For the average investor, real estate offers the best way to develop significant wealth. As with any and all forms of investing, it is best to get started early with real estate so you can put time on your side. A good way to begin is to buy your first primary residence.
Setting Yourself Up by Buying Your First Home
That is where you will live. Since you’ll be living there (and be the borrower), you can generally buy a home with about 5 percent down at a low interest rate. By contrast, an investment property requires at least 20 percent down and typically comes with a higher interest rate on the mortgage. There is less of a chance of a borrower defaulting on their mortgage for their home than for an investment unit, so lenders require less money down and offer better terms.
From here the objective is to continually buy properties as a primary residence, move in, live in them, and then rent them to suitable tenants when you are ready to buy the next one.
After it has been rented, the next primary residence can be purchased. From there, the cycle starts all over again. At present, an individual can have a maximum of 10 mortgages in their name. Nine rental properties and one primary residence makes for a very nice real estate portfolio.
The Pros and Cons of a Live-and-Rent Approach
This approach does require moving about every year, however.
But if you’re a 22-year-old just graduating from college, that means you will own 10 pieces of property by your early 30s. If a 15-year mortgage is obtained and paid off early, several could be owned free and clear. That would provide for a significant stream of income for the investor. From that flow of funds, more properties can be purchased, too, continuing into the future if you wanted to.
Other Ways to Hustle in Real Estate
There are other ways to increase the rental income, too.
If a home has a basement, convert it into a separate rental unit. The same can be done with a garage, too. Make sure that it is legal to do so; and do it right, following all the applicable rules and regulation for the jurisdiction. In doing this, more rental income is produced from the property.
Like anything in life, the more you get into real estate investing and the more experienced you become, the easier it will be in the future.
After establishing yourself with a lender, financing for future buys will be much simpler. Real estate agents will also bring more deals your way when they are confident that you will buy. You will also find out that others want to invest with you after you have a profitable record in real estate. It will also become much less difficult to attract tenants through word-of-mouth from present or previous renters. You will also be able to determine which type of real estate investing you prefer, such as renting to students in a college town or leasing out rooms.
No matter which type of real investing works out to be your favorite, now is the time to begin. It is much better to make a mortgage payment to the bank rather than send the rent check to a landlord. It is vital in all investing opportunities to acquire assets and hold on for the long-term. As history has proven, with real estate it can be especially rewarding to those who start at a young age.
What are your thoughts about getting started with real estate early?
Jonathan Yates is a financial writer with degrees from Harvard, Johns Hopkins and Georgetown University Law Center. While much of his career was spent working for Members of Congress on Capitol Hill, he was also General Counsel for a publicly traded corporation; and worked in the research department of a brokerage house.