A Step-by-Step Guide to Start Investing in Real Estate Long Term
So, the idea of investing in real estate long term intrigues you. You aren’t looking to get rich by next Wednesday with no money or credit like that guy holding the huge check in the infomercials. Instead, long term real estate investing makes rational sense. All it promises is that if you invest your hard saved capital into quality properties leased to great tenants you can pay them off over time and create a retirement income stream. And that income stream can give you the freedom to pursue the life you want – whatever that entails.
But that’s easier said than done. There are so many moving pieces to the long term real estate investing puzzle and putting them together can become overwhelming for an investor that’s just getting started. So overwhelming that it can keep that investor from getting started at all.
If only there was a step-by-step guide to start investing in real estate long term…
Step 1: Evaluate Resources
The first step to reaching any destination is figuring out where you are. In your real estate investing journey that means you must take honest inventory of your resources.
Capital – I will be straightforward with you: Investing in real estate long term requires substantial capital. You don’t need to have all the capital you are going to need available at the beginning of your journey. But you will need sufficient capital to get you started on the first one. After which you can save more capital for the next by using your job income and by recycling some of your positive cash flow into capital. Buying real estate with no money can be done but it’s a suckers bet 99% of the time. There are exceptions of course, but usually it’s a path reserved for newbies who don’t know any better. Don’t let the sales pitch fool you: The costs of buying investment real estate with no money far outweigh the pain of saving the capital to buy properties the right way.
Credit – Same goes for credit. Any plan that involves the acquisition of multiple single family investment properties by default requires excellent credit if you want the best financing terms. Guidelines are a bit looser for the first three properties so you may get away with slightly less than perfect credit. But after that, it has to be above a 720 score. If you’re not quite there at the moment, this would be a good time to pull a credit report and start addressing and settling problematic accounts so your score can rise to that level. Any money spent towards this goal will be money well spent down the road.
Financing – At this stage, it would be greatly beneficial for you to speak to a Lender (bank, credit union, mortgage bank) and get per-approved. The time to find out about potential roadblocks is before you make a move on an actual property. If your Lender spots those roadblocks during the pre-approval process, you can do something to eliminate them now rather than have them cost you a property (or money) later.
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