Getting into investing can be both exciting and scary. There’s so much to learn and so many routes that can be taken. From stocks and bonds to investing in real estate, growing your wealth is a unique feeling that can’t be duplicated.
Real estate investing is great for those who want a stable source of extra income for years to come. The learning curve can be steep, but it’s always worth it. By purchasing properties to flip or rent out, you’re taking a giant step forward when it comes to financial freedom.
Use this guide and consider these prerequisites and you’ll be well on your way to beginning your investing career.
The Importance of Good Credit
First things first: if you have a terrible credit score, now isn’t the time to begin investing in real estate. Unless you’re planning on buying properties with cash, a loan is going to be taken out on any property you buy. With loans come interest. It seems small at first, but over time the amount you pay racks up to some pretty significant amounts of cash.
If you have a low credit score, this becomes a problem. You’ll pay significantly more money over time, lowering your profit margin. Not only that, but you might also run into trouble securing a loan in the first place, depending on how low your score is.
If this is you, take some time to consciously raise your number. Pay off a debt or two or open a new line of credit if your score is low because you’re still on the younger side.
Getting Pre-Approved
Once you’re sure your credit score is at a place with which you can be happy, it’s time to get pre-approved for a home loan. By doing this, you’re showing potential lenders that you can financially support this investment. A pre-approval puts you in the fast lane. A potential lender will look at a variety of factors when considering whether to pre-approve you, from your credit score to your debt to income ratio. Once the process is done, you’re ready to move on to the next step.
An important reminder: a pre-approval is not a guarantee. A lender may still choose not to fund you if your financial situation changes.
Pay Attention to Requirements
FHA loans are a great way to get into real estate investing. These loans allow you to purchase a home with less money down than if you were getting a standard mortgage. This leaves more money in your pocket for repairs and simple upgrades that will allow you to generate more revenue.
These loans, however, come with a few requirements that you have to meet. Credit scores determine down payment percentage, for example, and your debt-to-income ratio has to be below 43%. Because the home must be considered your primary residence, though, these loans are best if you plan on flipping homes, not renting them out.
Don’t Go It Alone
You might be approaching investing with a can-do attitude, trying to forge ahead alone. However, it’s not a great idea to push through without the help of a good realtor. A realtor who knows their stuff is worth their weight in gold. They will help you find just the right property while keeping your budget in mind. They’ll be able to negotiate hard for you, saving you tons of cash. They will follow up with you and make sure no stone is left unturned.
Don’t Proceed Without an Inspection
You’ve found the perfect property. You plan on flipping it for a profit or renting it out for a great source of passive income. Everything seems to be falling into place. You’re more excited than you have been in years.
Before you finalize your purchase, take a step back. The property needs a thorough inspection, or you could be out thousands more than you have anticipated. A house can look like a dream, all while a nightmare festers beneath the surface. Structural problems, mold, faulty wiring: all these and more can throw a wrench in your plans.
With professional inspection, you’ll know of any problems upfront and be able to use that knowledge to decide if the project is really one you want to embark on.
Sticking to a Budget
Everyone knows the importance of sticking to a set budget when investing, and real estate is no exception. It’s crucial to research the market in your area. This will help you really get a feel for what’s a good deal and what’s a total ripoff. When making your budget, try to keep things realistic: making it too high might make it a struggle to make a profit later on while making it too low might leave you with virtually no options.
A Word on Condo Investment
There are a few different directions you can go in real estate investing. Two to consider are single-family homes and condominium units.
When you invest in single-family homes, you can rent to a single-family or individual. Upkeep is simple and you may have some sense of trust and understanding with your tenant. This is a good place for a beginner.
If you’re in for the long haul, though, investing in condos is a great way to quickly skyrocket the return on your investment. Though probably a much larger upfront investment, this investment will quickly pay for itself. There’s a lot more to juggle when it comes to repairs, routine upkeep, and making sure all tenants are happy. However, with more hassles comes more profit.
Airbnb: Should You Jump on the Bandwagon?
Everyone loves a good vacation, especially if it means crossing items off the bucket list or getting to see an unfamiliar location. Airbnb has exploded in popularity over the past few years, offering many unique places for vacationers to visit.
This is another instance where having a real estate agent who’s experienced in buying Airbnb properties is a huge plus. For example, Scottsdale, Arizona condos for sale are always in high demand, and a Realtor with experience in handling AirBnB properties will be familiar with the local ordinances and rules.
A huge amount of money can be made via Airbnb if your property is unique in some way or offers vacationers a lot of value. A tiny cottage beside the beach that can be rented for a week at a time is a good example of simple, yet profitable.
Even in these trying times, it’s worth trying out this form of investing. This form of almost passive income can still make a tremendous amount for you, even with a recession coming near. Real estate has ebbs and flows, but overall, remains a firm and steady method of investing, even in times of crisis.