Are you dreaming about entering the real estate investing world, but you are unsure if you have sufficient funds? Is it only a myth that you need thousands of dollars to become an investor? Are there are low-cost options to enter real estate investing?
In this article, we’ll be discussing the funding options for newbie investors in the real estate industry. Here is what you need to know about investing and securing finances for your first projects!
How Much Money Do You Need to Invest in Real Estate?
There is no exact answer to this question, which is why it only depends on your strategy. It means that you can invest millions of dollars from your first project. The odds are that it will secure your profit quickly and with less effort invested.
However, it’s also possible to invest little to no money when investing in real estate. However, if your financial resources are at a minimum, you might need to invest more time and effort, rather than money, into the business.
As you can see, it all depends on your approach. That is why we will continue by discussing several options that investors have available.
Joining a Syndicate and Going for a Return on Investment
Here is the first situation—an opportunity came up to participate in a large project in your area. That project could involve building an apartment complex or a commercial property. It will cost millions of dollars, but you can participate with less money by becoming a member of the investment syndicate.
Let’s take a look at an example:
The project is somebody else’s, which means that you are not its leader. The project value is $30 million, and the investor secures a loan from a bank. However, they need to find a way to finance a down payment of 20-40%. That is why they might start looking for people willing to join an investing syndicate. You’d be among those people that put their money together to come up with that down payment.
Once the project becomes profitable, you receive a return on your investment. The exact ROI depends on the type of deal that you agreed to. However, the general rule is that the more money you invest, the higher the return. Also, please note that the minimal investment for a deal like this will probably be around $50k-$100K, which is not a small amount of money.
What Is a Fix & Flip?
The next option for real estate investment beginners is to enter a fix & flip project. This means you find a house that’s in poor condition and purchase it at an affordable price. Once you buy it, it’s time to make any necessary repairs and update the house. After finishing all the required repairs, it’s time to sell the property at a higher price.
What’s the crucial thing to consider here? As you might assume, it’s that fine balance of estimating how much you can invest in buying and fixing the property. The idea is that the selling price will grant you a profit once you subtract all the costs you had during the project.
Here is an example:
The house costs $40K because it’s in poor condition. You buy it and invest $20k more into improvements. It’s vital to include all expenses from contract costs to repairs and anything else that came along the way. The selling price is $70k, and the simple math will tell you that you made a $10k profit.
As for the money required to invest in fixing and flipping properties, it varies significantly. It depends on finding a suitable deal and whether you are focusing on premium or low-valued properties. Now, the financing doesn’t have to be yours—you can choose credit card financing or even borrow money from friends or family.
What’s a BRRR Real Estate Method?
The experts describe BRRR as an investment cycle for a smart investor.
It is an abbreviation for:
- Buy – you can use a private or hard money loan, cash, or other financing options to purchase the property.
- Rehab – this step involves improving a property so that it’s functional and carries a higher value. You can renovate roofs and kitchens, but also add hot tubs, hardwood floors, etc.
- Rent – it’s now time to rent the property. Make sure to find a renter that will be on time with their payments.
- Refinance – banks are ready to refinance rental properties these days. You should find someone who is willing to offer a cash-out and not only the option of paying off the debt.
Why Real Estate Wholesaling Is an Affordable Deal?
Here is another way to start your real estate investment adventure—wholesaling. Let’s clarify what wholesaling in this business is. It involves putting a property under contract, but instead of flipping it yourself, you end up finding a buyer to whom you assign the contract before the closing date.
The great thing about wholesaling is that almost no money has to be involved. It might be an option to place some earnest money to secure the deal, but even that isn’t mandatory and depends on the deal you make.
Once you have the contract, it’s crucial to work hard to find a buyer as soon as possible. After selling the property, you earn your fee based on the deal you made. Real estate wholesaling is a relatively fast way of earning money as an investor. It’s often a strategy that investors use when they need some quick cash. It’s suitable for newbies because it doesn’t involve investing a lot of money.
The Importance of Marketing
Marketing is a crucial consideration that many real estate investors often fail to take into account. That’s the wrong approach because marketing can be everything in the investing business. For example, let’s say that you are in a fix & flip project, and you performed all the desired improvements on the house. The only remaining thing is to sell the property.
You have several marketing approaches—the first one is leveraging the internet. That involves designing a website and creating social media profiles. You’ll need to invest in advertising campaigns to ensure a lot of people see your ad or site. All this could require money, especially if you have a serious online marketing plan.
An alternative would be to go door to door and ask for buyers or hand out flyers. These might be a smaller expense, but they are also an investment. It’s something that you should count on in your investing plan. Having marketing funds can speed up the process of selling a particular property and concluding a project. The more you invest in marketing, the less time you will have to wait and less effort to make. Ultimately, it’s a matter of preference, but there is no doubt that marketing can help all investors out there.
Here is the question you want to ask yourself—how much money would you like to invest in real estate? If you have $100K or more, joining a syndicate might be a no-brainer for a return on investment with minimal effort. However, you can always go for BRRR or fix & flip projects. These require more of your time, but also less money. Don’t forget about taking advantage of various financing options, such as relying on hard money lenders. With the right lender, you can start your real estate investment adventure with as little as $5k.