Real Estate is one of the most well known, trusted forms of investing. In fact, 90% of the worlds millionaires have been created by investing in real estate. However, getting into real estate investing for the first time can be a little bit overwhelming. Where do you start?
I am going to give you some of the simplest ways, and easiest tips to get started with little if any cash.
They very first thing you must decide is why you want to invest in real estate in the first place. Is it for passive income? Is it to build a real estate empire? What is the reason you want to invest in real estate?
There are a lot of definitions of real estate investing. Some invest for cash flow, some for future appreciation, equity, or even tax benefits.
From the Tardus perspective, our reason is specific. For the purpose of this post we are referring to REAL real estate properties - residential or commercial, that generate cash flow for you. We aren't talking about real estate funds, syndications or speculation.
Remember, Cash Flow is King!
What does that mean? Absorb as much information as you can about investing in real estate. Learning as much as you can up front can help you to make sure real estate is for you before diving in.
You can find valuable information from;
Real estate investing is not for everyone, however most people can be successful real estate investors - even those with limited resources.
A good place to start might be a real estate podcast, such as the ones our friends at RP Capital have called the Get Real(Estate) Podcast or a YouTube Channel hosted by a trusted professional, like the ones our friends at Rent to Retirement have.
Once you've nailed down your WHY, and gotten at least a baseline education on the basics of investing in real estate - the next thing you want to do is find a location you prefer for your first real estate investment.
If you're a beginner, which I assume you are if you're reading this post - I would suggest that you start by looking at residential real estate, not commercial just yet. Why residential? Because everyone needs a place to live, and so, if you are looking at real estate as an investment, and you are just starting out, residential is a good starting point.
What counts as residential real estate? It's basically anywhere people live. The true definition is a residence with less than 5 units (or between 1 - 4 "doors") Some examples might be a:
These are all types of property you can usually invest in simply, easily, and pretty inexpensively.
Now that we've narrowed that down and have discovered a little more about residential real estate, you want to look at a location that would make sense for you. There are a lot of different options here!
Contrary to widespread belief, when choosing a location for your real estate investments - you do not have to invest in your own backyard. There are plenty of companies out there that do turnkey real estate investing, which makes it much easier for you to be am "hands off" or out of town investor.
A turnkey real estate company will:
This gives you the peace of mind that the property won't have any major maintenance issues in the first few years, and takes a of of the headache off your plate in regard to vetting property managers and finding and managing tenants. If passive income is your goal, this is the way to go.
A turnkey company will usually recommend affordable and rentable markets, but there are other criteria to determine when choosing a location as well, so you'll want to do some of your own research on the different areas.
You need to develop your own decision making criteria for what attributes you look for in your investing location, but one of the main things to make sure you avoid are war zones, which are generally low income and high crime areas. Does the property have to be somewhere you would want to live? Absolutely not. People all over the country live in different neighborhoods.
After you have figured out the location, the next thing you would want to look at is how you are going to fund the real estate, in other words, how are you going to produce the money to buy the property?
Obviously you can use your savings - but if you don't want to wait until you've saved enough for your first downpayment, there are some other unique ways to come up with it if you think outside of the box. Here are a few of the more creative examples we've used ourselves to purchase a property with zero down.
What is seller financing? Seller financing is a type of real estate agreement that allows the buyer to pay the seller in installments rather than using a traditional mortgage from a bank.
Borrow from your whole life insurance policy or a home equity loan.
Warning: Be incredibly careful when using leverage. Have a plan, and know what you're doing!
If you have a family member or a friend who is a real estate agent, see if you could use their license and their conditions as part of your down payment.
We had a friend of ours who was a real estate agent. We were purchasing property, we partnered on the deal, and we were able to use his commissions as part of the down payment.
Another thing you can look at as a potential part of the down payment is the rented security deposits. Remember, you are going to need to replace those because when your tenant ever moves out, you'll need them available - but the security deposits and rents are owned to you when you become the new owner, and you may be able to use those as part of the down payment on the property.
Once you've got the tools to get started investing in real estate, you want to make sure you're choosing the right property.
Analyzing properties is a whole other topic, but priority number one is making sure it will cash flow from day one. This means that the renter should be paying your mortgage and all other expenses (property tax, property management fees, etc) and you should still have a profit left at the end.
After that, you want to make sure you have the right tenants in place, and the right property management in place.
Then, it's time to move on to property number two!
Interested in more creative ways to fund your downpayment? Check out our post on 4 Unconventional ways to afford the down payment on your first home!
We can't forget to mention another way to finance rental properties is with the Income Snowball. The Income Snowball allows you to use your other investments to purchase real estate - and quickly. It doesn't come out of your own pocket, you can recycle your investment funds to buy more property, frequently. Click here to have a complimentary strategy session with a Tardus Wealth Coach and see how real estate can be incorporated into your plan.
