Are you thinking about getting into the business of real estate investing? Real estate is one of the best ways to invest your money if your goal is to make a good return, or just protect your wealth on a long-term basis. There is lots to learn about the industry if you’re just starting out, however, and even if you have a couple deals under your belt there are certain things to watch out for. If you’re a beginner who’s looking to learn more about the real estate industry, we’ve put together a guide to help you become a more knowledgeable investor.
Types of real estate investing
The first things you should learn are all the different strategies available to real estate investors, and then you can choose the one that best fits your financial goals.
Short-term fix and flips
Home flipping is a great way to get your feet wet with real estate investing. With flipping, your goal is to purchase a low-cost home with the intention of adding value to it with renovations, and then reselling it for a profit. Along with helping your familiarize yourself with all the steps of a real estate deal (buying, renovating, and selling) it can also provide you with a great return, which will serve as a springboard for any other investments.
Long-term rental property
Along with home flipping, another common real estate strategy involves purchasing and renting out homes for long-term income. It’s a fairly basic concept, but you can take it one step further by using the BRRRR method. BRRRR stands for Buy, Renovate, Rent, Refinance, Repeat. Similar to flipping, it involves you adding value to a property with renovations, but then renting it out, and refinancing to acquire the difference in value in cash. You can then use this cash to place a down payment on another home, continually acquiring properties until you have built a solid real estate portfolio.
If you want to focus on a long-term strategy, your best bet is to acquire a multifamily home. It’s the quickest way to acquire multiple, income-generating assets and build a great portfolio. Multifamily properties also provide great tax benefits in the form of depreciation, and you can hire a property manager to effectively turn your asset into passive income.
Instead of purchasing an existing property, you can opt to invest in the construction of a new one. This strategy works best if you choose to build in an underserved market that’s experiencing a shortage of homes. You can benefit from the high demand in these markets, and your property is likely to net you a significant return-on-investment.
One more strategy we want to mention is operating short-term vacation rentals. These properties have the potential to generate more income than a typical long-term rental, but they require more active upkeep in the form of managing bookings, cleaning, and property maintenance. The key to owning a profitable short-term rental is location, with the margins more favorable the closer your property is to attractions and popular vacation destinations. You should also consider that seasonality is a major factor with owning this type of asset.
Tips to mind as you start your journey
There are three things you need to have in order if you want to have a successful real estate deal:
- A good plan – Have a clear goal in mind so that your project has direction.
- An accurate budget – Before you make any purchases, you need to have a rough idea of the costs associated with your project, and the potential profitability of it.
- An exit strategy – Make a plan for taking in the returns from your efforts. It can also be good idea to have a second exit strategy in mind, in case the first one doesn’t pan out how you had hoped.
Don’t neglect location
One of the first things you learn in real estate is how important location is. Sometimes you find a property that you think is a good deal, but if it’s not in a great neighborhood you’ll have a hard time offloading it. When your goal is to resell a property, location becomes a key factor since it can be a deciding factor for many home buyers. The best places to buy real estate are safe neighborhoods that have access to amenities which are close by.
Besides taking out a loan from a traditional lender, like a bank, there are a few other paths to financing your real estate projects. Many investors opt to work with private money lenders, since they often have less stringent requirements and are able to close loans faster than traditional lenders. Working with a private money lender can also be a good idea if your property won’t qualify for bank financing. For example, if you’re planning to flip a home that’s in rough shape, a bank may not approve you for a loan since they view the investment as too risky. There will be private money lenders though, including those that specialize in real estate financing, who will be willing to approve you for a loan on the same property.
RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are an investor looking to acquire financing for a property, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.