Want to become a millionaire one day? Statistically speaking, your best chance is with real estate.
This asset class has produced more millionaires than everything else. So while a tech startup or the latest cryptocurrency might be the exciting, sexy approach, real estate is the most consistent and most likely to help you achieve your goals.
Wondering how to become a real estate investor? It doesn’t require a college degree. Nor do you have to be a doctor or CEO in order to acquire real estate investments.
It just takes the right skills, knowledge, and determination. Keep reading below to learn how you can start investing in real estate this year.
Education Is Key
You can’t be successful in anything unless you put the time into learning. Your education is essential to buying real estate the first time, the tenth time, and the 100th time.
And the good news? Real estate education is [mostly] free. You do not need to spend thousands of dollars for a masterclass. You don’t need personal coaching from a guru who is going to rob you blind.
All of the knowledge you need is available free of charge on the internet today.
There are countless podcasts that you can start listening to right now to help you understand the basics of real estate and managing properties. Podcasts are free and come from real-life experiences from established investors.
You can listen to these on your way to and from work and while working out. Make the most of your free time by downloading some today.
You can also buy a handful of books to get a bit deeper into certain topics.
While your education will take time to build, it should cost you more than $100 to get the information you need. It’s all about building healthy habits and learning at any chance you get.
Build Your Financial Foundation
No, you don’t need to be rich or a high-income earner in order to get started in real estate. Many people who are now rich because of real estate had middle-class incomes when they got started.
You do, however, need to be financially stable. You need a financial foundation that will empower your investing, not deter it.
Ideally, you don’t have any debt, other than your current mortgage. If you can take the time to pay off any bad debt, such as credit cards, auto loans, personal, and possibly even student loans, you can lower your debt-to-income ratio and make it much easier to qualify for mortgage loans.
You’ll also want to improve your credit score as best as possible.
When getting loans on investment properties, the terms are often stricter than if you were buying a primary residence. So you’ll want to be very intentional with your personal finances.
Along with no or low debt, it helps to have cash set aside. You need money for an initial down payment, and you may also need money for cash reserves and property upgrades.
By setting a monthly budget, increasing your savings, and even taking on additional work, you can boost your early chances of success as an investor.
The first property you get is the hardest. Once you get the ball rolling, it becomes much easier.
How to Become a Real Estate Investor; Make Connections
You can’t invest in real estate on your own. You need other people on your team and in your corner.
It helps to build a network of people that you can lean on. Specifically, you’re going to need a mortgage lender (or a handful of lenders).
In the early days, you could often get multiple loans from one lender. As a repeat customer, the process can be favorable and easier for you.
You’ll also need a real estate agent that you can trust to find you the best deal. You want to find an agent that has experience finding investment properties, rather than someone that only works with homebuyers.
It also helps to have a relationship with an attorney, a tax professional, a contractor or handyman, and a property manager, if you don’t want to make properties on your own.
Work in Real Estate
Want to know a secret that can bolster your chances of success as a real estate investor? Work in the real estate industry.
If you don’t have a job you love, or that doesn’t pay well, consider finding something in the real estate industry. You can work for a property management company, a contractor or developer, a mortgage lender, or a real estate brokerage.
Or you can get your real estate license and become an agent for yourself. There are many options for getting into real estate. That way, every day you go to your day job, you make valuable connections and learn valuable information about how real estate works.
Most people can get started with real estate right where they’re at. Unfortunately, everyone assumes they need to buy a new property to get started.
If you can afford it, great. If not, don’t be afraid to start small.
You can start small by house hacking. It’s the process of putting your current home to work for you.
If you have an extra bedroom that you don’t mind renting out, you can find a roommate, or rent it out to short-term travelers. This strategy is ideal if you have a completely separate space, like a mother-in-law suite, that offers total privacy.
Another option is to rent out your entire home or apartment a few times per month while you stay with friends, family, or travel elsewhere.
Lastly, consider parking an RV in the backyard and renting that out. There are countless travelers that would love to book a smaller, more affordable overnight stay.
Not only do these strategies earn you extra cash, which you can use to save for a down payment, but they also provide you with landlord experience.
Many lenders will require landlord experience if you plan to use the projected monthly income of a property to help qualify for your loan.
Understand Different Investing Strategies
As you work towards becoming a real estate investor, it’s important to understand the various strategies available to you. Most investors focus on one, maybe two investment strategies.
Each has its pros and cons, and some are better suited to new investors than others. Here are a handful of popular real estate strategies.
As mentioned earlier, house hacking is the concept of putting your current residence to work for you. But there’s another way to do this, and it enables you to buy a new property for hardly any money down.
The best house hacking method is to purchase a multifamily property, like a duplex or triplex. You then live in one unit and rent out the others. Ideally, the rent pays the expenses on the property, so you are essentially living mortgage-free, helping you save lots of money.
Why would you want to do this? Because you can qualify for an FHA loan. Mortgage loans that are backed by the FHA allow you to put down as little as 3.5% when buying a home.
The catch is that it must be used as your primary residence for at least one year.
So if you’re willing to move into a multifamily property, you can do so with a tiny down payment. Once you save up for your next property, you can move out and rent out every unit.
This is one of the best starting points for new investors, especially young ones with flexible living arrangements. However, the popularity of this strategy makes it much harder to find multifamily properties these days.
Buy and Hold
The tried and true method of investing in real estate is to buy a house, rent it out to long-term tenants, and repeat the process as many times as you can.
Many investors choose to go with the old-school method. They save up enough money for a down payment, buy a single-family house, rent it out, then start over.
It can take quite a few years to get a decent portfolio, especially if you are having to save 20% each time you buy a house. However, there are numerous mortgage loan options available that may help you qualify for lower down payments.
Either way, this is the best long-term wealth-building strategy. Your tenants will pay down the mortgage, increasing your equity. And the home value will naturally appreciate each year, also increasing your equity.
Some investors will do their best to pay off the mortgage of each property so that they only need a handful to retire. Others will let the mortgage roll while they acquire as many properties as they can get.
This is similar to the long-term buy and hold strategy, but speeds up the process. By a lot. The catch is that you need a decent amount of money upfront.
BRRRR stands for buy, rehab, rent, refinance, and repeat. And the ideal strategy involves buying your first property with cash or putting down as much as possible.
That way, you can buy an opportunity property. These are properties that need a ton of work, which banks often won’t finance.
Then, you repair the property and get it ready for tenants. This drastically increases the equity you have in the property since you’ve just boosted its value.
After you rent it out, you can then refinance the property, pulling out all or most of your cash, and then repeating that process with a new property.
Once you get into the swing of things, you can start financing a property per year, then two a year, then much more per year. If properly executed, you can build a sizable portfolio in a fraction of the time it would normally take.
Not every investor is looking to hold properties long-term. Flipping is still a popular strategy, thanks to HGTV.
There are always outdated, distressed properties on the market that need some serious love and capital. If you can buy these rundown homes and fix them up, you can sell them for a nice property.
The key to success with flipping is to find sellers who are motivated and need to sell fast. They are the only people who will give you a big enough discount to make the deal worth it.
If you’re handy, doing the rehab, you can save tens of thousands of dollars, putting more money in your pocket when you sell. But doing it that way means you’re giving yourself a second job.
Many new flippers do this once or twice before outsourcing to a contractor. Many investors can make a healthy full-time income by flipping a handful of properties per year.
You can also save money by operating as your own agent, buying and selling real estate yourself rather than paying commissions to another agent.
One of the hottest real estate trends in recent years is the rise of vacation rentals. In every market, business travelers and tourists alike are looking for more comfortable and more affordable accommodations than hotels can provide.
This has led to a boom in the short-term rental industry, thanks to platforms like Airbnb and VRBO.
This strategy can work in nearly any market. But it’s especially popular in larger cities and places where tourists naturally congregate, such as near the beach, mountains, or major attractions.
Obtaining a property is similar to obtaining a regular rental. However, some neighborhoods and cities may have restrictions on vacation rentals, either banning them entirely or limiting them.
There’s also the additional expense of furnishing the property. It needs to be fully furnished with furniture, cookware, linens, and everything someone would need for a weekend or a month-long stay.
And of course, the biggest consideration is the management process. It takes a lot of work to manage short-term rentals. Rather than one tenant per year, you’ll have a dozen tenants per month.
The property needs to be cleaned between each stay, and there’s lots of communication and scheduling to handle. Many people will hire a vacation rental manager to handle these tasks on their behalf.
So the cost is higher to manage, but the cash flow potential is also much higher.
Taking the First Step
Now that you know how to become a real estate investor, it’s time to take the next step. That might mean getting educated, or it might mean paying off debt.
Becoming an investor is a process. It doesn’t happen overnight. But if you stick to it, you will eventually build lasting wealth that will help you to retire comfortably and maybe even retire early.
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