To invest in real estate, there’s a common misconception that you must either have deep pockets or be an expert in the space. However, even with just a few hundred dollars, you can still build your wealth. Check out these investment strategies to help you get started today.
Fix & Flip
If you love fixer-upper shows, you may choose to invest in a fix and flip house. This popular, short-term investment strategy can be quite profitable when done correctly. When looking for a house to flip, you’ll want to consider several factors, including its location and physical condition. Ideally, you should look for a home that needs cosmetic changes but is structurally sound versus one that needs a new roof, for example. Remember, the goal for house flipping is to buy low and sell high.
A general rule of thumb for flippers is to use the 70% rule to determine the maximum price you should pay for an investment property. This rule states that to make a profit you should pay no more than 70% of the expected after-repair value, minus the cost of renovating the property. For example, if a home’s after-repair value is estimated at $100,000 and it needs $25,000 in repairs, you should pay no more than $45,000 for the home.
Adjacent to house flipping, you may consider wholesaling as an investment strategy if you don’t want to take possession of a property or don’t have the funds to do so. Wholesaling is popular amongst investors looking for minimal risk and maximum returns in the shortest amount of time. In the simplest terms, rather than buying a property to fix and sell, wholesalers create a contract with the current homeowner that gives the wholesaler the right to buy the property at a certain price. Instead of selling the property itself, the wholesaler sells the contract, guaranteeing the holder the right to purchase the property. After selling that contract to a prospective buyer, the wholesaler acts as the middleman between the current owner and the future buyer. Wholesalers often make a profit in the form of a percentage of the sales price.
Obtain a Federally-Backed Mortgage
Homeownership is an investment strategy where profit is tied to inflation and the rising cost of the housing market, with the added benefit of gaining a secure place to live. If you’re interested in homeownership, it might be worthwhile to explore mortgages that offer leniency in their interest rate, credit score, and down-payment requirements. For example, an attractive, low-cost financing option is a loan backed by the Federal Housing Administration. FHA loans allow you to obtain a mortgage even with a low credit score. If you’re interested in dabbling in rental property management, FHA loans can also be used to finance multi-unit properties, so long as you plan to live in one of the units for one year.
Become a Landlord
Investing in rental property is another great way to get started as a real estate investor. Landlording can be financially rewarding, providing ongoing income and tax benefits while the property simultaneously appreciates in value. However, this strategy is not for everyone, so it’s important to understand that managing a quality rental property will require your active involvement. This may include screening tenants, managing repairs and upkeep, fielding complaints, and even navigating the learning curve of it all.
While real estate can be an investment of your time, it doesn’t have to be a significant investment in your wallet. If you’re looking to diversify your portfolio, generate monthly income, or even benefit from long-term capital appreciation, consider the strategies above to get you started.
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