the return on your initial investment.
It is important to note that becoming a landlord does mean that you will have a number of responsibilities, not least for the upkeep and maintenance of the structural building and utilities.
- a significant down-payment for the cost of the property to secure it, usually around 20%
- closing fees
- renovation costs
- ongoing maintenance
If you are up for a significant challenge, you could consider building a new property from scratch. Finding land at the right price is key, plus having solid financing in place to cover the cost of every aspect of the build. As you might imagine, this is significantly more than you would need for a simple fix and flip. Another important thing to consider is the zoning of the land that you plan to purchase – it is crucial that the land is zoned for the type of property you’d like to develop before you get started.
A project this ambitious needs a small army of professionals to see it through from its inception to completion, including architects, contractors, lawyers and more. There is plenty of paperwork involved too. Nevertheless, it is possible to start your real estate investment journey by building your own properties.
Whichever type of real estate investing you are considering, getting your finances in place before you get started is essential. Nobody wants to waste money beginning a project that they then don’t have the funds to finish. As such, considering what financing options are available to you should be one of your first priorities.
We offer up to 100% financing on real estate investments depending on your circumstances, with competitive interest rates starting as low as 8.5%. To find out more about how we can make your real estate investment dreams come true, please contact our offices today.