Buying a property to live in is the most basic type of real estate investing.
While many people don’t consider buying a primary residence to be an investment, it is since it will normally improve in value and enhance your net worth significantly over time.
Buying a house is a terrific option to invest in real estate with a little down payment, as you can typically get a loan for as little as 0-3 percent.
Plus, when you’re ready to relocate or upsize in the future, you can either sell your home for a profit or keep it and rent it out, generating passive income.
If you are seeking to increase your net worth by investing in real estate, let us share some methods.
If that’s the case, here are a few options to consider.
- Owning a multifamily home
A multifamily house is often people’s first investment property.
When you buy a property with two, three, or four units, you receive the benefit of having a home to live in as well as one or more rental apartments. Which can help you do, what some people call House Hacking.
Even at first, you may discover that your rents are sufficient to meet your mortgage.
And, as time goes by and rents rise, you might be able to make a decent living, get some passive income.
You may finance a multifamily property with up to four units with just about any conventional mortgage provided you plan to live in one of the units. (Remember: You must live in one of the units of your multifamily property).
- You can get financing for a multifamily home with a conventional loan which requires a 3-20% down payment and a minimum credit score of 620.
- FHA loans need a 3.5 percent down payment and a minimum credit score of 580.
- VA loans need no money down and a minimal credit score of 580-620.
Keep in mind that this strategy may provide difficulties.
Rents must be collected and chased, tenants must be recruited and vetted, repairs must be made, maintenance must be performed, and so on. It can have its downs but it definitely has a lot of ups.
Now, if you don’t want to do this alone and are willing to sacrifice at least 10% of rentals earned, you can hire a property manager, who will be in charge of doing some of the heavy liftings for you.
But the decision comes down to, if you really want to be a landlord or not.
- Vacation Property
A vacation house may serve two purposes: it can provide you with a place to stay while you’re on vacation and it can provide you with rental revenue while you’re not there.
Rental money may be used to pay down your vacation home mortgage as well as other costs such as upkeep, repairs, property taxes, and homeowners insurance.
Another advantage of having a vacation property is the ease with which you may finance it.
Second house mortgage rates are only a few points more than primary home mortgage rates, and all you have to do is prove that you’ll be able to live in the property for at least a portion of the year.
Vacation homeowners, like any landlord, have a slew of expenses related to their rental company.
You’ll have to hire someone else to handle everything if you’re not able or available to do it yourself, this is where a property manager can come in handy, (cleaning, communicating with vacationers, resolving difficulties, collecting rentals, marketing).
- Rental property for investment
A single-family or multifamily house that you rent out without living in it is referred to as an investment property.
If you own more than one, these sorts of properties may yield a sizable profit over time.
However, it is not always simple at first.
Unless you handle the majority of the jobs yourself, your mortgage and maintenance fees are going to be considerable.
Another issue is vacancy, there might be times that your rental property will be empty. But with proper planning, you can minimize the loss if you face a vacancy.
Indeed, when your mortgage lender does the figures, it will most likely estimate a 25% vacancy rate (when you aren’t earning any money).
That implies you’ll need a sizable income or savings cushion to meet home payments even if you face vacancies.
Purchasing an investment property is more difficult to finance than purchasing a primary residence.
You’ll have to fulfill greater credit, down payment, and cash flow requirements.
However, your future rental revenue may be able to assist you in obtaining the loan.
Lenders use approximately 75% of future rentals as qualifying revenue.
- House flipping
Anyone who has watched HGTV for more than 10 minutes is familiar with the concept of flipping.
You acquire a run-down house, fix it up (mainly cosmetically, you hope), and resell it for a profit.
This is something that some individuals earn a career doing.
However, there are some severe drawbacks to the procedure.
Worst of all, you may purchase a property that has serious structural flaws that you were unaware of before to acquisition.
If you don’t have all of the necessary abilities, you can reduce the risks by forming a team with others who do.
Many successful flippers have a list of preferred real estate agents and contractors.
As a result, they know the numbers and the amount of labor that will be necessary straight away.
Some even form alliances with specialists.
Financing a fix-and-flip property might be difficult as well.
A typical mortgage will not be available for a fix-and-flip property.
As a result, you may have to pay for it out of pocket or use the equity in your present house (this can be done with a second mortgage or cash-out refinance).
You might also team up with a friend, family member, or business partner who is able and willing to fund the project in exchange for a portion of the selling earnings.
- BRRRR Process
Buy, rehab, rent, refinance, buy, rehab, rent, refinance, buy, rehab, rent, refinance.
‘Buy, Rehab, Rent, Refinance, Repeat’ is the acronym for ‘Buy, Rehab, Rent, Refinance, Repeat.’
It’s also similar to house flipping.
Except you don’t sell the house when it’s ready to sell; instead, you rent it out.
But, if you haven’t sold your previous property, how do you fund your next buy and rehab?
Simple!
You refinance your previous property and utilize the proceeds to support your future endeavor.
And you continue to do so.
You can easily create a rental property portfolio this way.
And some people make a lot of money from it.
You will, however, require all of the talents required for house flipping, as well as all of the skills required of a landlord.
You’ll almost certainly have to outsource numerous duties due to the sheer volume of labor needed.
The BRRRR technique is a complicated and time-consuming real estate investing strategy, so do your research and consult with professionals before jumping in.
There are other ways to build wealth in Real Estate, you just have to be ready to put in the work, learn and risk. Do not be afraid to make mistakes, but by learning all the necessary skills, you can minimize those mistakes. There are a lot of articles, videos, and mentors out there, so not just here, but in anything you do. Always, always do your research.