How Do I Start?
People usually have 2 questions for us when it comes to getting started with Real Estate Investments:
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How much cash do I need?
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What the hell are you talking about?
We’re going to try to answer both of these question here.
How much cash do I need to start investing in real estate?
This is actually a very “personal question”. The amount of cash you need to start investing in real estate can vary greatly, as it depends on both the type of investment and your financing strategy. Here are some common options that you should consider when you are looking to see if investing is a viable option for you.
Cash purchase:
If you have enough cash saved, you can purchase a property outright. This is typically the most straightforward, least risky, (and least popular) option.
Hard money loan:
Hard money loans are short-term loans that are typically secured by real estate and can be used to purchase or rehab a property. Warning: These loans typically require a downpayment of 20-30% of the purchase price.
Conventional mortgage:
If you don't have enough cash to purchase a property outright, you can obtain a conventional mortgage, which typically requires a down payment of 5-20% of the purchase price.
Owner financing:
In some cases, the owner of a property may be willing to finance the purchase for you, which can allow you to start investing with little or no money down.
Real estate investment trust (REIT):
If you don't have a lot of cash to invest, you can consider investing in a real estate investment trust (REIT), which allows you to invest in real estate without actually owning property.
It's important to remember that investing in real estate can be expensive, and that you will likely need to factor in additional costs, such as closing costs, property taxes, and insurance into your budget. It is also important to have reserves set aside for unexpected expenses, such as property repairs or vacancies.
What is a REIT, and is it better than buying my own real estate?
We’re not screeching at you, a REIT is a Real Estate Investment Trust. A REIT is a company that owns, and in a lot of cases operates, income producing properties (commercial rentals, residential rentals, warehouses, hospitals, etc.). They can be both publicly traded or private (or public but unlisted). US tax law considers a REIT “any corporation, trust or association that acts as an investment agent specializing in real estate and real estate mortgages”. Basically, it’s giving real estate investments a structure similar to the structure that mutual funds provide for investment in stocks.
Whether investing in a Real Estate Investment Trust (REIT) is better than buying your own real estate property depends on your investment goals, risk tolerance, and financial situation. Here are some things to consider:
Advantages of REITs:
Diversification:
REITs allow you to invest in a diversified portfolio of properties, reducing the risk of having all your eggs in one basket.
Liquidity:
Most REITs are publicly traded, which means that you can buy and sell your shares easily, providing greater liquidity than directly owning a property.
Lower capital requirements:
Investing in REITs typically requires less capital than buying a property outright. (In plain english, you don’t need as much money upfront.)
Advantages of direct real estate ownership:
Potential for higher returns:
Direct real estate ownership can offer higher returns, especially if the property appreciates in value.
Control:
When you own a property, you have control over how it is managed, which can lead to a more hands-on investment experience.
Tax benefits:
Direct real estate ownership can offer tax benefits, such as the ability to write off depreciation and mortgage interest.