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The majority of wealthy people I know made their money through real estate. Investing in real estate generally requires a sizable upfront investment, but the potential gains are quite lucrative. Below, we discuss several common investment and financial strategies to help you get started in the real estate market.

How to Make Money

Flipping Houses

With a number of TV shows based on the concept, a lot of people are familiar with the process of flipping homes. The basic idea of a “fix-and-flip” is to buy a home in poor condition at a deep discount, make repairs and improvements, and sell the property for a profit. While that process might sound simple, it is easier said than done.

To be successful in the fix-and-flip market, avoid common mistakes, such as not having enough cash on hand to finance the repairs, trying to rush the work, or getting in over your head on a home that is beyond repair. Though the process of fixing a home can be enjoyable to some, unrealistic budgets, unpredictable housing markets, and uncertain timelines can turn these potentially profitable investments into painful headaches.

Long-Term Ownership

If you have the ability to invest for the long-term, you can make money through a personal business that owns and rents multiple properties. Successful property investing requires you to have a knowledge of the local real estate market and the ability to calculate the costs, risks, and cash flows required to sustain your investment.

One long-term strategy involves purchasing multiple single-family homes. If you have access to sufficient capital, building a portfolio of properties can help you pool your risk, which theoretically can shield your overall investment if you have issues with one of your properties. Though multiple mortgages and repair costs can be expensive, having several revenue streams can be quite lucrative. To help handle the difficulties associated with maintaining multiple properties, investors typically hire a 3rd party property management firm to handle day-to-day issues.

As your investment starts to generate a positive cash flow, you can either use the profit to pay yourself or re-invest the funds to grow your portfolio of homes. I know one investor who started with his first home in the 1970s and now owns more than 40 investment properties, which generate enough profit to make a full-time income.

Another long-term strategy is to purchase multi-family buildings, such as an apartment complex or multi-unit home. This type of investment generally requires more up-front cash. However, buying a building that is already occupied should allow you to quickly start generating revenue from rent payments.

Financing Your Investments

Self-Funding

To get started with real estate investing, you first need a funding source. If you are able to save a sizable down payment, you may qualify for investment property financing. Just remember that loan and sale closing costs chip away at your profit, so buying in cash is generally preferable.

Crowdsourced Financing

Thanks to new technologies, real estate investors are able to reach out to investors to crowdsource real estate investment funds. Sites like Realty Mogul are built exclusively for this purpose. Whether you need capital to start investing in real estate or want to invest without doing the physical work, crowdsourcing may be right for you.

Just be aware that crowdsourcing comes with some strings attached. Investing at Realty Mogul requires a minimum $10,000 investment and these investments can be high risk. As a borrower, you will have to pay fees to the crowdfunding platform.

Understand the Risks and Returns

While real estate investors make it look easy on TV, property investing is high risk and requires a solid financial footing and knowledge.

Investing on your own requires you put up a substantial investment in advance, and whether you are a fix-and-flipper or property-owning landlord, you will have to pay for maintenance and repairs as long as you own the property. Do not underestimate these costs or you may find yourself in a difficult position down the road.

Also, make realistic and conservative calculations on the upfront expenses, monthly cash flows, and repair costs. If you have a mortgage loan to finance the property, you will have to make monthly payments including property taxes and insurance escrow payments. After repairs and recurring monthly costs, you may not be profitable each month. A helpful property management software can help you stay on top various costs and other requirements associated with owning rental properties.

Historical 15 Year Fixed Rate Mortgage | Credio

Getting Started

Regardless of your real estate strategy, you should start saving for either a self-financed purchase or a down payment. If you are going to apply for a loan, prepare your personal finances to demonstrate your ability to afford monthly payments.

Additionally, some real estate agents and investment advisors specialize in investment properties. If you are not experienced, it is best to work with a professional who can help you with property identification and the financial analysis on potential returns.