- How To Invest In Real Estate With No Money Down
- How To Invest In Real Estate With No Money
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How To Invest In Real Estate With No Money Down – The three most common ways people invest in real estate are through home ownership, REITs and ETFs, and direct investment.
There are many different ways to invest in real estate. In fact, I generally say that it is possible to be successful in any niche in real estate.
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So, know how you want to invest, then focus on that. Don’t try to do everything or you’ll find yourself not doing well on any of them.
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The real costs of owning a home are often forgotten until after closing on the property. Owners should remember that they need to spend anywhere from 1-2% of the property’s value on maintenance and upkeep.
Home ownership certainly has a much lower return than the stock market, in fact, the return is close to 0% when inflation and maintenance are factored in.
But there is a way to turn your home into an investment, and it’s called a “live-in flip” or “house hacking.”
You start by buying a house that’s a bit run down, but it’s in a good neighborhood. The goal is to improve over the next 2-3 years so you can take steps to do something better, or do it again.
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Once you’re done and ready to go, you can either sell it and pocket the profit (usually tax-free, as your personal residence is usually not taxed). . You can also keep it and use it as a rental property if you want.
I started in real estate with a step-by-step approach. My first property was a 3-unit multi-family near my graduate school. We rented two units and lived in one for free.
We have spent years developing this process which has generated literally millions of dollars in value and a steady annual income for investors.
A few years later, we lived in a townhouse and rented out all three units. Then, after a few years, we moved out of the village house and into something better.
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Every time we moved, the rent on the previous unit paid more than the cost of the new one. So, we were never out of pocket to make a lot of transfers.
Another way to turn your home into a cash machine is to rent out individual rooms. This is a particularly useful option for young people or families without children.
Buy a home with more bedrooms than you really need. You can convert a room or basement into a bedroom.
Then, get some roommates and rent out each room. Their rent will most likely cover all of your mortgage and utilities.
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Another option is to use Airbnb. If you are in a good area that has people visiting, you can earn a lot more per month than a typical roommate.
Basically, you are investing a small amount of money in a big deal and sharing the risks and rewards.
While people have been doing this privately for over a hundred years, it’s relatively new on the Internet.
The advantage is the best crowdfunding platforms do a lot of the hard work for you and it helps eliminate bad deals. Some of the platforms are limited to accredited investors, but others accept both accredited and non-accredited investors.
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In case you’re wondering, a certified investor is someone who has earned $200,000 ($300k if married) and has a reasonable expectation of continuing to earn it. Also, a net worth of $1m or more (excluding your primary residence) also qualifies you.
A couple of sites allow you to invest as little as $1,000 which is great. Most sites require $5,000 – $10,000 which is still good. A few require $20,000 or more to meet standard syndication requirements.
A REIT, or real estate investment trust, includes a wide range of offerings and can include investments in real estate anywhere. The requirement to be a REIT is that it must distribute 90% of its income to shareholders.
In order to maintain its status as a REIT, it has to pass several other tests.
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With exchange-traded REITs, you can theoretically buy only 1 share. But there are also private REITs with very low payouts, because the minimum investment is a question mark ahead of them.
The great thing about REITs is that you can easily get some exposure to real estate in your portfolio. Simply buy into it with your brokerage account as you would any other stock or bond.
You will find that you get better returns if you invest directly in real estate yourself, but there is a trade-off between time/convenience and the effort required.
Although you may technically own a share of the real estate, you have absolutely no say in how it operates. You cannot decide what real estate you buy or how it is managed. You can just vote with your feet and sell your shares and move on.
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People fear it because they don’t want to “fix leaky toilets” or any other excuse.
The fact is that direct investment can be active or passive as you wish. You can actively manage your property, or go a more passive route.
So, you can fix the toilets if you are on hand, or you can just hire other people.
One of the biggest benefits of investing directly in real estate is that you can leverage your returns. Also, you can find better deals for direct investments than any other type of investment.
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If you already own a home, you’re ahead of the game. If you don’t, buying one is a great way to get started in real estate investing. Look for a mortgage with no minimum down payment, such as a VA, USDA, or FHA loan. Credit score and down payment requirements are usually a bit more stringent for investment properties, so if it’s your first home and you’re planning to use it as your residence, you may be approved. Chances are if you have decent credit.
That said, if you are buying a home using one of these types of loans, you must adhere to the terms of the loan agreement. These are not generally considered loans for investment opportunities, they are for people who are buying a home for themselves. Generally, there are requirements for how long you have to use the property as a primary residence. Therefore, you will need to live in the house for a year before you are allowed to rent or sell it.
One way that many people get into real estate investing is to upgrade to a larger home and keep their starter home for use as a rental property. There are many benefits to doing this. First, you already know the neighborhood when you live there yourself. You know the type of tenant you can attract and what rent is reasonable for the area.
Second, you know everything about the home, including how old the furnace is, the last time the roof was repaired, and whether or not the water heater will need to be replaced in the next year or two. Chances are you’ve bought your equipment and you probably already know how to fix any minor problems a tenant might have. Renting a property you know eliminates the learning curve and is a great way to get started.
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Whether you’re buying your first home or thinking about moving, buying a duplex is another smart and easy way to get into real estate investing. Down payments vary based on the loan you qualify for but are generally the same as for a single-family home as long as you plan to occupy a single residence.
This arrangement has some of the same benefits as renting out a family home that you occupy. If the duplex is in an area where you know you want to live, you’re probably already familiar with the neighborhood, schools, amenities, and anything else potential tenants want to know. Also, as you buy a home and possibly spend some time looking at other properties in the area, you should have a good idea of how much you can expect to ask for rent.
If you manage this arrangement correctly, the rent you collect from the tenant will cover the majority of your monthly mortgage payments. This is great because it means you can either return to your full-time job or save extra income and build more savings to invest in your next property.
There is a long list of closing costs before a home sale is complete. These include but are not limited to application fees, appraisals, home inspections, mortgage insurance, origination fees, pet inspections, and underwriting fees.
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To minimize the amount of money you need up front when buying a piece of real estate, ask the seller to pay the closing costs. While not all sellers are willing to do this, some will be. It is commonly used to encourage sales and is a particularly useful negotiation tool