If you are new to managing money then investing in property might seem like a very daunting challenge. It is much more nuanced than buying a stock/bond and the process usually involves analyzing many different properties, performing thorough inspections, finding a lender, negotiating price, and finally closing the deal.
For many beginner investors, this process is just too much to comprehend and prohibits them from getting started. Luckily, there are a few steps that beginners can take to make their introduction to property investment much easier.
This article will take a look at how beginners can invest in property.
Buy a home
If you have never bought a property before then it’s probably a good idea to start with your home. This is a good starting point because, when you buy a home that you plan to live in, you are usually required to put down a much smaller percentage for the down payment. The difference in the amount of money that you need to put down can be as dramatic as 3-5% for a home that you plan to live in versus 15-20% for a rental property. If you don’t have a lot of capital to invest then this can make it much more affordable to get started.
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Buying a home to live in doesn’t mean that you can’t treat it as an investment. First, you will be slowly building up home equity in the property. Later, if you wish to buy a second property, you can borrow against the value of your home. Second, you can buy a multi-bedroom home with the intention of renting out a room or two on Airbnb to help cover the mortgage.
Additionally, buying a home will help introduce you to the entire process of working with lenders and closing a real estate deal. Once you have this experience under your belt you will find it much easier to navigate buying a rental property.
If you’re not sure where you want to settle down yet, don’t worry. There are still ways that you can get into the property investment game.
Buy shares in a REIT
A REIT (Real Estate Investment Trust) is a company that owns income-producing real estate. They earn income from these properties and then are required to pay about 90% of the income to their shareholders each month. This makes REITs a great way for investors to expose their portfolios to property without the need to actually buy a property themselves.
There are all different types of REITs that specialize in different types of real estate. Their shares trade on stock exchanges and can be bought or sold just like stocks are.
Use a third party
If neither of these two options appeals to you, you can always use a third-party app to help you invest in real estate. Two options for this type of investing are Concreit and Fundrise. These apps operate similarly to a REIT but use more sophisticated technology to help minimize fees and maximum their investors’ long-term returns. The companies behind these apps own portfolios of real estate and help their investors profit from these properties.
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