If you do it right, owning a home can be an investment and increase your potential returns. Here’s everything you need to know.
Owning a home is surely a safe bet, but it has some drawbacks. Depending on the price you pay, the appreciation rate and other factors, you could end up with negative returns. To avoid this, take these things into consideration:
This term means getting tenants to pay for their own living space… and for yours too. One way of house hacking is by living in a home and renting out rooms. This will allow you to choose how many rooms you rent and how often. Ideally, you will cover more than the cost of the rooms you’re renting out.
Another idea is to purchase a multiunit property, so you live in one unit and rent out the other one(s) at a rate that’s high enough to cover the whole mortgage.
If you’ve got home equity, you might be eligible for a line of credit known as HELOC, which is a Home Equity Loan. Banks will give you an amount that is around 70 to 80 percent of your home’s equity.
This money can be used for different purposes, but it is mainly used to invest in more real estate.
Buy low, sell high
Finding a good deal in real estate usually takes time and diligence. Properties are usually listed at a higher market value, so you will need to negotiate with the real estate agent to get you a good deal. Sometimes you might find great deals out there, so in that case, you need to be fast enough in order to make sure no one gets it first.
Improve your home
Home improvements won’t pay for themselves, that’s true. However, some renovations in some markets will.
To find out which renovations will boost your real estate game, check out the Remodeling Magazine Cost vs. Value report.
Typically, bathroom, kitchen and basement remodels are things that can increase the value of your home.
5 things to know before buying a property
When you decide to purchase a house or apartment to rent, there are a lot of factors to consider before paying any money. It’s always best to prevent any surprises!
1. Your credit score
First of all, you have to check your credit score. This affects the interest rates on the possible loans you could take out to buy the property, which means it’ll indirectly raise or lower the total amount of money you’ll have to pay. You can go to the three major bureaus and learn your personal credit rating. If it’s good, you’ll know you have more chances to get a better deal on your loans.
Take into account that the score you’ll receive may not be exactly the same as the one your future lender gets when they investigate your personal finances to know how trustworthy you are. You can learn in this article the reasons why everyone can have many possible credit scores. In essence, you should work for a strong rating, especially if you’ve received your report back and isn’t good enough.
Remember that your FICO score isn’t the only thing that will change your mortgage’s interest rate!
2. The market
Next, you should get information on the real estate market. If it’s peaking, there are high chances that more people will want to invest in this field through homeowning, which can lead to the market tanking. Talk to professional real estate investors, ask for advice, and don’t be shy to do your research!
3. Your money
Another element to consider is your money. Not only what you’ll need to make the purchase and pay off your loans, but also the overall costs of a house or apartment, even if it’s just for rent. It’s advised to hold a property for seven years at least before reselling, which should significantly lower your risks and increase your profits. Check if you have that much money saved or if you’ll have enough money in the future to cover these costs before diving head-first into real estate investments.
4. The area
You should also pay attention to where you’re buying a house or apartment. The location shouldn’t matter as much, as long as there are people there who are willing to rent your place. There are areas where renting is more expensive than homeowning and vice versa. You need to consider these markets in order to know whether you’ll be able to profit from renting or if it won’t be enough to cover for your costs.
5. The laws
The state or city where you plan on becoming a landlord may also have different laws that apply to rent. Landlord laws can be more restrictive in some areas, and you’ll find that there are places where the renter is much more benefitted. Learn these rights and obligations thoroughly!
Is it possible to invest in real estate without actually buying property?
You don't have to be a millionaire or even buy a property to be part of the wealthy real estate industry. Find out how to invest in this sector without having to purchase a piece of land!
Many people think that investing in real estate is complicated and that it implies that you should actually buy a property. Nevertheless, there are many other and much more simpler ways to invest in the sector.
Here are some options you should consider if you want to invest in real estate:
1. Real Estate Crowdfunding
Raising money through crowdfunding has become an option for small businesses, and these include real estate companies!
By crowdfunding, the real estate sector allowed any kind of investors to participate in the industry.
In this case, your money is pooled by the fund managers to buy either a single property or multiple properties. Then, the profits of operating or eventually selling the real estate is divided among the group of investors.
If you don't know how to join a real estate crowdfunding, you can start by searching for special platforms, like Fundrise and DiversyFund.
Check which platform suits your investment best. Some require a minimum investment of $500 and allow you to direct your money to a diverse portfolio of properties.
2. Real Estate Investment Trusts
Real Estate Investment Trusts (also known as REITs) are companies that currently own and operate in the Real Estate sector.
You can invest on this kind of companies by buying shares. This way, you actually own a piece of a company that owns properties.
It works similarly to crowdfunding. In this case, your investment is pooled along with other investors' money to buy properties. The company manages it, while you receive benefits from the cash flow and the properties' appreciation.
REITs work with different kind of real estates, such us housing, office and industrial buildings. So, you can choose in which kind of property you want to invest in.
3. Real Estate Money Partner
If you don't have that much money to cover an entire real estate investment, but you still want to be part of the industry, then you can find a partner.
When finding a "money partner" you can invest your cash while your partner manages the rest of the deal, like the renovation or operation of the property.
Although it may seem like a loan, you are actually joining an equity partnership and will receive a part of the total profit.
The better you know your money partner, the better. But you can still find a partner you haven't met before and have an excellent business experience. In any case, don't forget to write down the terms of agreement of the partnership!