How can I invest in real estate?

There are many ways to invest in real estate. Investors can renovate and sell undervalued properties. They also can purchase apartments or homes to use as rentals. Investing in real estate can be very profitable it done the right way.

If you are planning to purchase a rental property there are a couple things you should consider before commiting yourself to anything. First of all is the property currently being rented? If so, when does the tenants lease expire? Is their current rental payment sufficient to make your investment worthwhile? If not, how much would you need to raise it to make it worth your while?

If the property is not currently rented be sure to do some research into going rental rates for similar properties in the area to make sure your estimates are reasonable. Also ensure you have a contingency fund set aside in case you are not able to find renters right away, and are forced to make the entire mortgage payment yourself.

Many mortgage brokers now have programs that allow borrowers to finance investment property with no money down. This is a great tool for the new investor or seasoned pro because the amount of cash out of pocket is very low. To qualify for 100% financing on an investment property you need to have good credit scores and stable, verifiable income.

If you plan on doing some renovations to a property and selling the property shortly thereafter make sure that you do some research on how long properties are are typically taking to sell in that immediate area. If houses are sitting on the market for 6-12 months before they sell, then you are not only going to have to pay all of the money to do the renovation work, but you will have to also make 6-12 months worth of mortgage payments each month (if you finance the property). You will also need to pay for homeowners insurance and property taxes as well. Factor all of these items into the equation when you are working up your numbers before purchasing the property to make sure that the reward is versus the risk and that the property will still be plenty profitable.

Most experienced investors in the rental market will agree that the goal is to acquire as many units as you can. You start with buying as many units as you can and if this means a single family (single) unit then start there. Then when you can sell your first unit via 1031 exchange you buy 2-3 units via a duplex or tri-plex. You continue until you move into the multi-unit market where you can leverage maintenance costs and lower your risk. The risk is higher on a single unit since the rental income comes from 100% of your tenants.

Many investors get themselves licensed so they can represent themselves in a transaction. Often this is used to help cover closing costs.

Once you start to grow your portfolio of investment properties, the equity that you build up in those properties over time can be used for bigger or more lucrative properties. It is important to remember that residential mortgage loans can be used on properties of four units or less, but properties of five units or more will require a commerical loan. While commercial loans may have different underwriting guidelines, the income stream from current leases on the property can help make the qualification process easier. As a potential investor, you should become familiar with reading balance sheets and profit & loss statements so that you can understand clearly the financial strength of the property you are considering. Doing your due diligence early can help make your loan process smoother and ensure you make an investment that will grow your portfolio for the future.

» DISCLAIMER: The information contained in this article on 'How can I invest in real estate?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.