Everyone would like to invest in real estate. Yet, not everyone can afford to. Of course, the first step to attaining this goal is to spend wisely and save money over time. But, the fact is that real estate investments can’t wait. The right time to get started is now.
Reasons You Must Start Investing in Real Estate Today
- Save up on rent.
- Tax Benefits.
- The earlier you invest, the greater your gains.
- Because real estate can appreciate fast, properties may go beyond your budget in no time.
- Low-interest rates of mortgages (home loans) – they’re usually less than 5%. Compare that with personal loan rates, which are in the range of 6% to 35%.
So how can you invest in real estate, when you can’t really afford to buy a property at the moment? Read on for these hacks to get you started.
7 Ways to Get Started in Real Estate While You Save Money to Invest
Here’s how you can buy a home, without having too much money in your pocket.
1. Federal Housing Authority (FHA) Loans
While the US government does not offer loans itself, it stands as the guarantor for loans taken by first-time buyers. Under this scheme, the down payment may be as low as 3.5%. In addition, the eligibility conditions are not as stringent, and your credit score needn’t be as high as otherwise required. What’s more, the closing costs of the loan can be included in the loan amount itself.
There also is a Homeowner Voucher Program if you’re part of a low-income family, or live in public housing. Your voucher can be used to help pay the mortgage of a new home, which is far better than paying rent – that essentially is money down the drain.
2. Buying a HUD House
A HUD house is one for which the buyer has defaulted on payments of a home financed by an FHA loan. The HUD then takes this house over and puts it on the market for sale. The benefits of a HUD home are that’s it’s likely to be available below market value, and part of the closing costs are already taken care of. On the other hand, they may come with serious issues, so ensure that you do your homework well. Here are some home improvement tips that might help.
Another smart move when buying a home is to avoid a buyer’s agent and look for a home under the For Sale By Owner (FSBO) category yourself. Since such homes are listed under the flat fee MLS listing guide for home sellers, no real estate agent commission is involved. So, the seller may be willing to lower the price.
3. Option to Buy/Lease
If you don’t have the money to buy a home, but expect to have the cash ready in a while, you could go for an option to purchase agreement. Here, you get into an agreement with the homeowner (after paying a non-refundable fee), that you will buy the house during a fixed period. It normally is 6 months to a year. One advantage of such a deal is that you can fix the price based on the current real estate trends. On the other hand, if you were to buy a home after a year, you’re likely to pay a higher price due to the expected appreciation. Of course, some sellers may not agree and insist that the price be fixed at the time of purchase. You can pay at any time during the agreement period, and in case you don’t pay, the agreement will simply lapse. Even better, you can transfer the agreement to another person, if you get a good deal.
Option to lease is also similar, but in this case, you lease the property from the buyer and get the first right to purchase the property during, or at the end of the lease period. This is typically 1 to 3 years. A portion of the rent you pay can also be considered as part of the payment for the purchase. Such agreements are not usually transferable.
4. Opting for Home Equity
Home Equity is when an investor, municipality, or organization pays all or part of the cost of a home, in exchange for equity. This means that the house won’t cost you much or anything at all, depending on who’s financing the deal. In return, the proceeds from the sale of the house will have to be shared. Besides, if the equity is bought by a government or non-profit organization, you may have to stay in the house for a certain period of time or even agree to sell the home at a limited price – in an attempt to keep the real estate prices in that area down.
5. Getting Into Real Estate Wholesaling
Real estate wholesaling is a good way to get into the business side of things, without having to spend a penny. Here’s how it works. First, you need to find a property that someone wants to sell but has some underlying issues – like being a run-down (distressed) property. Or, the seller may want to make a distress sale, due to an urgent need for money, sudden job transfer, etc. You then fix upon an agreement with the homeowner to get the home sold within a certain timeframe, for a particular price. After this, you must find a buyer who will pay you a higher price. The extra money goes straight into your pocket. Also, before getting into wholesaling, do check out some things you must know about home renovations.
6. Becoming a Referral Agent
As a referral agent, you simply refer clients (buyers/sellers) to a full-fledged real estate agent. Each sale closed implies that a certain percentage of the commission is shared with you. You don’t need to work full-time, nor do you require all the qualifications that a real estate agent needs. Referral commission is usually around 25% of the total commission received.
7. Partnering to Buy a House
Teaming up with a partner to buy a house is a great idea when neither of you can afford to do so alone. It could be a business partnership, where you buy a house to sell it later for a profit. Or, it could be with a loved one or family member, to attain a shared space to live in.
You don’t need to be rich, or born with a silver spoon to buy a home, or dabble with real estate profits. You just need to find your niche and go for it.
