Real estate is a highly lucrative way to invest money and build a business and it also has a robust risk-reward ratio and an established business model with a proven track record. It’s no wonder that every avenue of real estate investing is competitive and always growing, and you don’t have to be the best realtor to pursue real estate for monetary purposes. To do a lucrative business, though, you need good financial knowledge and a sound plan for realizing your goals, both short-term and long-term.
Here are some of the most popular ways to make money in real estate that you can use to get started.
1. Flipping Homes
Home flipping is the practice of buying a distressed or outdated property, renovating it, and then reselling it for a profit. This requires a good eye for spotting potential hidden gems and being able to put in the hard work necessary to make improvements and add value to a property.
The fix-and-flip culture has grown in popularity over recent years, with many experts claiming the technique can generate large profits even on a modest budget. Even though it can be risky, with the right combination of passion and market research, flipping homes could be a lucrative venture. Navigating these waters requires time and effort, so if you’re considering this option, ensure you have a good handle on home renovation and real estate investing.
2. Investing in Rental Properties
Leverage on long-term buy-and-hold investments can generate passive income from rental properties, allowing you to diversify your portfolio and spread out the risk. The potential gains from rental property investments are among the highest of all real estate investing options, but it’s important to understand all the related costs before you jump in.
In addition to the costs of acquiring the property and any necessary renovations, you’ll need to factor in ongoing expenses such as maintenance, taxes, and insurance, as well as the cost of finding tenants. Before investing in rental properties, it’s important to understand the local real estate market and find properties you can rent out for a profit.
3. Investing in REITs
Real estate investment trusts (REITs) are a great way to make money in real estate without having to do any of the hard work. REITs are investment vehicles that allow you to invest in real estate without owning any physical property. The income generated by REITs is usually in the form of dividend payments from the companies that manage them.
REITs offer a good way to diversify one’s portfolio, as they are not tied to the stock market. They also offer a way to gain exposure to real estate without taking on all the risks of owning physical property. As with any other type of investment, it’s important to research the various REITs available and make sure that you understand the risks and rewards associated with each one.
4. Investing in Foreclosures
Foreclosures are properties seized by lenders due to homeowners’ failure to pay their mortgage obligations. This can be a great opportunity for real estate investors willing to take on the risk. Foreclosed properties are often sold at a fraction of the market value and have the potential to generate large profits.
However, investing in foreclosures is not for the faint of heart. You will need to be prepared for the possibility of spending a lot of money on repairs or renovations and understand the local market. Additionally, it’s important to be aware of your state’s foreclosure laws so you can confidently navigate the process.
5. Managing Properties
Managing properties can be a lucrative source of income, but it also takes a lot of work. It involves finding tenants, overseeing maintenance and repairs, collecting rent, and dealing with tenant complaints. You need to be organized and stay on top of all the aspects of managing a property. It can also help to have experience in managing a property effectively. You don’t have to have vasts amount of experience or become the best realtor, but if you have the right skills and are willing to put in the effort, managing properties can be a great way to make money in real estate.
No matter which approach you take to make money in real estate, it’s important to research the local market, understand your goals and risks, and have a plan for success. With the right strategy and knowledge of the industry, you can turn real estate into a lucrative source of income.
6. Investing In Residential Real Estate
This is one of the most obvious and common ways of investing in real estate and can be as simple or as complicated as you want it to be since it can take different forms. Vacation homes, single-family homes, and condos are examples of residential real estate where investors get income through rent or payments made for short-term rentals. Also, from the time property is purchased to when it is sold, the value appreciates and owners can earn from this accrued income.
It is one of the best types of real estate investment due to the fact that it combines different aspects such as equity appreciation, income as well as ease of use when it comes to property purchase.
7. Investing In Raw Land
Instead of buying already-developed property, you might also opt for raw land, then develop the property later. Simply put, raw land is any available vacant land for purchase. It is best to look for raw land available in areas with a high projected growth so that you don’t have to worry about profitability later. However, you might need to conduct in-depth research on important factors such as local rental property markets, and most importantly, other things like flood plains, building codes, and zoning regulations. In addition to having ample knowledge about real estate, you might also need a large amount of investment capital if you decide to invest in raw land.
When investing in raw land, you could focus either on construction or long-term buy and hold, both of the methods offer attractive profits. Just like any other real estate investment, you will need to thoroughly research then choose a desirable location for your investment. When compared to most types of real estate, raw land is simple and offers more potential for massive profits.
How to Finance Your First Real Estate Investment?
Since we’ve already discussed the different types of real estate properties that are best to invest money in, let’s go over different ways on how you can finance your very first investment property.
Finding a fantastic investment property is challenging enough on its own. And once you locate the ideal establishment, things become even more complex. The question is, how do you finance your investment? You can apply for quick access to capital without a lengthy application process; feel free to read more about it in the Kabbage reviews on this link. However, that’s not your only option.
7 Best Ways for Financing Investment Property
All you need is little creativity and planning. Here are the seven best ways to finance investment property.
1. Financing with Cash
As an investor, money is a crucial instrument for achieving your goals. Cash financing helps investors to boost their cash flow, reduce interest costs, and obtain immediate ownership in their investment, in addition to increasing the number of bids that are accepted. Investors may also save money on the cost of the acquisition with its help.
It’s also crucial to keep in mind that there will be situations in which buying a house outright makes sense and others in which you should think about alternate financing choices.
2. Hard Money Loans
In contrast to purchasing and keeping, renting out, or building on investment property, flipping it is the best use for a short-term loan called a hard money loan.
Even while it is possible to use a hard money loan to purchase a property and then repay the hard money loan using a private money loan, conventional loan, or home equity loan, starting with one of the other options is more practical and economical if you do not intend to flip your property.
3. Private Loan Funding
Private money loans are advances made to individuals. The majority of private money loans often come from an investor’s relatives and family. Attending regional real estate investment meetings and events is an excellent way to find private money lenders if you do not have relatives or friends who can lend you money for the purchase of an investment property.
4. Make A Substantial Down Payment
Since investment homes are not covered by mortgage insurance, you will often need to put down at least 20% in order to obtain standard financing from a lender. You may be eligible for an even lower interest rate if you can make a down payment of 25%.
If the investment doesn’t pan out, you have more “skin in the game” and hence more to lose if you put down a greater down payment. A higher down payment also gives the bank more assurance against losing its investment, which can be a potent inducement.
5. Conventional Bank Loans
If you currently have a primary residence that you own, you are undoubtedly already familiar with traditional finance.
20% of the home’s purchase price is often required as a down payment when using traditional financing. However, the lender can demand a 30% down payment for an investment property.
With a conventional loan, both your ability to be accepted and the type of interest rate that will be applied to the mortgage depends on your individual credit score and credit history. Additionally, lenders look at borrowers’ assets and income.
6. Tapping Home Equity
A home equity loan, home equity line of credit (HELOC), or cash-out refinancing are alternative ways to leverage your home’s value to fund the purchase of an investment property. Typically, you can borrow up to 80% of the equity in your home to help pay for the expenses associated with purchasing, remodeling, and caring for an investment property.
Using equity to finance a real estate purchase has both advantages and drawbacks, depending on the type of loan you choose. As an example, a HELOC allows you to borrow money against the equity just as you would with a credit card, and you typically only pay interest each month. However, because the rate is sometimes erratic, it may increase if the prime rate increases.
7. Hybrid Financing: Combining Debt and Equity
Although it seems complicated, it’s really not. Finding the money is the smallest of your concerns if you locate a great offer. Assuming you don’t have the cash on hand, you would need to put up the remaining 25% of the LTV if you had received 75% of it.
You can obtain a hybrid loan to close this gap by combining the conventional mortgage payment schedule with a stake in the business (equity) for the lender, but watch out for dishonest lenders.
Gains in real estate typically occur over a lengthy period of time. However, when you choose to invest in real estate, you may profit if you adhere to wise investing guidelines.
When financing an investment, ensure that you can manage the payments once you take out the loan. Then, as you pay off the balance over time, examine how you might be able to further minimize your interest payments based on your strong borrowing history and reduced outstanding loan balance.
You don’t have to invest in one form of real estate, if you have the financial muscle to venture into other forms, it would only be beneficial because you would be diversifying your investment portfolio. The last thing you want is to have your investment get hampered by market factors, so don’t just invest in the next available real estate investment. A rule of thumb before investing is doing detailed research for the kind of real estate you want to invest in as well as the market. Before getting into any real estate investment, understand both sides of the coin.