If you’re like most people stuck in the rat race, you are tired of working a boring job just to barely make ends meet. The school system doesn’t teach us how to invest money to get ahead in life and most people never learn much about money at all. While learning a skill and working hard are great principles, they are nothing without an end goal in mind.
Real Estate investing is how most of the richest people in the world got their start on the path to wealth. Paying yourself first and investing that money towards your future is the best thing anyone can do. Nobody cares more about solving your financial woes than you do. If you think investing in real estate is daunting, then you probably just don’t know much about the basics yet. Read on to discover the best way to get started in real estate and taking the first step to building a beautiful future for you and your family.
The importance of great credit
First things first, you will need to improve your credit score in order to make the most out of investing. While you don’t need a perfect 850, having a high credit rating will save so much money down the road that it’s not even funny. If you are already sitting pretty in the 700-800 range then congratulations, you can move on to the next section. However, most people are in debt in some way, shape, or form. If you fall into this camp, keep reading to learn about why paying off your debts is an even better investment than real estate.
The essence of investing is growing all the money you have by a certain percentage each period. When you are in debt, you are losing money by a certain percentage each period. This means that investing while still in debt will just reduce or even cancel out any returns you would normally see on your investments. Debt vehicles with high interest like credit cards and payday loans should always be paid before investing. Having a single debt with low interest such as your car payment should be fine since the APR is so low.
Once high-interest debts are paid off in full, your score should rise substantially. Once you have a great credit rating you can then begin investing in properties. You will pay so much less interest with a good score than with a mediocre one that this first step is mandatory.
Raising capital for a 20% down payment
While 20% of the total cost of a property may seem like a huge barrier to entry, the benefits of doing so are well worth it. When your initial down payment is at least 20% you don’t have to pay the PMI or private mortgage insurance each month. Mortgage brokers make you pay insurance on lower down payments so they can extract as much money from you as possible and mitigate the risk of you defaulting on your loan.
Adding the PMI to your monthly installments seriously cuts into your cash flow over time.
The whole point of real estate investing is to secure as much cash flow per property as possible. The good news is that you don’t always need to save up that much money to get started. There are numerous creative ways to get enough cash for a 20% down payment. If you come up with a great investment plan, you can get wealthy friends, relatives. or even acquaintances to let you borrow some capital. This does entitle them to a cut of your profits, but when worked out properly it will still come out to less than a PMI payment each month.
Get to know an excellent realtor
It may seem tempting to go it alone when first starting out in real estate investing. However, cutting corners to save some extra money in the short term is a very bad decision long term. There are many predators on the market who would love to take advantage of an inexperienced real estate investor who most likely won’t know everything to look for when choosing the most beneficial properties to invest in.
A good realtor is trained in all aspects of the buying and selling process. They should also have extensive knowledge of the markets you are hoping to invest in. They can show you what to look for while pointing out any red flags that could lead to potential disasters. They can even help you locate properties that meet specific criteria if you have something in mind. Otherwise, they can take you through each step of the process from start to finish.
When it comes time to finally make a purchase, their negotiation skills often save you way more money than you are paying them. Plus, forming a bond with them will ensure you always have a partner that can help you in all of your future deals as well. If you are looking in the Phoenix/Scottsdale area, The Kay-Grant Group has got you covered.
Get an inspection done
This is yet another vital step that many new investors make the mistake of skipping. There are many signs that a property will have serious problems soon that only a trained inspector will be able to spot. They ensure crucial components of the property like the foundation, HVAC, plumbing and electricity are up to code. One of the worst things that can happen to an investor is having to sink all of their money into a catastrophic repair.
Your realtor can help you find a reputable inspector and often times these two professions work in tandem with the same clients. Forming a team for your property investments is a great way to ensure you have all the knowledge and resources you need to make the best deals possible.
Plan with a realistic budget
In a perfect world, nothing would ever go wrong with any of your properties and you would never hear from your tenants once they move in. Sadly, this is highly unrealistic and anyone with experience knows this isn’t true. Your budget plan should always include emergency funds built right into the monthly cost of each property you hold. When something inevitably goes wrong, you will have some funds stored up to get that sink or toilet repaired right away. If you don’t have emergency funds, those repair costs will eat into all of your cash flow as soon as something goes awry.
Another great option to consider is making your property an Airbnb location. This essentially turns your properties into a hotel room that can get you paid nightly. This is an especially solid strategy if you live near a tourist destination or other iconic spot. If you can get your space filled just about every night you can easily make more than if you rented it monthly to just a single tenant.
If you have a spare room in your current place of living, you can also rent out single rooms and start making money without purchasing your first actual investment property. Of course, you have to be comfortable with sharing your personal space with a litany of random clients. Luckily, most people using the Airbnb service to rent rooms are nice people just looking to save on their vacation costs.