Starting in real estate isn’t easy. It isn’t easy. The challenge is why most beginner real estate investors struggle to build their business regardless of the blood, sweat, and tears they invest.
Sound like you? Good news, you’re in precisely the right place!
This article doesn’t list out a million mindless strategies.
What we’ll show you instead are targeted strategies that work. These strategies are easy to replicate for your real estate journey. These strategies help you grab onto the bottom rung of the property ladder and climb your way to financial freedom.
Renting is a solid option for beginner real estate investors. I know it seems counterintuitive, but let me explain.
Should I rent, or should I buy a home? That question is especially salient now with interest rate hikes and inflation. Despite the projected drop in home prices, interest and inflation may make purchasing your first property too expensive. In other words, beginner real estate investors find it tough to get on the property ladder. Tough, but not impossible.
The reality is that when you buy a home, you take on debt. Taking on debt is always a risky proposition, no matter how secure it seems. Renting enables you to mitigate that risk.
I want to disabuse you of the notion that renting means throwing your money down the drain. That’s a lie. In exchange for rent, you get a place to live. No matter where you live, it’s going to cost money.
Indeed, you aren’t building equity in a home with rent. The thing is, not all that money goes to building equity in the house. For instance, mortgage interest eats up a large chunk of the cash a homeowner pays in the early life of the loan.
Also, there are many associated costs that a property owner incurs that a renter never sees. A few of those costs include:
The landlord typically covers most or all of these expenses when you rent. That means you have an opportunity to keep more cash in your pocket. As you build a nest egg, you should look into the following so that you can get on the property ladder as a beginner real estate investor:
The ultimate goal is to transition from renting to owning a property.
To start as a beginner real estate investor, you must plan. Some of the more immediate options include:
Another way to invest in real estate is through a Federal House Authority Loan.
An FHA loan is typically for home buyers who do not meet the requirement of a traditional loan. These loans have low credit scores and down payment requirements. Also, FHA loans are for buyers who intend to use a property as their primary residence, also called the occupancy requirement.
If you decide to use an FHA loan, you must possess the home within 60 days and use it as a principal residence for one year.
As with all things, some exceptions apply. You can use an FHA loan to help you start your real estate investing business by buying a multifamily property.
Here is how it works. The FHA allows property owners to buy homes with up to four units (fourplex). The only rule is that the owner has to live in one of the units as their primary residence. That way, the owner can rent the other three units for income.
Here is an illustration of how that might work:
Suppose you use an FHA loan to buy a multifamily home for $250,000. The mortgage for that home will be about $2,000 per month. You have to occupy one unit, but three units are available.
The average renter pays about $1,330 per month in rent. That means you could potentially live in your unit and charge three other renters $1,330 per month (or more, depending on market forces). In this case, you will earn $3,990 per month, have a place to stay, and a way to progress up the property ladder as a beginner real estate investor.
No matter what step of this process, you need to protect yourself. Royal Legal Solutions offers expert advice and proven strategies to help secure and keep your assets safe. Take our FREE 5-minute quiz to get powerful wealth-building insights.
Renting is not throwing your money away. Remember, you get a place to live and don’t have to deal with the pesky taxes and costs associated with home ownership. For beginner real estate investors, renting is an opportunity to save money and reduce your debt.
While renting, you can consider subletting out (if you’re allowed) or dabbling with REITs to increase your cash flow. Ultimately, you will want to transition to your first property. An excellent way to do that is with an FHA home loan, provided that you meet the requirements.
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Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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