Fundamentals of How to Create Wealth Investing in Real Estate
How Real Estate is One of the Best Business Options?
5 Fundamental Principles of Real Estate
Here HELOC means Home Equity Line of Credit. In this strategy, you take home equity from your first house and use it to finance your second house. Do you know that smart investors use HELOC from their primary residence and make 26 homes in just 5 years like Kris Krohn? You can even use HELOC from your primary residence and pay a down payment for the mortgage of your first investment property or even any high-interest debts.
3. Lease Option
The lease option is another great strategy where you do not require any down payment and can get control of the property.
Depending on how you negotiate the contract, lease options can provide a sizable initial payment plus rental income. This strategy needs a motivated seller who wants to get rid of their property.
Once you have located the property, you offer to pay the seller a nonrefundable lease option deposit plus their monthly mortgage payment for an agreed amount of time. Once the seller agrees, you start looking for a tenant who will rent the house for a monthly sum that is more than the mortgage payment.
The lease option does not only provide cash flow from different avenues but in the end, you can make an extreme amount of money from the sale of the property once the lease period is over. However, they might use the rental revenue toward the purchase of a home to generate long-term rental income. One of the biggest advantages of using the lease option is if things didn't go as planned you haven't risked any of your own money.
Rules before Investing in Real Estate
If you haven't done a deal before in real estate then I must recommend you to carefully read and understand these rules as they can get you started and avoid falling into huge risky traps.
1. Set Goals
First and foremost, you must set goals before engaging in any major transactions. You cannot advance in this field unless you set goals. You must ask certain questions before doing real estate.
Where do you want to go? What do you want to do? Furthermore, the objectives you set must be attainable, executable, and quantifiable. Your goals must be like a road map and not general terms like, '' I want to make money''. The objectives should tell where you are and where do you want to be?
There are many things you can mention in your goals, but here are some of the most frequently asked questions by investors.
- Type of property you want to own.
- Amount of cash flow you are willing to see.
- How much property to own next year?
2. Know the Basics
Although it appears that everyone may invest in real estate, uninformed deals often lead to failure thus it is always best to ask your mentors. In my experience, “pure luck” stories of hapless people who make a risky investment and make a fortune are rare and few between (and often false).
Learn the fundamentals of real estate investing to reduce risk and increase your chances of success. How can you know whether a property will be profitable, for example? What method will you use to screen your tenants? What is the investment's exit strategy?
First, educate yourself, and then begin investing. Although experience is a fantastic teacher, you may save yourself some painful lessons by starting with a beginner's course. According to Grant Cardone, investing in yourself is the best investment.
3. Never Get Emotionally Attached with Investment Properties
This is a problem because if you become emotionally invested in your assets, you will make decisions based on how you feel rather than financial facts. The truth is that when all expenses are deducted from the rent, there is frequently a surplus. That is, the property generates a positive cash flow.
4. When Investing, Only Buy Houses for Other People to Live in.In real estate, only buy houses for other people to live in. This means that you must buy properties according to your target tenants. Eg, if your target audience is students then you should try to buy properties close to where they study. Moreover, students like apartments to rent due to less space and lower rents.
5. Invest for Cash Flow, not Speculation
Always have a long-term view in mind when investing. With few rare expectations, it is always good to invest for long term cash flow. Cash flow makes a person get richer.
Even in a hot market with double-digit gains, never bet on swift short-term gains in appreciation. The higher the cash flow, the better. The before-tax cash flow from your property determines your cash-on-cash return.
Cash flow is the only thing that makes your investment property stay with you in the long run.