by Contributing Author
If you ask any real estate expert, they’ll tell you that investing in property is one of your best passive income strategies. Yet, if you’ve never invested in real estate or don’t know anyone who has, it may seem like an impossible industry to enter. Investing in real estate doesn’t have to be confusing or overwhelming. Use this beginner’s guide to learn everything you need to know about real estate investing, including available investments and how to obtain lending.
What Is Real Estate Investing?
Real estate investing is buying into any real estate property that generates income in return. It’s the ownership of any property or land to use it for something other than your personal residential property.
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Why Should You Invest in Real Estate?
Real estate investing is an excellent financial strategy for a few reasons, including:
- The opportunity to earn passive income.
- The ability to take advantage of tax benefits.
- The option to diversify your investment portfolio.
- The eligible to use your investment to acquire additional investment properties.
With real estate investing, you can earn a passive income without putting in a full workweek. Of course, you’ll have to do your research to choose the right property and consider your lending options before generating income. Once you close on the property, you must make any necessary repairs or renovations.
From here, though, you can then hire a property manager to handle other tasks like screening applicants and collecting rent. If you’re handy, you may decide to manage things like repairs and renovations on your own to avoid the cost of hiring contractors. As with any business, though, this is a matter of preference.
Some real estate investors focus on acquiring additional assets to further their investment rental business. In fact, many of New York’s most successful real estate investors started small.
How Can I Fund Real Estate Investment Projects?
Figuring out how to fund your real estate investment project is one of the biggest and most important steps to consider. Investing in real estate can be a high-cost project, so choosing the lender is essential. The loan provider you choose also influences how much you pay in interest rates and lending fees, which can affect your potential returns.
Some real estate investors may use cash to fund their projects if it’s available. You might choose to cash out savings or retirement plans or borrow money from your family and friends if it’s an option. The initial costs of investing in real estate can be high, and it can take a few months or years until you earn a profit, so it’s important to be patient.
It’s common for real estate investors to take out a loan when funding a project. A conventional loan is similar to what you might have used previously to purchase your current home. Conventional loans typically have stricter financial requirements than other loan types.
A debt-service coverage ratio (DSCR) loan is an excellent option for investors looking for an alternative loan that considers potential rather than current income. DSCR lenders determine your loan eligibility based on how much a potential real estate investment property is likely to earn rather than how much you currently earn.
Alternatively, non-traditional loans may be a better option for unique real estate investment projects. For example, if you want to invest in a vacation property, traditional lenders may have strict lending requirements that make it too costly. Instead, vacation rental loans through an alternative lender may be a better option.
What Real Estate Investment Opportunities Are Available?
The real estate industry is so diverse, meaning you have a lot of investment opportunities available, including:
- Long-term investment: Many investors will buy a home, make the necessary repairs and renovations, and then rent it out to long-term renters.
- Short-term or vacation rental investment: You might also purchase a property, renovate it, and then rent it out to travelers if it’s in a tourist destination.
- Commercial real estate investment: Investing in commercial real estate means purchasing a warehouse or other commercial space and then renting it out to a business.
- Multi-family investment: A multi-family real estate strategy includes purchasing a building with multiple units, which allows you to take on more than one renter.
Investing in real estate has many benefits, including earning a passive income. Even beginners can benefit from these advantages, especially after choosing the right lender. The lender you choose to fund your real estate project is important since each has different lending requirements and costs.
