How to Invest in Real Estate for Beginners

how to invest in real estate

When you ask "how to invest in real estate", you are getting more than a home or a piece of land upon which to build a home.  Real estate investment has become a popular way for people to make money, and it is not uncommon to buy a house or land without any intention of living there.

Some people simply buy and hold property when determing the answer to "how to invest in real estate", waiting for it to appreciate in value before re-selling it.  Having cash for a down payment is the quick and easy way to enter the real estate market, but it's not your only option.  Many people have found ways to start investing in real estate with little or no money of their own.  Options include borrowing money as well as a number of more unusual and creative paths to ownership.   Here are some ideal ways to finance your real estate investments:

1)  Borrow money:  If you have little or no money at hand and you want to make a real estate investment, borrowing money is one option.  However, be sure you will be able to pay back the debt.

  • Find a lender who will allow you to take out a loan for a down payment on top of your mortgage loan. Look for a low interest rate that will allow you to purchase the property economically enough that you can still make a profit later on your investment.
  • Ask friends, family members or business partners for the start-up money you need can be a great option for how to invest in real estate. You can pay them back as soon as a profit is made.  Be sure to sign a detailed contract that includes repayment terms and what interest, if any, the lender will have in the property.

2)  Look into seller financing:  If the seller is motivated enough, they may be willing to make it easy for you to buy.

  • You might make higher monthly payments instead of a down payment.
  • You could even negotiate a deal where the seller pays your down payment to a traditional lender in order to sell the property faster. The seller might expect you to pay them back they may throw the down payment in for free, essentially lowering the selling price.

3)  Lease the property with the option to buy:  You can purchase investment opportunities slowly by making payments on a lease agreement until you have the money to buy.  Your payments would (at least in part) be credited toward the purchase price.

4)  Work out a trade:  You can pay for real estate by bartering another piece of property or a specialized skill you have.  For example, a contractor could offer a real estate developer labor in exchange for a down payment. This is a great option when deciding how to invest in real estate

5)  Take over mortgage payments:   If you are interested in investing in a piece of real estate but you can't afford the down payment, offer to take over the mortgage payments in exchange for the deed.

  • Investigate the existing loan before you make such an offer. Some mortgage loans have specific language preventing this type of transaction.

6)  Bring in a partner:   If you are big on ideas but short on cash, bringing in a partner who will provide the funding and allow you to do the managing might be an attractive option.

  • Put together a contract that establishes who is responsible for what, and how the profits will be divided when determining how to invest in real estate. If your partner is in place strictly for financial support, make sure you retain all control over the day-to-day management of your investment.

There are many research options available to the novice real estate investor when learning how to invest in real estate.  They include websites, books, magazines, fee-based financial advisors, and friends and family who are experienced with real estate.  Ask questions until you're sure you understand what you're getting into.  Then ask some more.

Research a property thoroughly before offering to buy it.  Properties that have been on the market for a while or are in danger of foreclosure might have owners who are more willing to consider creative financing ideas.  Look for opportunities that will allow you to acquire property without any money up front.  Real estate agents and foreclosure-related websites can point you toward such properties.

Check out real estate investment groups and investment management groups  when figuring out how to invest in real estate, which operate similarly to mutual funds.  Instead of having a large sum of money up front, an investor can buy shares in real estate by making periodic payments. There are both advantages and disadvantages to investing this way, so investigate such an option carefully before committing.  Some mutual funds will offer the same kind of opportunity, often with less risk.

As with any investment, buying real estate carries risk.  Some people have done very well at it and have really figured out how to invest in real estate, but others have lost money.  Buying property with little or no initial investment will lessen (but not eliminate) such risk.  Just know that under the best of circumstances real estate carries a number of inherent risks that other types of investing do not.

Regarding the idea of borrowing down-payment money from family when determining how to invest in real estate, friends or business partners, in light of the risks mentioned above consider whether the relationship you have with a lender could be harmed if you were unable to re-pay the loan.  Is securing real estate worth endangering your relationship with someone close to you?

If you are asking “how to invest in real estate” give the Asset Quest team a call at (239) 541-8448.  We can help guide you through the investment process and even help you locate the perfect investment property.