“I’m interested in investing in real estate. How do I get started?” I’ve heard this question many times over the course of my real estate career. The answers depend on what you have to get started with in terms of available cash, investing experience and familiarity with various types of property as well the amount of time you wish to invest and whether or not you’ll manage your investment.
Experience: Many people who want to invest in real estate already own their own home. When people think of investing in real estate, buying single-family homes first comes to mind. If you don’t already own your home, that should probably be your first investment. If you’re interested in buying fix and flips, knowing what type of houses to buy and what the improvements will cost is paramount. A better idea might be to buy, fix and rent the property. That way you won’t share your profits with Uncle Sam. When buying rental houses, many investors follow specific rules. They buy only homes with at least three bedrooms, two bathrooms and a two-car garage. Another guideline might be to buy the largest property in terms of total square feet for the least amount of money. Still another stipulation might be to buy only in specific areas where prices are affordable, yet profits are possible. If you don’t have experience in these areas, seek out experienced single family home investors and real estate professionals experienced in single-family rentals.
Available cash: It might not take as much cash as you think to begin your real estate investing career. Sure, a bank or mortgage lender may want 20 percent or more in a down payment before approving your loan. But there’s more than one way to purchase a property, and some don’t require large down payments. It always amazes me that sellers often have no idea what they’re going to do with the money after they sell a property. They might be tired of renting properties. Maybe they just want to tie up their estates for retirement. Whatever the reason, it won’t hurt to ask, “Would you consider carrying a loan?” Sometimes that could be the best method for a seller to delay taxes on the sale and earn a monthly income without having to manage the property. It doesn’t work for all sellers, but you might be surprised at how many people would love to carry the financing for a credit-worthy buyer.
Management: If you don’t have property management experience, managing your first rental could afford an eye-opening experience. Tenants today are savvy and often take advantage of a naive property manager. It’s a good idea to vet prospective tenants, checking with their previous landlords and also qualifying them financially. Hire a competent lawyer to write a lease.
Finding investment property: If you’re looking for a single-family rental, explain to your residential real estate professional what you are looking for, how much rent a property must produce and whether or not you intend to pay for any repairs or modifications before renting. For multi-family properties, commercial properties, storage units, single-tenant triple-net leases and anything that pays heavier commercial property taxes, consult with a commercial real estate broker and start looking at investments in the area.
The most difficult part of all of investing in real estate is simply getting started.