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Real Estate Investing

Introduction

Real estate investing has been around for ages, and it's still a popular way to make money. But just like any other investment, there are risks involved. And if you're not careful, you could lose money—or worse yet, your home itself! That's why it's important to know what you're getting into before making a real estate investment. In this article, we'll cover everything from assessing the cost of properties to getting prequalified for loans and managing cash flow.

Determine your investing strategy

Your investment strategy is how you will invest your money. It's the plan for how you will allocate your finances, and it's important to have one in place before investing. These strategies should be based on your goals, risk tolerance and timeline.

A comprehensive investment strategy consists of the following:

• Your overall financial goals (what you want to achieve)

• Your investment objectives (how much money you want to make)

• A risk tolerance level (how comfortable are you with fluctuations in value?)

• When do I plan on cashing out?

Generate additional income

There are also a few ways you can generate additional income on your investment property. If the home is in a desirable location and has good rent-paying tenants, it's possible that they will pay more than they owe each month. This extra money will be yours to keep, creating an opportunity to invest in other properties. Or if you're looking for even more cash flow, consider hiring a property manager who can collect rent payments and handle maintenance issues on your behalf.

Another option is to find someone willing to pay off the mortgage (or part of it) in exchange for occupancy of the house or apartment. This is called buying "in lieu." It's similar to renting except that instead of getting paid monthly by a tenant, you'll receive one lump sum from another party with which you can pursue other investments or use as cash flow until another buyer comes along for your property.

Save for retirement

When you're buying a home, it's important to save for retirement. You should make contributions to your 401(k) and other tax-advantaged plans as well. If you have access to an employer match, contribute enough so that you get the full match offered by your company.

Don't forget that saving for retirement should also be one of your top priorities even before buying a home or having kids. Many people do not plan ahead when they buy their home or have children because they are so focused on their current financial needs at the time.

Build equity

The value of your property will also increase over time. As you pay off more of the mortgage and the equity in your home increases, its value will appreciate. That means that over time, you'll be able to sell it for more than what you paid for it.

That's what real estate investing is all about: increasing the value of your real estate assets so that they're worth more than their purchase price. This ability to create wealth through appreciation is what makes real estate such an attractive investment!

Find a property to buy

You have a lot of options to choose from when it comes to buying properties. First, you'll want to consider the location of the property. Ideally, you want a good neighborhood that will attract renters who can pay the rent on time and keep your property in good condition.

Next, look for a property that has enough room for tenants and their families—and maybe even has some extra space where they can store their belongings while they're living there! Finally, make sure any appliances or amenities are up-to-date so your tenants won't have issues with them while they're renting the place out and enjoying it themselves!

Assess the cost of the property

In addition to the price of the property, you’ll need to factor in closing costs and transaction costs. Closing costs are fees associated with buying or selling a property. These include things like lender fees, title insurance premiums, and escrow charges. Transaction costs are those that occur when transferring money from one account to another as part of a real estate deal (e.g., wire transfer fees).

Make sure you understand exactly how much money is needed for these two expenses before you begin investing in real estate!

Get prequalified and preapproved for loans

• Prequalify before you start looking for a property. You can do this by visiting the lender's website and filling out their form. You'll be asked about your income, debt and other financial information, which is then used to give you an estimate of how much of a loan you can get based on that information. If your credit score is above 660, most lenders will give you prequalification without requiring a hard pull on your credit report (a hard pull is when the lender looks at all three credit bureaus). Prequalification doesn't mean that you're approved for a loan; it just means that the lender has determined that there's enough income to cover a purchase price and closing costs—which are what they consider when determining if someone qualifies for preapproval or not. It also doesn't mean that they've looked at any other factors like down payment or cash reserves.

Look into financing options

Financing options

Getting prequalified and preapproved for a loan is one of the best ways to ensure you’re buying the right property. This means having a professional review your financial situation and give you an estimate of how much money you can borrow. Before you start looking at real estate, it’s important to know how much money you have available for down payments and closing costs. Next, consider how much debt (car loans, student loans etc.) you can handle if something goes wrong with your investment property. The lender will want to know:

• How big of a down payment do I have? What are my other assets (cash reserves) like? How much debt do I have compared with my income?

• Is there any negative history on my credit report such as late payments or high balances on credit cards?

Manage your cash flow

Cash flow is a key metric when evaluating the performance of a business. It’s also important to pay attention to when evaluating the performance of a property. In fact, it’s often the first thing on my mind when I evaluate an investment property: how much cash flow will this generate? If the answer isn't enough, I don't move forward with the property.

The reason is simple: Cash flow is your money—the amount that remains after paying all expenses and debts—and we wouldn't invest in anything that doesn't make us money, would we?

Don't risk more than you can afford to lose when investing in real estate.

When you invest in real estate, it's important to remember that the investment can take several years before it produces any income. If you have to sell quickly because of a financial emergency, or if your tenants don't pay and you need to evict them, it could take months for the property to start making money again.

This is why it's important not to risk more than you can afford in real estate investments. You should never invest more than 50% of your liquid assets in any one property or type of property (e.g., land vs condos vs apartments).

Conclusion

Real estate investing is not a get-rich-quick scheme. It takes time, effort and planning, but it can pay off for those who are willing to put in the work. Make sure you have the right tools and information before starting out on this journey!