Some people tend to look at investing the way I look at gambling. They invest in a stock and they hope it goes up. They have no ability to control what the stock will do, much like someone who puts a dollar in a slot machine. Some pick a lucky stock, just as a person may pick a lucky slot machine. Others may look at a company’s financials statements, but rarely will they visit the company to see what they are getting for their money. Plus, if you are the average stock investor, you have virtually no ability to improve to the company. The opposite is true for real estate investing. In real estate, you can get involved in your purchase and it is what makes investing in real estate great!
Real estate investing is hands on. You go and look at the property to see what you are getting for your money. You can have the property inspected before you buy. You can get lots of information on the area you plan to make your purchase and receive help when doing it. Plus, when you buy Real Estate, you do not pay any commissions on the transaction (the seller usually pays all commissions when a property is sold). Once a property is bought, the real estate investor has the ability to improve the property.
The owner can take action to improve the value of the property. Plus they can rent it out to receive income from it. There are a lot of success stories in real estate, as it seems most who are successful tend to write a book about it. All share the way they went from poor to rich or rich to richer.
Most books have various ways to get started and all tend to leave you to believe it is easy. And for them, it may have been. For others, it is not so easy. If you struggle to make you rent or mortgage payment each month, coming up with 20% down for an investment property would seem impossible. To make it easier to get started investing in real estate, you need a plan.
The first step on your plan is to buy a home. When you purchase your house it is very important to buy in a good area and one that prices are stable or increasing (increasing would be ideal). The first home should be purchased with the plan of using it as an investment property in a couple of years. After this home is purchased, economical improvements should made. Economical improvements mean those improvements that will allow you to charge an above average (or at least average) market rent. Also during this time, you should be saving for a down payment for a new home. After improvements have been made and enough time has passed to save for a down payment, it is time to rent your property out and invest in a new home.
Buying a new home is much better than buying an investment property when it comes to the down payment. As a new investor in real estate, you would have a hard time buying a rental property for less than 20% down. But, if you are going to buy a new home, you should be able to get a mortgage at 5% down. Now you own a home and a investment property. Hopefully your wise purchase and improvements allow for you to charge a rent that will pay for the mortgage payment and have a little leftover. Your plan should include doing the same thing with your second home. Your plan should have you in and out of your first two homes within five years. Once you have two investment properties, you may decide you want your third home to be home. With two investment properties, both with positive cash flows and good credit, getting a loan for an additional investment property should be easier. Your bank may not have the same restrictions for you since they know you own a total of 3 properties, have a positive cash flow from two to them, and of course have great credit. If your homes appreciate at just 3% a year, your portfolio will increase and so will ability to save and borrow.
There are ways to make this plan better, like buying a duplex for your first and second homes, and there are tax considerations to consider with this strategy. However, over the time you implement this plan, you will be much wealthier!