People often have the dream of investing in real estate but don’t know where or how to start. Real estate is appealing because it’s a tangible object unlike stocks, bonds, options or whatever other asset you choose to invest in. Like those other assets real estate requires management and management can really make or break an investor. However, even more important is the investment and the numbers. It is absolutely crucial to make the numbers work. Nothing is worse than finding out after a purchase that you have more bills than money. Investing requires research, evaluation, and a goal. Is your goal to make 15% on your investment when you sell or to generate a certain level of cash flow on a monthly basis? These are important questions that need to be determined before considering investment.
This page will be dedicated to educating possible real estate investors. We’ll talk about some mistakes I made, expenses I forgot, and hopefully guide you, the investor to a successful first purchase. It’s important to learn from the mistakes of others to avoid making the same (costly) mistakes.
First Investment Property – How to Start Investing in Real Estate – Like investing in any other medium the main constraint is capital. It’s hard to buy anything if you don’t have any money. However it doesn’t take a lot of money to get started. The best place to start is a personal residence. Any multi unit property with four or less units is still considered a residential property. This means that, if you can stand it, your home can be an investment property. It is possible that a smart and well advised first time investor could live nearly free or for very little out of pocket money on a monthly basis (rental income = more than payment).
How? You might be thinking…
There are loans available that require as little as a 3.5% down payment. Compare this to a typical investment property loan that would likely require 20-30% down. This is why I suggest starting with a personal residence. Right off the bat you save 16.5% in cash. When investing the goal is to have the least amount of cash tied up in the property as possible. So you purchase the property and are able to save money for a few years which will set you up for a future purchase of a second property. One mistake I made was that I neglected to plan for property maintenance which has come back to bite me a few times. I suggest getting the first property into tip top condition before moving on to another property. I say this for a few reasons. A nice property will be easy to rent and stay rented. Small yearly increases in rent can be washed away very quickly by vacant apartments. It will also create a more predictable financial outlook, which if nothing else, minimizes the stress associated with other people paying your bills.