Are you looking for a form of lucrative passive income that allows you to make money just by sitting at home? If so, real estate is the way to go. Investing in real estate is an excellent way to earn income without much effort. Each month, you’ll see money getting deposited into your bank account while you get to enjoy a relaxing day on the beach or a family vacation.
However, in order to live this lifestyle, you need to get started first. As with all endeavors, starting is always the hardest part. To help get you off your feet, we’ve created this guide on how to get started in real estate investing. With these tips, you’ll be able to find money-making rental properties in no time.
Do Your Research
The first step to investing in real estate is doing your research. If you’re new to the real estate world, you’re going to want to learn as much about real estate as possible. This will allow you to manage your real estate property better and receive a steady cash flow month-to-month. Below are some common real estate terms you should be aware of as a landlord:
- Landlord: The landlord is the person who owns the property and is renting it out through a lease or renter’s agreement for an agreed upon sum of money.
- Tenant: A tenant is a person who occupies a rental property after signing a lease or renter’s agreement with the landlord of the property.
- Rent: Rent is the cost per month the tenant must pay to live in a rental property. The rent is typically outlined in the lease or renter’s agreement, and is agreed-upon between the tenant and landlord.
- Lease: A lease is a written agreement that outlines the rules and obligations the tenant must abide by. For example, a lease agreement will outline how much money in rent is due per month, as well as information on the use of the rental property. A lease can set up restrictions on certain activities, such as smoking and pets, as well as the landlord’s policies with maintenance and repairs.
- Eviction: Eviction is the process of removing a tenant from a rental property through a legal process. If a tenant breaks any rules outlined in the lease, they can be evicted from the rental property. For example, if the tenant fails to pay rent, that is grounds for eviction, and the landlord can go to court and proceed with the eviction process.
- Security Deposit: Before the tenant moves into the rental property, they can be asked for a security deposit. A security deposit is money paid by the tenant that is refundable to ensure they abide by the rental agreement. If any part of the lease is broken, part or all of their security deposit can be taken. For example, if the tenant moves out and there are holes in the wall or broken windows, money from their security deposit can be used to pay for the repairs.
Understand Your Finances
Once you’ve done your research to become an expert on real estate, it’s time to begin the process of investing. This means starting out with understanding your finances. Not many people can go out, find a house, and pay for it in full and begin renting it out. This is why you must determine whether or not you need to take out a loan. When it comes to real estate investing, there are a few loans you can use to pay for your property:
- Conventional Mortgage Loan: A conventional loan is a loan that is not backed by the federal government, such as Fannie Mae or Freddie Mac, and is issued by bankers or mortgage brokers, who typically require a 20 percent down payment. A conventional loan is the most common loan for real estate investment purposes.
- Jumbo Loan: If you’re investing in an area that experienced a rise in home value appreciation, you may need to take out a jumbo loan. You can get a jumbo loan with a 5% down payment, that is much cheaper than a conventional mortgage loan, and will give you enough money to make an expensive purchase of a home.
- Hard Money Loan: A hard money loan is different from a conventional mortgage loan in that hard money loans are based on assets, or real property. Hard money loans can be issued by individuals or lending companies, and look at the real estate that’s being invested in, and determine whether it’s worth providing a loan for. Instead of looking at a person’s credit score and financial history, lenders will look at the property instead. Hard money loans are easier to secure and are received faster than a conventional mortgage loan.
- Fix-and-Flip Loan: If you’re looking to fix and flip a house, there’s a loan for that too. If you aren’t interested in buying real estate and renting it out each month, you can purchase old or dilapidated homes and refurbish them and sell them for a profit. Fix-and-flip loans are short term, giving you enough money to renovate the house before you sell it.
Search For Property
Once you’ve figured out your financing, you’ll be able to search for rental properties and make a down payment or a bid at an auction. There are plenty of real estate apps that help you look for rental properties in your area, both residential and commercial. When looking for rental properties, remember the three L’s of real estate: location, location, location. A property in a good location, such as one with easy access to highways or public transportation, or a home with a scenic view in a safe neighborhood, will attract more potential tenants and can allow you to charge more for rent.
The Bottom Line
There’s a lot to know when it comes to investing in real estate, and this article merely scratches the surface. However, with this foundational knowledge, you’ll be able to secure a loan that works for you and begin looking for rental properties so you can buy a rental property and start your journey to earning a lucrative passive income.