Reality television shows and social media videos have inspired many people to try their hand at real estate investing. The concept of purchasing properties below market value, completing renovations, and selling them at a higher rate is encouraging on its surface. It gives the impression that you could make thousands of dollars in just a few months. Although that’s the goal of real estate investing, most people fail to realize how much upfront cash you need to get started.
The Initial Costs
The saying, “you must spend money to make money,” applies wholeheartedly to real estate investment. Before earning thousands of dollars, you must first invest in the property. While you may be able to purchase stocks for $5 bucks, you’ll need to add a few more zeros to buy real estate.
As an investor, you need enough money to cover the property price (if paying in cash), down payment, closing costs, reserves, repairs, maintenance, and renovations. If your investment property doesn’t sell right away, you’ll also be responsible for the upkeep, property taxes, mortgage payments, and insurance.
How much you need to get started in real estate investing will depend on the properties you purchase and their condition. You could find an abandoned property for $500; however, getting it up to code and ready for sale or rent could require another $15,000 or more. Although there are ways to reduce your costs as a real estate investor, building a sizeable nest egg is ideal.
How To Fund Your Investments
One of the most significant issues new real estate investors face is securing enough money to start. Many have little savings, minimal-paying jobs, and less-than-stellar credit, making it challenging to pay out of pocket or acquire a loan. Luckily, there are practical ways to get the money you need.
Wholesaling
The first option to consider is real estate wholesaling. It’s a potentially lucrative opportunity to generate a large sum of cash in a short amount of time. As a wholesaler, you are the intermediary between sellers and buyers. You find sellers with properties listed below market value and connect them with buyers with the capital to purchase the home in cash. You make your money by charging an assignment fee to the buyer for finding the property. These fees can be as much as $1,000 – $500,000 or more.
“This sounds too good to be true.” “Is real estate wholesaling legal?” If you’ve asked these questions, you’re not alone. The good news is wholesaling is legal; however, the rules and regulations can vary by state. Some of these laws place caps on your assignment fee, the number of contracts you can flip, and the types of arrangements you must use. Familiarize yourself with these guidelines before considering wholesaling as an option to fund your investment business.
Partnerships
Another way to get the necessary funding for your real estate investment venture is to work with a partner. Ideally, it should be someone with excellent credit, large sums of money, or valuable assets that can be liquidated or used as collateral to secure a loan. Selecting a partner with experience in real estate, home improvement, business management, or interior design can also work to your advantage.
Although partnering with someone can help you get the funding you need for your real estate investment business, choosing wisely is essential. This person will ultimately represent your brand and receive a cut of your profits. If they’re going to have decision-making power, you also want to ensure that you’ve selected a partner whose vision aligns with yours.
Becoming a real estate investor is a dream many want to bring to fruition. However, covering the upfront costs of investing often causes them to put their wishes on the back burner. Fortunately, there are effective ways to secure funding for your real estate investment venture that doesn’t require a ton of cash or the best credit. Consider using these ideas to get your business off the ground.
