If you’re like me, you often sit around and contemplate, “What exactly should I do with my money?” If you’re really like me, your answer is usually to hit up the Taco Bell drive through. But for those times when you have more than a burrito’s worth of money to figure out, you probably want to invest it. There are many options available, but real estate may be a good option for you. “Why?” you ask. Well, as Mark Twain famously put it, “Buy land, they aren’t making any more.”
Why Invest in Real Estate?
The easiest answer is because you want to make money from it! That’s the goal of any investment, and an investment property is no different. First, ask yourself if you really want to be a landlord. Then, try to figure out what your potential profit might be on your investment.
Still interested? Then take stock. Identify what your goals are. Determine what your current financial situation is. And make sure you are taking all of the various investment factors into account.
How to Invest in Real Estate
It helps if you live in one of the top 20 cities to buy rental properties, but there is always going to be a market if you decide to invest. The first step is figuring out a property to invest in. Forbes highlights three keys to a great real estate investment:
- Pays fair cash-on-cash return: Be sure to buy cash flow-positive properties.
- Isn’t too risky: All real estate is risky, but buying an established cash flow investment mitigates some of the risk of being a developer.
- Doesn’t require a lot of time or management: Again, an already-established property can make this easier for you.
So in summary, buying real estate with an already-built structure, one that doesn’t require a lot of work and is already being used as a rental, can be the easiest way to start investing in real estate. And even if it’s a good investment, it’s always a good idea to review all of your options to makes sure you are saving all of the money up front that you can. Start as an owner-occupant (if possible), become a real estate agent, and seek seller financing and concessions.
The next important step is paying for your investment. Maybe you have enough cash on hand to buy the property outright. However, many real estate investments are financed. If you are going to finance your investment, here are five things to keep in mind as you go through the process:
- Have a sizable down payment: Basically, the more money you put down, the better your rate, meaning you’ll get a bigger profit.
- Be a “strong borrower”: Check your credit to make sure you have sufficient reserves.
- Look for someone with investment lending experience: This may not be where you are used to looking for financing.
- Ask for owner financing: This can end up being a better deal for you as an investor.
- Think outside the box: Think about opening a HELOC to help with renovations, or other forms of startup money.
Just remember that obtaining financing for a rental property is not the same as obtaining it for a property you plan to reside in.
Investment always carries risk, but there are steps you can take when investing in real estate to decrease that risk and maximize profits. Any tips, tricks or cautionary tales about real estate investment? Share them in the comments!
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.