With increased bond and stock market volatility, investors are turning to hard assets like real estate properties to shield themselves from this problem. This move has caused a 43.2 percent increase in real estate investment in the country.
You might have been concerned about how much money you’ll need to start your real estate investment journey; however, you’ll be shocked to discover that you can start with what you can afford. There are several means to create a real estate investment without requiring a massive outlay.
Money is often the highest barrier for first-time investors in real estate. However, most people would want to know how much to set aside before investing in real estate. The amount you require to buy a property might be lesser than you imagine.
How much money do you need to invest in real estate? Read to the end to find out.
What to Check Before Investing in Real Estate
Before buying a rental property, consider the following; it’d help you determine how much to set aside for your real estate investment.
Your Real Estate Investment Purchase Price
The lower a rental property’s value, the lesser amount you’ll need to buy it. Undoubtedly, people tend to always go for properties in their locations, aiming for those with the standards they like.
The truth is, affordable properties generate more cash flow seeing as they appreciate faster. Furthermore, they’re hardly affected during an economic downturn.
One mistake most new investors make is believing that bigger, unique, and expensive properties are better investments. The opposite is true because its cash flow is more substantial.
One area to think about when trying to invest in rental properties is the down payment. If you’re planning on financing the real estate investment property, you’ll need at least a 20 percent down payment.
While the minimum standards loans for single-family investment property is at least 15 percent, the figure rises to 25 percent for multifamily properties. Bear in mind that the numbers mentioned are the minimum standards. When originating mortgages for an investment property, a lender may use more restrictive requirements.
Nevertheless, you can decide to finance the property as a second home. This option is only available if you’re buying a single-unit property like a condominium or residential house and plans to use it for some time. If you choose to use this method, the required down payment is only ten percent.
Through leverage, a real estate investor can invest with a small amount and receive more substantial returns.
Real estate is one investment type where you can pay a minimum down payment, complete the remaining purchase price to own and control the asset. At the same time, your investment appreciates and generates monthly cash flow for an extended period.
This term is the percentage comparing the amount invested in a rental property to the one received. You’ll need to understand how this term works when trying to learn about leverage. Simply put, a high cash-on-cash implies a profitable investment, seeing as the net cash flow you receive is bigger than the amount you invested.
Obtaining Loan for Your Real Estate Investment
You see, there’s no simple answer to the question of how much money do you need to invest in real estate. However, if you feel the amount you currently have isn’t enough, you can opt for some loans.
These loans are loans conforming to specific strict government guidelines. Some banks require at least 20 percent down payment for any rental property, while some have 30 percent as their minimum. Although each bank works with its own requirements, you can estimate 20 percent as a down payment for obtaining financing for a real estate investment.
If you’re planning on buying and living in a two to four units multifamily property, you might be able to get a very low bank loan, say with a 3.5 percent down payment from the FHA loan program. This approach is popularly known as house hacking and is ideal for new investors that are venturing into real estate investment with little experience and finance. However, you’ll be required to stay in the house for a year to qualify.
Other Real Estate Investment Options
There are other real estate investment options if you’re looking for how to invest in real estate with little money. If you’ve got a few hundred dollars, you can opt for any of these investment options.
Joint Venture Partnerships(JVs)
This investment option is formed by people of like-minds to own and control a particular property. One investor will take on the task of running the investment’s daily activities, while the rest will be passive investors.
One of the advantages of joint venture partnerships is that the new investors will have an opportunity to directly study the real estate market. Furthermore, the potential profits are more substantial, and you’ll have the chance to know the other investors.
Crowdfunds are syndications where large numbers of real estate investors contribute funds to invest in commercial properties like apartment buildings, new home developments, and shopping centers.
With crowdfunding, you can enjoy higher profit yields, and the deal’s risk and quality depend on the sponsor. Additionally, you’ll be able to access some investments that are beyond your financial capacity.
Real Estate Investment Trusts (REITs)
New investors looking for how to invest in real estate can opt for Real Estate Investment Trusts (REITs). These are companies traded publicly on major stock exchange markets investing in income-producing rental properties, such as health care buildings, commercial real estate, and residential rental homes. One major advantage of investing in REITs is the broad exposure to various real estate asset types. Furthermore, it’s easy to trade, is highly liquid with shares, and pays dividends.
If you’re looking for how to start real estate investing for beginners, then follow this guide to get all the answers you seek.
People with a few hundred dollars hoping to break into the real estate market can opt for crowdfunding and REITs options. However, if you have more money for investing, you might want to consider using conservative leverage.
This method will help you pay a small down payment to enable you to own and operate a real estate property, generating regular net cash flow, making a profit off your investment, and paying off your bills with your tenant’s rent. Consider contacting an experienced real estate professional to help you with your investment choice.