Best Real Estate Investing Stragies For Beginners
If I were to go back in time, what would I tell my 20-year-old self on how to get started investing in real estate.
I’ve tried multiple real estate strategies and there is one that I feel is the easiest for anyone who is new to investing in real estate and wants to start building wealth.
And that strategy is…..
House Hacking
For anyone of you have not heard of this, it’s where you buy a property, like a duplex and live in one of the units and rent out the rest to cover your mortgage payments or even eliminate it all together. House hacking has a lot of advantages, which I’ll touch on in just a sec, that makes it the easiest real estate strategy for beginners in my opinion.
So, what exactly are the Benefits Of Doing this?
- Housing cost:
Many people choose to do house hacking because it can subsidize the costs of your housing and can help you pay your mortgage quicker. By renting out a portion of the property, the rental income can cover your mortgage, property taxes, insurance, and maintenance costs. That means you get to enjoy the perks of homeownership while building equity and wealth. Plus, with lower housing expenses, you’ll have more money to save, invest, or pay off other debts.
- Less risky:
If you had to move for a job transfer, you could always rent out the room and still cover the mortgage. If you decided to grow your family or got married, you could use the equity or cashflow with your new chapter in life.
- Learning by Doing:
With house hacking, you are buying a property to live in, but also investing in real estate: it’s a hands-on learning experience for newbie real estate investors. When you live next to your tenants, you gain invaluable knowledge about property management, tenant screening, lease agreements, and maintenance. It’s learning by doing! This practical experience gives you a solid foundation for your future real estate investments.
- Will jumpstart your real estate career
House hacking is like a turbocharger for building wealth early on. Here’s why: when you live in one unit of a multi-unit property, you’re considered an owner-occupant. That gives you access to more favorable financing options, like lower down payments and interest rates. On top of that, your tenants’ rent payments contribute towards your mortgage, allowing you to build equity and wealth through principal reduction and property appreciation. Over time, the value of your property can skyrocket, which means you build wealth.
- Scalability and Flexibility
As you build equity and financial stability, you can expand your real estate portfolio by acquiring additional properties. The rental income from your initial house hack can be used as a down payment for future investments, creating a snowball effect. This scalability allows you to increase your cash flow and take down more properties.
We can’t talk about all the benefits without touching on some of the drawbacks.
Like. living next to your tenants might not be for everyone. Noise disturbances, privacy concerns, and the responsibilities of being a landlord are factors to think about. You can mitigate some of these by setting clear expectations, screening tenants thoroughly, and implementing strong lease agreements.
So, if this sounds like something that is a good fit for you, here’s how you can go about it.
Financing Options for House Hacking
Before you buy any real estate, you will need to get your financing in order. You should try to get preapproval for a loan before making an offer to buy property. Having the preapproval in hand will make sellers much more likely to work with you.
The most common ways to finance for house hacking are:
Because you are considered an owner-occupant, you can take advantage of all the loan products that favor those buyers, and you may also have access to home buying assistance programs. So, because you live in one of the units, you can qualify for loans that offer favorable terms and low-down payment options.
Like you would get with an FHA loan where you would be able to put very little down. So, an overall excellent way to get started. With the FHA loan, you can purchase properties with 4 units or less and with a down payment with a relatively low amount.
Finding property for house hacking can be difficult, so there are things you should consider before choosing a property.
Be strategic and choose the right area of town.
This will affect the quality of tenants you will attract. Remember if you’re house hacking, you will be sharing a space with them, and want to make sure that the area you choose aligns with what you envision.
Find an agent
Once you have considered your options and decided which one is best for you, you can begin working with a real estate agent to start looking for the best property that works for you.
Make an Offer
Once you know the property you want and have a preapproval offer for a loan, you can make an offer. Choose a property that makes the most financial sense.
Move-In and Make adjustments.
If the property needs repairs of some kind, make sure you fix everything before advertising it for rent. You will also probably want to live in the house for a cpl months on your own to make sure all these repairs are fixed and that its set up and ready to go for tenants to occupy the other unit.
Rent it Out
Once all the repairs are done, if any, and you have the property rent ready, you will want to rent them out to tenants. Start advertising for rent and make sure to price it well. Remember that once someone is moved in, you will have to be professional and maintain a landlord and tenant relationship.
So, How can you Tell If a property is a Good Investment?
The whole goal of house hacking is to make an investment that generates income. You can start by asking your lender how much your mortgage payment will be every month once you’ve factored in interest and fees.
You need to make sure the property you buy… will bring in enough money every month. Take the gross income of the multi-unit and subtract the mortgage and any operating expenses you will have. If you buy right, then you should have most of your mortgage payment covered by the other tenant.
How Do you Know If House Hacking is Right for you?
The main thing to think about is if you are okay with being a landlord and living very close to tenants. It’s an important personal decision. If it sounds like something you are okay with, house hacking is a great way to make money, get started investing in real estate and get your mortgage covered.
How Does House Hacking Compare to Other Real Estate Investments?
House hacking by far is the easiest way to get into the real estate business. However, you might be wondering what other options are available.
Well, you can wholesale real estate, where you basically act as the middleman and deal finder and make a spread on the deal. You can buy and sell raw land, you can take that same piece of land and develop real estate, accumulate a rental at a time or even flip houses.
So, let’s pick one of these like flipping houses as a real estate strategy, so If after watching this video, you think to yourself that maybe house hacking or being a landlord is NOT a right fit for you, but you still want to do something in real estate. Then you may want to consider flipping houses.
If you flip houses, you will buy a home that needs some work. You purchase this property at a discounted price, fix it up and sell it for a profit.
The best flips will be a short-term project that allows you to quickly fix it and then move on. The quicker you can make the repairs and sell it, the more profit you will retain.
Remember in order to make money flipping houses, you will have to sell the house for a higher profit than what you bought it for. You will also need to factor in cost of money, if you’re borrowing from a hard money lender, holding cost such as utilities, water, gas, taxes, and a margin for error if you have any change orders or if the house sits on the market for longer then you expected.
As you can tell, flipping a house is a lot more work than house hacking and much more risky. However there is a huge potential to make a lot of money this way.
There are many ways to invest in real estate but again house hacking is in my opinion one of the saftest ways to start. It allows you to create wealth, own real estate, learn how to manage tenants and hone in your landlord skills, all while taking advantage of loan products that favor owner occupants, which in effect offers you the best terms and low down payment options.
