Real estate investing is one of the best ways to become a self made millionaire in the United States, but it can’t happen until you make your first investment. After interviewing and discussing real estate investing with several successful investors, these common themes emerged as the best ways to get started with your first real estate investment.
Real Estate Investing: Buy a Multi-Unit Home
If you want to start real estate investing right away, one of the easiest ways to do so is to buy a multi-unit building and move into one of the units. A building with up to four units is considered a residential property and can be purchased with a regular old conventional mortgage. Five or more units has different rules.
Think about it. You can buy a duplex, triplex, or fourplex with 20% down and a regular mortgage as long as you live in the building as your primary residence. You become the landlord for the other units, which produce a mostly passive income. If the rent from the other units is more than the mortgage each month, you are also living rent free!
You can also find a home with an accessory dwelling unit to achieve the same result.
Real Estate Investing: Buy a Second Home and Rent Your Old One
To qualify for a conforming mortgage, a property has to be your primary residence at the time you make the purchase. Once the loan is signed, however, the terms remain the same regardless of whether you call that property home or not.
If you have lived in your home for a while and want to move, you can buy and move into a new home and keep your old one as an investment property without making any changes to the original mortgage.
In this situation, you have two homes with two mortgages. As long as you can rent out your old home and charge rent that covers your mortgage and maintenance costs, you can start your mini real estate empire with your old home.
Most banks allow each individual to have up to eight mortgages, so you can repeat this roughly once per year for eight years to grow your real estate portfolio.
Real Estate Investing: Partner with Another Investor
If you want to buy a property specifically as an investment, you will need to meet the requirements for an investment property loan, rather than a primary residence mortgage. This has much stricter credit and down payment requirements, which many new investors cannot meet on their own.
To get past this hurdle, you can partner with a family member, friend, or other business partner to split the down payment and potential rehab costs. Create a solid business plan and written agreement before starting to make sure you are both protected in case of a future disagreement or bad business breakup.
Start with a Quality Real Estate Agent
Whether you are buying a duplex, second property, or a pure investment property, an experienced real estate agent is key to success. If you are starting your search for a new property, start with a search for the perfect agent for your needs.