Real estate investment has a number of stereotypes associated with it. The archetypal real estate investor has bags of money at his disposal, alongside an ample supply of capital and connections to make the best decisions possible in what looks like a high-stakes betting game to outsiders. The truth is much more complicated.
Many real estate investors throughout the years had none of these advantages when they started, but by making good decisions they rose to the top. Indeed, people who made their fortunes through real estate, such as Dean Graziosi, now give talks to aspiring real estate investors, sharing tips and tricks that propelled him to success. The fact that someone like Dean could rise so high in a short time doesn’t just speak to his business acumen, but that him and many others like him can rise up to become an investor.
For starters, people new to real estate don’t need that many assets, capital or credit to start off. The aforementioned Graziosi, and other successful investors like Justin Colby and Kent Clothier started off with no assets, credit to capital to their name. You’ll need a few hundred dollars to spare for an ‘escrow’ license, but after that you can start investing in the wide range of properties available to low-capital investors, ranging from buy-to-let residential properties to ‘flipping’ (buy a property, refurbish it and sell for a good ROI).
There’s another misconception that you need to put up major assets in order to secure a contract or purchase a piece of property. You don’t need this either. You do need to understand how creative financing works. Most people simply stop dead in their tracks because they have this belief about what they need in order to get started; i.e. the incorrect ‘real estate tycoon’ archetype I described earlier. So how do you make money in real estate?
When it comes to real estate income, there are two ways to generate cash. You can generate passive income by buying and holding. And you can also generate an active income by flipping contracts, doing renovations or adding value in another area such as putting together property development deals. It might all seem overwhelming at first, but it’s certainly not, especially when you get a lay of the land.
Now, when most people think about making money in the real estate sector, they ask questions like this: How can I invest in real estate with no money?
You can utilize a variety of methods that includes any of the following: seller financing through lease options, trading fixed assets such as cars and jewelry, taking over someone else’s mortgage payments who might be in a distressed situation, bringing in an investment partner with cash, borrowing from a bank or getting a hard money loan, taking out a home equity line of credit and even utilize a peer-to-peer lending network.
So you have an idea for getting the money. What’s the best property type to invest in generally?
Long-Term Residential Properties
One of the most common methods for making money in real estate is to leverage long-term buy-and-hold residential rentals. People will always need a place to live, plain and simple. This means getting involved with rental properties. You need to do the proper amount of due diligence to source your property by focusing on location.
Yes, you’ve heard it if you’ve considered real estate before, but location is everything when it comes to real estate. Not only does this apply for an increased asset value over time, but also in your ability to quickly rent that property to a long-term tenant. When you’re considering long-term residential rentals, look for a great location. That’s more important than the current state of the property itself. In fact, run-down homes in great locations are one of the best investments you can make.
This involves a more traditional approach to making money in the real estate market. It means buying a property with some cash on hand to make a down payment, and actually holding that property for the long term. Now, depending on your personal situation, you can easily grab that property for a very low down payment or even no down payment. That’s especially true if this is a pre-existing, income-producing property.
If there’s positive cash flow in a residential rental, then it makes a great investment. However, you’ll likely not find that too easily, unless the current owner is unloading for personal reasons due to a divorce or other need to liquidate that property that necessitates having some cash on hand.
The fix-and-flip culture in real estate investment has exploded. Thanks to the popularity of home renovation shows, we’re now experiencing a massive boom in the traditional renovation-flip market. While there’s certainly a lot of money to be made here, navigating these waters in the beginning can be tricky. When you lack the knowledge or the experience, you could find yourself on the losing end if you don’t select the right home.
Go after the ugliest homes in the nicest neighborhoods. That’s where the real value is. But the other difficulty here is not only finding those homes when you’re not well-networked with real estate agents, but also understanding its after-repair value. We advise not to bite off more than you can chew, and more importantly, you should look for creative ways to improve these properties. Success as a real estate investor has as much to do with how creatively you can solve problems as it does how well you can crunch the numbers.
How much will the home be worth once you’ve invested in fixes and repairs? To accurately determine that you need a strong relationship with a general contractor and actually tour the property on-site. While buying site-unseen at an auction might seem alluring, unless you really know what you’re doing, you could lose your shirt. But making money on a home-renovation flip, as long as you understand the underlying costs and potential value, is rather straightforward.
Here are two proven, effective methods of getting started in what is undoubtedly a confusing and labyrinthine profession, but also a profession that can bring anyone, no matter how poor, to riches with the right knowledge and good decision-making abilities. Knightsbridge Ventures are a new property investment company bringing fresh new investors into Europe and overseas.