We are in an era where millennials are investing in real estate in large numbers. In fact for the last half a decade, people aged 36 or younger have accounted for a large chunk of the population who have invested in real estate, according to the National Association of Realtors. There is no doubt people have started to realize the power of real estate investing. Here’s what you need know to get started with investing in real estate and building your wealth:
- Proper financial management:
It is important for you to be fully aware of your financial landscape. Your income, your expenses, your debt, and your credit score. You need to begin by setting up a financial plan. Stop using your credit card there is a big difference what you need and what you want. See if you can pay off your car loan and pay off other debt as soon as possible. If you have a 30-year mortgage and the loan is more than 20 years from being paid off try refinancing it to a 15-year mortgage. Trust me this will help you get started on your investing journey faster.
Once you put your plan in place, depending on where you are start putting aside a portion of your income. Start with the money you are saving with your reduced debt. Try getting up to as much as 40%.
- Making your first purchase:
If you are not a homeowner already, the first real estate you purchase should be your primary residence. In most cases owning is always cheaper than renting. Of course, living in your parent’s basement might be cheaper, but really? To start with, you can look for a modest house in a pretty decent neighborhood that requires very little work. Plan on putting down 10-20% depending on the loan you can qualify for. Look for first-time buyer programs in your city/state that help with down-payment.
3. The second investment:
OK, now you are a homeowner what’s next? Start planning for your second investment. Residential income properties are a good entry point, but you will have to decide whether you want to invest in a single-family or multifamily property. There are different classes in multifamily properties that you will have to consider before investing. Investing in commercial real estate property can also be incredibly lucrative, and the right property can make the difference. Remember, investing in commercial properties is better since Commercial properties provide returns through two avenues— rent and better capital appreciation.
4. Debt and Deficiencies:
It is essential to have as little personal debt as possible when looking at you as a potential investor in commercial real estate. Banks and lending institutions look at your debt-to-income ratio to determine whether you qualify for a traditional mortgage. If you aren’t eligible for an agency or conventional mortgage, you will have to look at alternate financing options.
If you plan to hold the property for years to come, your best option is an agency loan, on the other hand if you plan on filliping the property in about 5 years go for a conventional loan. If you want to fix and flip, look at the hard money option. If you have questions about this please feel free to reach out to us and we will be happy to discuss.
One strategy in commercial real estate investment is to purchase a property with an upside and lower CAP rate. Then work your tail off to fix the deficiencies (not all deficiencies are fixable) and improve the CAP rate. If you can accomplish this you will enjoy years of steady income or sell the property for a handsome profit. A good well-defined strategy can help you to quickly build and grow your real estate portfolio.