Real Estate Investing Is More Accessible Than You May Think
Investing money has been a concept as old as the creation of currencies themselves. There’s an old adage that says, “you need to spend money to make money,” and that idea still holds true to this day. One way that people used to invest, and still do today, is by buying property, or real estate investing. Now, when most people think of real estate investing they probably think of real estate conglomerates and multi-billion dollar corporations or multi-millionaire individuals that buy businesses, develop large swaths of land into strip malls, and even purchase large buildings to rent out to companies or turn into apartment complexes.
But this is not the full truth of real estate investing. There are so many different ways to invest in real estate, and some of those ways are perfectly accessible to those who aren’t excessively wealthy. Let’s break down some of the most common forms of real estate investing not mentioned above.
Other Common Forms Of Real Estate Investing
The most prominent form of real estate investing is owning a house, and in 2020, 65.8% of the US population was a homeowner. Simple homeownership is an investment for multiple reasons, the first of which is simply due to inflation and the rising cost of the housing market. This means that the money you invest into a house today will have the same buying power in the future because the value of the home will appreciate alongside the rate of inflation.
The second reason that homeownership is an investment is because as the mortgage is paid off, the house can be used as collateral for more loans at lower interest rates. These loans are often used to make home repairs or upgrades, but they can usually be used for anything at all.
A second major form of real estate investing is house flipping, which has become very popular due to a multitude of reality TV shows. Perhaps the most alluring reason that house flipping is becoming a more popular choice is because of the opportunity for quick profits. A successful house flipper can sustain themselves on their sale of houses to the point where it becomes their full-time job and they become self-employed. Not everyone who gets involved in house flipping works alone, sometimes they partner with family members and friends to create their own business.
3 Ways It Is More Accessible To Lower Incomes
Adjacent to house flipping is something known as real estate wholesaling, which is viewed as one of the most entry-level methods to become involved in real estate investing. The similarities between flipping and wholesaling start and end with the intention not to keep the property for a long period of time. The biggest difference, however, is that with wholesaling, the property is not being purchased by the wholesaler, so the principal investment required is significantly lower than house flipping.
In the simplest of terms, rather than buying the property to fix and sell, wholesale involves creating a contract with the current homeowner to buy the property at a desirable price for someone who intends to fix the house up. The wholesaler then takes that contract, or their right to buy the house, and sells their right to buy the home to an individual who wants to buy the house to fix up, effectively acting as the middleman between the current owner and the future buyer. The profit comes from selling the right to buy the house and is often in the form of a percentage of the sale price of the property, similar in nature to a finder’s fee.
Those interested in personal homeownership can look into different types of mortgages that offer more leniency in their interest rates and down-payment requirements. One popular category of mortgages are backed by the Federal Housing Administration, and are aptly known as FHA loans. These types of loans are sometimes misunderstood as only being available to first-time home buyers, but just about anyone can qualify provided their credit score is higher than 580.
In some cases, a credit score as low as 500 can qualify an individual for an FHA loan, but a credit score below 580 will require a larger down payment. The low credit score requirement is what makes these loans particularly attractive as this requirement is one of the lowest of all loan options available. Impressively, FHA loans are usable to buy multi-unit properties provided you plan to live in one of the units, which gives you the opportunity to become a landlord.
Becoming a landlord is the last popular way for individuals to get into investing in real estate. If managed properly and priced competitively, a rental property can just about pay its own mortgage. If the rent covers the monthly mortgage, then you’d likely be able to live in the property for free, aside from paying utilities, groceries, consumables, and any repairs that may arise.
If the rental doesn’t cover the entire monthly mortgage, then it can certainly secure you a cheaper residence since mortgage payments are close to the same cost as renting these days. Additionally, the whole time that you’re collecting rent to pay your mortgage, you’re building equity on the property that you can use as collateral for future loans or even just to get a lump sum profit if you decide to sell the property instead.
As you can see, there are more ways to invest in real estate other than land development, or buying businesses and large building complexes. Plenty of the other ways to invest in real estate are also accessible to those in a lower income bracket than a stereotypical real estate investor, so long as they utilize some of the tools available to them.