A common question among new investors is, “how do you invest in real estate?” The answer is more complex than A or B. There are a few follow up questions that need to be answered first, such as “what are you trying to accomplish” or “what is your financial situation”. Depending on these responses, one strategy may be better than another when beginning to invest in real estate. Knowing what you want to achieve, short and long-term goals, is key for determining how to invest in real estate. At the end of the day, once the preliminary work is done, it is simply about taking the plunge.
There are a few strategies an investor can take when considering how to invest in real estate. For example, a common strategy is to fix and flip a house. This involves buying a distressed property, making renovations to the property, and then reselling for a profit. For example, Real Estate Kate sells Joe a property for $100,000. The house needs a new roof, wood rot repair, paint, landscaping, as well as an updated kitchen and bath. These repairs cost Joe $50,000 and are completed in a months time. After the improvements, Joe is able to sell the property for $200,000. As you can see, even after closing costs, commissions, and any potential holding costs Joe incurred, he is still able to make a sizeable profit in a short amount of time. This strategy of how to invest in real estate is accentuated through HGTV shows, such as “Fixer Upper” and “Good Bones”.
If flipping a house does not sound interesting and you are still wondering how can you invest in real estate, no need to fear, there are other investment strategies. Another popular method for investing is to buy and hold. This involves buying a house and renting it out for monthly income. For example, Real Estate Kate sells Joe a property for $80,000. It needs very minimal repairs, such as a fresh coat of paint. After the repairs, Joe is able to rent the property out for $1,100 a month. After accounting for taxes, insurance, and other necessary items, Joe is still able to achieve over a 10% CAP rate. As you can see this is a great return on money, considering the highest bank yield today is 2-3%. This method of how to invest in real estate is popular among those interested in creating passive income for long-term wealth and retirement. Furthermore, there are additional advantages for holding rental properties, which include depreciation and deductions as well as accumulated equity and growing appreciation.
Depending on what you want to accomplish and your financial situation, there are a few avenues for how to buy investment real estate. One approach could be obtaining a hard money loan. This type of loan can come from an individual or a company, such as Lending Home. Another way is to find a private moneylender or to use your own cash on hand. The difference is in the amount of requirements and fees, such as points (a percentage of the loan), down payment, and interest cost.
To learn more about different strategies, read, “What is the Best Way to Invest in Real Estate? Analyze the Options”.