You can invest in real estate with poor credit or even no credit at all. That’s because there are so many ways to invest!
In order to invest in real estate, you really don’t need more than a few hundred dollars to keep in escrow, which is an account maintained by a third party wherein your money is kept until the stipulations of the contract between the buyer and the seller are met by both parties. Sure, you may have to start by investing in low-prices homes, distressed real estate, or by flipping houses, but, hey, everyone starts somewhere! You can also invest with someone else, or use a hard-money lender, which is a private company that requires physical real estate to issue a loan at a higher interest rate on account of the risk involved and the shorter time span of the loan (typically a few months to a few years).
So long as you know how creative financing works you don’t even need major assets to start investing in real estate!
How to Set Real Estate Investment Goals
Before you start investing, ask yourself how much risk can you tolerate and how much work are you willing to do? Once you have your goal in mind, figure out what the initial amount is that you need to invest. Remember, investing in real estate can run the gamut from costing as much as it takes to buy stocks in a portfolio to hundreds of millions of dollars. Everything is possible!
Real Estate Increase In Property Value
One of the first things to understand about investing in real estate is that an increase in property values doesn’t always translate into profit. Sure, your property may technically go up in value, but property values rarely beat inflation, which is what happens when the buying power of the currency goes down. In fact, it’s often the case that the increase in value that your property experiences is due entirely to inflation, so the dollar amount that your investment is worth has gone up but because those dollars buy less stuff you haven’t actually experienced a profit.
Inflation and Real Estate Investing
You can, however, use inflation to your benefit to make a profit. If you can take out a loan right before inflation happens, then once inflation occurs your loan represents less debt because each dollar that constitutes the loan is worth less. When the currency becomes stronger, it takes less of it to pay off the debt. Now you’ve made a profit!
Cyclically Adjusted Cap Rate Purchases
A cap rate is a return on a real estate investment. To buy when cap rates are attractive is to make your investment when it appears that, in the future, your investment will be worth more than it’s worth at the time that you make your investment. There’s a variety of reasons that a property may be worth more in the future. The key is knowing what those reasons are and using that knowledge to inform your investment strategy!
Rental as a Real Estate Investment
On the surface, this is a simple strategy: you get a rental property and you charge people rent. There’s a lot that goes into maintaining a property that makes renting a complicated investment, but there are also a lot of reasons to invest in a rental property nonetheless. Chief among these reasons is that mortgage payments and maintenance fees are all tax deductible. Also, you can raise the cost of rent to keep up with inflation! So, you end up with a steady income while also paying off your mortgage (if you have one).
Using Cap Rate to Compare Investments
The capitalization rate, also known as the cap rate, is the rate of return on a commercial real estate investment. It’s the net income the property produces. If your property sells for $1,000,000 and earns $100,000 years, you would divide the earnings by the price of the property to get .1 (10%), which is also the cap rate. This figure means that your expected return on your investment is 10% if you paid for the property 100% in cash and took on no debt. This figure is important because, aside from the income the property makes you through rent, the cap rate measures the other form of income your investment generates.
Rental Income as a Margin of Safety
Real estate can function as a great investment during down times because who ever leases your property has to sign a contract. If that contract is signed at the right time, you may get paid a great sum of money while better deals are available elsewhere. The downside is that you could end up losing money if your contract entails the renter paying you less than the market allows.
Raw and Land Income
On the surface, land as an investment may appear dull. It just sits there and produces zero income. But that’s the point! You don’t need to do anything. And the only thing you need to know is whether or not the property is suitable for building! So long as anyone else can use the land, then most of the heavy lifting is done.
Vacant land owners want to sell. In part, this is because vacant land owners are most often absentee owners, which means that they don’t reside on or near their land. That means they have less of a connection to it, and feel more comfortable selling it.
You’re less likely to face stiff competition because most investors want to buy developed land with some kind ( or any kind) of property on it. And there’s a good chance you’ll be able to buy the land outright without having to deal with banks or mortgage companies.
Not only that, but if you know what you’re doing you can even buy and sell land without even seeing it! That’s irrespective of how long you hold onto the land, which, by the way, you can do for a long time without sacrificing any skin off your back because of how cheap land can be (and how low the property taxes are on undeveloped land). Meanwhile, land is always in limited supply because you can’t make any more of it!
You can also increase your profit by practicing seller financing, which is when you lend money to the person who’s buying your land. Doing so doesn’t actually entail giving money to the person buying your land. What seller financing means is that you’re going to allow your buyer to have permanent use of the property in exchange for cash payments that last anywhere from several months to several years.
These payments include principal, interest, and ongoing service fees just like any other loan. As a result, you end up selling your land at a higher price, make a profit from interest and fees, and you don’t have to maintain the land because that’s the responsibility of its new owner! Meanwhile, you’re left to enjoy a steady monthly income. And if the property owner misses too many payments or defaults, then you get to recollect and resell the land!
If it sounds too good to be true it’s only because you’re taking for granted that most people don’t have the will, knowledge, or courage to make investments. Best of all, offering seller financing makes your land easier to sell because there’s less people for the buyer to deal with because the only person they have to deal with is you!
Residential Property Income
The most important factor to consider when it comes to residential property is location. A good location is even more important than a good property because location can more than make up for the cost of repairs. If you can a home in disrepair in a good location than snap it up! A property in poor shape can still generate income as a rental property, although you will want to make repairs eventually. Of course, an affordable property in a great location is hard to come by.
Commercial Property Income
You can make a profit from commercial real estate either by flipping it or fixing it up so that it generates more income. You’ll never run out of people who need office or retail space!
REITs, MBSs and MICs
A real estate investment trust (REIT) is a portfolio of real estate properties that’s traded on public exchanges. A REIT is an opportunity to invest in multiple properties by buying shares of a property portfolio, saving you from experiencing many of the downsides commonly associated with real estate.
A mortgage backed security (MBS), is a bundle of home loans bought from their bank of origin. In this way, an MBS is like a bond in so far as the profit stems from the interest earned when the loan is paid back.
The abbreviation “MIC” means many different things in real estate, and which iteration is being employed will depend on the context and intention of the author or speaker. If the term is encountered in written text then it will be written once before its referred to using an acronym. MIC may stand for “move-in condition”, which is when you can move into a house without any repairs being performed. It’s important to note that what qualifies as MIC varies from person to person!
MIC may also refer to Mortgage Investment Corporations, which are a uniquely Canadian product. MICs lend money and earn their income by charging interest and fees on their loans. Occasionally, they may also generate income when a property gets foreclosed. People invest in MICs because they think real estate is an effective asset for loans, and want a cut of the action. The difference between a MIC and a bank is that you can’t open a savings or checking account with a MIC, and MICs only lend money to real estate ventures. Some MICs are privately owned while others are publically traded on the stock market.
Lastly, MIC may stand for “mortgage insurance company”, which is a company that issues insurance that protects mortgage lenders from financial damage caused by people defaulting on their mortgages. It lets lenders lend for a price greater than the sale price of the property by making it less risky to do so. The US Federal Government provides mortgage insurance through the Federal Housing Administration(FHA) and Veterans Affairs (VA).
Money from Real Estate Business Operations
This is when you make money using auxiliary means associated with your property. A great example of this is vending machines, which are on your property but aren’t the primary source of income. This can be anything from a soda machine in an office building to an air pump at a gas station.
What are the Tax Implications of Real Estate Investments?
Before you make your investment, make sure you know how your property is classified and how it is used to determine how much you’ll owe in taxes. You don’t want to end up having to give up most of your income to pay taxes! Always consult a tax professional if there’s anything you don’t know.
What are Other Real Estate Investment Ideas?
There’s plenty of other ways to make money in real estate. There’s short sales, which is when you buy a property at a reduced rate from someone who’s on the verge of defaulting.You can also invest in vacation rentals, which is a great way to generate passive income if you’re property is in an in demand location. You could even become a hard money lender, which is when you lend money at a higher interest rate to people who can’t get a loan.
This is what’s so great about real estate as an investment opportunity: it’s accessible to almost everyone there’s plenty of ways to make money through it. You just need to be able to put in the effort!