“I can’t invest in real estate because I am not rich.”
If that’s what you’re saying, you have a problem. And it’s not that you are not rich. The problem is that you think you must be rich to invest in real estate.
Photo by jcarter at Flickr
The Myth About Real Estate Investing
It’s true that most real estate (RE) investors are big players who buy big properties or lands where to build commercial or residential property.
It’s true also that there are many small RE investors who manage to make profits even if their net worth is much less than the price of a single of their investment.
Real Estate Investing Strategies To Think About
Now, let me first be frank to you – most people who talk about investing in real estate with no cash at all are just trying to sell you the next e-book or seminar. I am not trying to sell you anything, so I’ll be honest and tell you that doing RE investing without money is close to impossible.
But you can do it with very little money. And the less you spend, the higher ROI you can achieve… The less you spend, the higher ROI you can achieve.
Before thinking about strategies, consider that you will need a bank / mortgage credit. Even if you are not short in money, it still makes more sense to use funding because of the leverage effect.
So here we go:
- Leverage with credit (low risk). That’s a must do always. You should not go investing in a property if you don’t expect it’s price to raise higher than the bank mortgage rates. Even 1% better increase per year means a lot when you invest only the down payment and use a bank credit for the rest. This is quite a powerful concept so I will write an entire post about it soon.
- Buying a small property (high risk). Sounds obvious, but yet people think they need millions to invest in real estate. Look outside of the big city, there are houses for sale which cost 5% of the price of same size property in the big city. Yes, the market in the smaller towns is much lower, but still most of these properties are under-priced. With some marketing and improvement such a house can be resold with 50% profit in 6 months. If you leverage with a bank credit this could mean huge profits. Imagine small house worths $20,000: you enter with only $4,000 + $4,000 your money (down payment + improvement and marketing) and sell the house for $36,000. Yields pure profit close to $7k in six months (considering whopping 5% interest paid to the bank) which means 90% profit for you.
- Use other people’s money (medium risk). You may need this if you want to buy a higher price property but don’t have enough cash even for the down payment. You can borrow money from other investors and give them good interest. As long as the interest is lower than the profits you expect from the property, you will not only ensure the deal but will also win from the leverage.
- Invest in non-attractive land and turn it into attractive (high risk). Typically you can buy agricultural land pretty cheap. If you change the lands proposition – into land for building residential or commercial properties – you can sell it at several times better price. You will need just pocket money for the down payment of a small piece agricultural land. The big risk comes from the fact that there is no guarantee that you’ll be able to change the land’s proposition.
Those are enough for now. There is a lot more to talk about real estate investing and why it remains a huge opportunity if you are willing to think, risk and sometimes work. As usual, the low market time is the best to buy – and it seems right now the prices of real estate are dropping all over the world. So, it’s perfect for shark investors.
Have you ever flip-flopped a property?