The popularity of investing in real estate continues to increase as the economy grows. Financing real estate investments is one of the most stable investments you can make for a number of reasons:
- Real estate is a physical asset
- Real estate usually retains its value and/or appreciates over time
- You will rarely ever experience a total loss on a real estate investment.
Why? Because, everyone needs a place to live. Real estate is a necessity. Every day someone is looking for a home to rent. Real estate investors recognize that need and provide rental properties.
Becoming a Landlord
Think of a purchase you can make that has the ability to provide long-term income, appreciates in value over time, and is paid for by someone else. Can you think of anything?
Real Estate Investors
The ability to become a real estate investor seems to be an overwhelming and daunting task that would require a perfect credit score and a sizable bank account, but that is not the case. Financing real estate investments is a process that can be learned and becoming a real estate investor is an attainable goal for anyone who is willing to invest the time and energy necessary to learn about the benefits of real estate investing and about the industry itself.
Advantages to Buying Investment Properties
Many people choose to become real estate investors because all it takes is financing that first property to start your new career and start enjoying the numerous advantages of having investment properties.
Generating Passive Income
Real estate investments create a steady cash flow. This passive income not only covers your expenses like the mortgage and property taxes, but generates a profit that can be used to invest in additional rental properties and diversify your real estate investment portfolio.
Ability to Increase Positive Cash Flow
Depending on the location of the property, your investment may provide a substantial profit. If there is a substantial or even moderate difference between your expenses and the rental rate, then you have the ability to have a positive cash flow that can increase over time with the value of the property and the demand for the area.
Long-Term Financial Security
Real estate property appreciates over time. You know that your investment is profitable and will provide long-term financial security. Keep in mind; location is still the number one factor in the appreciation of a home and knowing when to sell is part of learning the ins and outs of the real estate industry.
Real estate investors receive tax exemptions for owning a rental property and are not required to pay self-employment taxes on rental income. The investor also receives tax breaks if the property depreciates and for the cost of insurance, maintenance repairs, travel expenses, legal fees, and property taxes. Additional benefits include enjoying a lower tax rate for their long-term investments. These tax benefits are another reason why investing in real estate is so popular.
Having the Mortgage Payments Covered
The thought of obtaining a mortgage is one of the main reasons people think they cannot be a real estate investor. Financing real estate investments seems like it would be difficult. Getting a mortgage is expensive and requires an excellent credit score for the best rate and a sizable down payment. Wouldn’t it be even harder to obtain financing for an investment property? Not necessarily. There are several ways to finance real estate investment properties. The bonus is that your mortgage is covered. The renter pays for all of your expenses while you enjoy knowing that the property is appreciating and enjoying the additional profits to continue to grow your business.
Ability to Be Your Own Boss
You have the freedom to be your own boss and decide what is best for you. Financing real estate seems daunting, but it is an immensely rewarding experience and an opportunity to enter into a career in an industry that is essential, stable, and has numerous advantages.
Getting Started – Financing Real Estate
Finding that first property and financing your real estate investment is the first step. Remember: location, location, location. Then, seek financing options that allow you to put little to no money down. A few options have been provided to get you started.
- Obtain financing for 100% of the purchase price
- Find an investment partner willing to pay some of the costs
- Research different lenders and see what loan assistance programs they offer
- Find a property that offers owner financing
- Find a rent-to-own or lease with the option to buy
- Swap houses or make a trade to cover the costs of the down payment
- Do an assignment of contract where the seller transfers their mortgage to you
- Use the equity from a different property to purchase another investment property
- For your first investment, you could purchase the property with an FHA Loan that only requires 3.5% down
- Research nonbank lenders like SoFi and LendingHome. Some finance up to 100%, and they close sooner than traditional banks
- Explore Buy 2 Rent mortgages. These mortgages focus on the income generated from the rental property rather than focusing on the investor’s income. These are asset-based mortgages and do not have as many hurdles as traditional financing options.
- Seek funds from friends and family or explore Trust Deed Investing where you obtain funding from one or more private lenders. They receive the deed of trust as collateral on the property. If you cannot meet the financial agreement, they can foreclose on the property
The biggest hurdle to becoming a real estate investor is not financing real estate investments, but the fear of obtaining financing. Real estate investors are business men and women who recognize the numerous advantages of investing in real estate. They do the research necessary to obtain financing with little to no money down, securing that first investment property and beginning their career. The goal of being your own boss, earning an unlimited income, and becoming a real estate investor is a meaningful and attainable goal.