Let’s cut to the chase: real estate investing is one of the best ways to become wealthy in your lifetime. While the masses are chasing random stocks and “get-rich-quick” schemes designed to transform their lives, the rest of us are sitting back and counting our passive income from our real estate holdings.
Although property investments may be a “slow” way to make money, the foundation you build in the market is solid, reliable and lasts through the generations. If you’re ready to get started on your journey, here’s what to keep in mind when looking for your first deal.
You Don’t Need Money to Get Started
The most common reason most first-time investors don’t take real estate seriously is on account of the misconception stating, “you need a lot of money to get started.” To put it bluntly, this is a lie peddled to potential investors by people who have never gotten involved in real estate themselves.
While it certainly helps to start with money, you don’t need a massive fortune to get your first property under contract. For most individuals, using their Federal Housing Administration (FHA) loan is the best way to leverage their initial capital investment to earn an impressive profit.
The FHA loan works by allowing investors to purchase a property containing four units or less, with a valued amount between $300,000 and $800,000. Banks usually require a 3.5% down payment for any property purchased, so you can safely calculate a personal expenditure of $3,500 for every $100,000 you receive. Keep in mind these factors vary by state and county, so you’ll want to consult with the bank before making an offer on a property.
From here, the bank will ask that you live in the residence for a year, but once that year is over, you can put the property up for sale or rent your old unit out to a new family or tenant. Assuming you added cosmetic changes to the property while living there, such as fresh paint, new light fixtures and upgraded faucets, you can increase rent prices and list the property on the market.
Before you know it, you’ll have passive income every month in the form of rent, and potential buyers calling your phone desperate to purchase your property. For newfound investors, this event can be a life-altering experience they’ll never forget!
Purchasing Additional Property With Little or No Liquidity
Once you’ve exhausted your FHA loan, you’ll inevitably hit a point in the road where you spot a good deal on a piece of real estate, but you don’t have the cash to close escrow. When you think of asking friends or family members for additional capital, you realize you’ll be forfeiting roughly 50% of your earnings to that party for their short-term loan. But there has to be a better way, right? Enter the hard-money loan!
In general terms, a hard-money loan is for investors who need money fast. With real estate, good deals get bought within hours, so time is of the essence. And when you compare the interest rates attached to hard-money loans, they’re far lower than what you would pay to a partner or family member when they loan you capital to close your deal.
If you know a deal is good, and you think you can flip the property in a short period, a hard-money loan makes sense. More importantly, life-changing fortunes and generational wealth can be established using a hard-money loan, so what are you waiting for?