I’ve always advocated for self-understanding before leaping into any investment property acquisition. Coming up with the reasons why you want to utilize this class of investment over others is key to ultimately being successful in the business. You need to be self-aware of your own temperament and abilities before jumping in headfirst to the arena of property investing.
You’ll also need to ask yourself what you want to accomplish. Are you interested in creating a steady income stream from your investments, or are you trying to flip a property for quick cash flow profits? In other words, are you in it for the short or long term? Knowing the answers will help you determine your overall investing direction.
Use the seller for owner-financing
The ever-popular “other people’s money” is usually attributed to family members or friends. However, it can also be a desperate seller that wants to move his property sale along that can offer some amount of financing. It may be in the form of a large first mortgage, usually at slightly higher than going bank rates, and for a shorter period of time, with a balloon payment built in. However, owner-financing is a great way to keep your initial costs of borrowing low. (An owner will not charge you points on his loan, for example…)
Using the seller in other ways
Along the same lines as owner financing, you can sometimes find a seller willing to pay for some of your closing costs. If they won’t make a first mortgage loan to you directly, you should always ask if they can pay for part of the closing costs your bank will be charging you. Sometimes these costs can be folded into the total mortgage amount – so you’ll be able to bump up the purchase price slightly to have the seller recoup these closing costs he’ll be affording you at closing. You end up financing the closing costs as part of your mortgage, paying for them over time.
The real estate agent route
If you’ve worked with a real estate agent, you probably have already figured out that Realtors have the inside track on most deals. They can see when new properties come on the market each day, and are privvy to a great deal of “inside” data most buyers are not aware of. If you plan on making regular property acquisitions, getting your real estate license makes a great deal of sense. With each transaction for your own property (be it buying or selling) you get to partake in some of the commission. This can save you thousands of dollars each year. In addition, as mentioned above, you’ll have access to more info about any given property, including when a hot property may come on the market. In addition, there are many tax breaks you can take advantage of by being a real estate agent.
Getting your feet wet
One great way to get started in property investing is to become an owner-occupant. You simply purchase a two (or more) family home that you will rent the other units out while you live there. You’ll get tax breaks, as well as the ability to finance the mortgage with an FHA, HUD or VA type loan. You would not be able to do so if you did not live there. In addition, it’s a good way to learn to manage your property – with your tenants on site, you’ll get very accustomed to hearing about any complaints with their units. And you can stay on top of any maintenance issues when they arise.
Pulling it all together
Make sure you do proper due diligence , and research any potential acquisition first. You’ll also have to be sure your own finances are in order, you have excellent credit, and can obtain the financing needed for any given project. Also take into account all the expenses that will gobble up your cash flow monthly (including taxes and insurance), and don’t forget your total financing and closing costs as part of your overall nut on the property. If you decide you have the finances, temperament and spirit to undertake an acquisition in real estate, then jump in like there’s no tomorrow.
photos courtesy of prw.net.au, davidcares.com, realtor.co, allmandlaw.com