The Getting Started Guide to Real Estate Investing

Are you considering diving into real estate investing? Congratulations! This is the first step toward a stronger financial future. As you begin, it’s essential to consider your options and to survey the landscape. First, there are your financial options. Since most people get into real estate investing for the chance to build wealth, financing is a crucial piece of the puzzle. Once you find your financing, the type of property you buy plays into your financial options and what you can do with the property. Ready to learn more? Atlanta Realtor Matthew Share offers the following guidance for those new to real estate investing.

Getting Real with Money

Conventional financingoffers the most common option for real estate investing. But you’ll need at least 20% of the investment property’s purchase price for a down payment, as well as a good credit score. Another option is a Federal Housing Authority (FHA) loan if you don’t qualify for conventional financing. There is a catch — to be eligible for an FHA loan, the US government requires you to live [there] for a minimum of 12 months. So, either you live in the property for a year then rent it out — or, if you purchase a multi-family property, you could live in one of the units while you rent out the rest.

Getting help from investors or wealthy individuals through hard money loans or private money loans provides another way to get into the real estate market. A warning, though: Hard money loans are asset-based, so you’ll need to put up collateral.  Lastly, there are home equity loans and lines of credit — essentially, using the equity of your current home as collateral for a second mortgage. While this is a risky move, it does allow you to use this loan for the down payment for the new property mortgage.

Property Types

When you stop and think about it, there are plenty of options for getting into rental real estate investing. Choosing the property type involves knowing how much and how you’ll get your financing, what you plan to do with the property, and how much you will be involved (or can afford to hire help) in managing the property. Your options include:

• Single-family homes
• Multi-family dwellings
• Condos and townhomes
• Commercial real estate

Single-family homes are great if you’re just getting started as an investor and especially if you plan to live in it for a time. This makes any improvements you make on the property more worthwhile. For instance, putting up fencing around the property is a sound investment when it’s put in place to keep your family safe — and will continue to reap dividends when the time comes that you rent out or sell the property.

For rental properties, a multi-family dwelling like a small apartment complex may be more feasible. Though it can be harder to get the financing because of the higher purchase cost.

A condo or townhome offers similar advantages to the multi-family dwelling — plus a homeowner’s association (HOA) and possibly a property management company included. Be careful, though — before you buy, check with the HOA because some may prohibit you from renting out your unit. Having to fork over homeowner dues can also drain on your cash flow. Lastly, commercial property can be much easier to manage and have longer leases in a completely different type of rental property. But while those leases are longer, you may have extended vacancy periods between tenants, so it adds a different type of risk.

Remember This is a Business

At the end of the day, managing an investment property comes down to running a business. And as a business owner, you have paperwork and legal issues to attend to. For starters, you’ll want to register your business with the state. There are several entities to choose from, but an LLC will be your best bet. This type of entity ensures your assets are protected and provides additional tax benefits. You’ll also need an LLC operating agreement Georgia designation with the state. Once you finalize your registration, you will receive an EIN number (your tax id), and this enables you to open a bank account or even hire employees when the time comes.

Whichever way you decide to manage your finances, put together a strong financial plan, and remember that this applies to more than your mortgage. Investigate and research your options to choose what is suitable for your budget, risk comfort levels, and how you want to be connected to your property as the landlord. 

Are you ready to find the perfect rental property in the Atlanta area? Then connect with real estate expert Matthew Share to guide you through your property search. Call today! 678-520-3113

Content contributed by Andrea Needham of eldersday.org