Buying your first rental property can be scary, exciting, and crazy! Here are the steps you need to successfully buy your first income property.
For a beginner, who has just started to think about investing in real estate, you might think it as very technical and hard work.
Although it is a little technical, it is not as hard as you might think.
- First, reduce the fear of investing in real estate.
- Second, know that you don’t have to be a real estate agent or hundreds of dollars to start investing.
- Lastly, stay determined and implement what you know about the real estate business.
In this article, we will guide you step-by-step about how you can invest in real estate and make lots of money.
Here are the steps to invest in real estate which is further discussed later in this article:
- Make sure your financial management is good
- Get real estate investing education
- Down payment saving
- Choose properties and countries you will invest in
- Find a good property suitable to your business
- Hire a good property manager
- Buy the property
- Get the property ready for rent
- Find a tenant
- Make money
Why is learning how to invest in real estate important?
Investing means you are putting all your money into something, earning something from it and putting that money somewhere again.
Once you start investing, you will learn about many ways of doing it. However, there is only one sure way to do it; that is playing with your money over and over again.
There is a high chance of you making a mistake when you first invest in real estate. The rule is to know the basics of real estate investment and implement it in making money.
Once you learn about the real estate investment, you will learn about the actual benefits it has.
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Ways in which real estate makes money
Monthly Cash Flow in Passive Income
An inflow of cash flow is constant without you working at all. You can have plenty of time to do other things and still make money.
When rent exceeds your expenses, there is an inflow of cash:
- Monthly Rent = $1500
- Monthly expenses = $1200
- Monthly profit = $300
Now if you had more than one property, you would be making $300 per property a month.
When you invest in a property, it’s not like buying a car or buying other things. When you buy a car, you spend money.
When you invest in property, you capture the value excess to your spending.
- Property price: $100000
- Market value: $115000
- Capture equity: $15000
Market & forced appreciation
You can be sure that when a market crashes, it’s temporary and it always comes back up. The market always appreciates.
The value of homes will always go up, even if it is just for inflation.
- Consider you bought a property for $100000 and its market value is $115000.
- You put $7000 to repair the property and the market value is $130000.
This is known as forced appreciation.
If you take out a mortgage loan after buying the property and rent it out for a length of loan time, then you are not paying the mortgage and interest amount, your tenant is.
Owning a property gives you tax advantages.
You can use your capital gains, you can use tax deferment when you defer your tax to the next property.
Tax advantage doesn’t mean tax evasion. It means using tax loopholes to make money.
Other reasons to invest in a real estate
Passive income overtime
The beauty of investing in real estate is that it is an automated business that doesn’t need you all the time.
Of course, some level of hard work is required when you first start investing in real estate.
However, once its establishment you can hire people to do the work for you.
In short, you invest, hire, and get the advantage of it while putting others at work.
Ensures financial freedom
Imagine being independent and not have to worry about unpaid bills. Investment in real estate does that for you.
Later in the business, you are earning every month without having to put a lot of effort.
Most people who invest in real estate extensively retire earlier than people who don’t.
Rarely lose any money
There is a high chance you make more money every year if you do it in the right way.
When a lot of money is involved, people rarely think there is low risk. However, when it comes to investing, there is a 99% chance you will not lose your money.
Investing in real estate gives you long term benefits. If you hold onto the properties long enough, it can bring wealth enough for the generations to come.
Properties can be passed down your children and these properties will be making money without having them work.
Similarly, you can teach your children about real estate investment. When you pass your properties to your children, remember to pass the knowledge and first-hand experience about the real estate investment too.
This ensures that the benefits the properties have earned until now; will be maintained by the generation to come.
How to invest in real estate for beginners
To get a good understanding of how to start investing in real estate, let us discuss the steps in detail below.
Make sure your financial management is good when buying your first rental property
It simply means good financial management. You need to be financially prepared to start investing.
Even if you have enough money, and you don’t know how to manage it, you will lose all of it.
Three Things to Do to Get Your Finances In Order
Evaluate where most of your money is spent and search for ways to reduce it.
Try to increase your income. If you only have one source of income, search for other ways of income like a part-time job, or a side business, online business, etc.
The money you save up from sources of income other than your job will be the money that goes to investment.
You might have debts like credit cards, car loans, etc.
You need to know what to do with the savings you have; either to pay off the debt or to invest. You can choose any option.
However, paying off the debt that is weighing you down is the best choice.
Buy your own house and stop renting
When you rent your house, you are putting away money in someone else’s pocket.
When you buy your own house, you are getting equity in that property Which can be further used to buy more investments.
Real estate investing education/training
Investing is not always gain and profit. You might encounter some pitfalls during the process.
You need to get an education or training to deal with such circumstances in investing.
Of course, the investment books, podcasts, blogs, etc. do help in investing decisions. However, you need a real education if you are looking to invest in real estate extensively.
Down payment saving
Down payment will allow you to buy a property for less than its worth. However, you will need to save for paying it as part of the total purchase price.
There are ways to come up with the cash for a down payment. It depends on what type of properties you are going to buy and when.
You will need to increase your income, reduce your expenses, pay off your debts, save it and earn interest, find investors.
Choose properties and countries you will invest in
It can be confusing when it comes to deciding which property to put your money in. Here is a list of properties that you can invest:
Lower prices homes
There are homes between a range of $20000 to $75000. These are mostly older homes with a lot of maintenance required.
Along with that, there is a high turnover of tenants in these properties. Nonetheless, there is a good return in these homes once sold.
Higher priced homes
These are the properties that cost more and the kind people want to live in.
However, you might need to get a mortgage to get enough cash to buy these properties upright.
The interest related to the mortgage is paid by tenants. Another good reason to invest in such property is a lower turnover of tenants and maintenance.
Middle priced homes
Cash flow from these homes is just enough.
Rent is good enough, there is a lower turnover of tenants, lower maintenance costs, etc. but they won’t stay long like higher-priced tenants.
Similarly, you will need to find a good country and area to buy properties in.
It is better to look for a country where there is a range of properties. Consider the area by population size, a trend of people migrating to and from the country/area, crime rates, government, and regulation laws, etc.
Find a good property suitable for your business
Although a good property can be subjective. A good property is one that:
- Makes money every month
- It gives you a benefit you want from your properties in the best price
- It aligns with your goal setting and business model
- There is no tax payment remaining with that property, etc.
Hire a capable property manager
To locate a good property manager for your business, you should have many options.
For that, take your time in interviewing as many people as possible, take your time to think and hire the best one.
Realtors and wholesalers can work as good property managers as they know about the good property in a certain area or country.
Buy the property
Through contacts from your property managers, you can locate good property in the area of your choice.
The other way to buy property is through the marketplace online that sells properties.
When buying the property, there are a few things that you might want to check:
- Make sure it makes cash inflow of at least $250 every month
- Verify with your property manager (they know the properties better)
- Verify with team members and experts
- Make inspections of the property
- Cost-benefit analysis
- Make offers (Negotiate to get the best deal)
- Go to the title company to verify details about the property.
Get the property ready for rent
After you own the property, make sure the property is ready for rent before you place it for rent.
It should be competitive with the properties in the area in every matter including looks and cost.
Find a good quality tenant
Once the property ready, ask your manager to place a tenant. The main goal should be to find the right tenant for the property.
The tenant should be anyone with just money to rent the place but few things are better to be considered before renting out the property to anyone.
- Run a background check that includes criminal records, credit history, income verification, history in eviction, etc.
- Get an application and make sure they write every detail written down
- Get references from either previous place or their work.
- Make sure they can pay their rent on time; get an extra deposit for bad credit tenants
- Make money
There is a lot to do on the first property you buy. However, for properties you buy on a later date, things are already in place.
Hence, no extra work is required. If all the things are in the right place, real estate can earn you good money every month.
What is not a real estate investment?
Investing your money for a month or two and pulling out back out is not investing, it’s called flipping.
You are buying a property, making necessary amendments to the property and selling it to get money quickly.
You will need more than one property to keep making money.
This flipping process is not real estate investing, it is a business of flipping homes.
Wholesaling is where someone finds a property to sell their property and in turn, they find someone to sell it.
They make a commission out of the sales they make. It is not investing,
Being a realtor is a real job where a person earns money by selling properties. It is not investing.
They make money when they sell a property, if they don’t sell they will not make any money. They are earning something only when they are selling a property, but in investing, the property does the work for the investor.
Charles book: Journey to Success
You can find him here: https://www.smartcollegeguide.com
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