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Real estate investing has been around for generations and still making people a fortune. A lot of investors think about getting into real estate but are turned off mainly because of high capital requirements, high risk, and a lot of management that is needed.
It is true that entry barriers are high when it comes to real estate investing as compared to other investment vehicles such as the stock market.
But it is also equally true that real estate investing has the highest return potential and the ability to generate the highest regular passive income at the lowest cost.
So, as a beginner, what is the best way to get started in real estate? And how do you take care of all the work and finances that is needed to get rolling?
Since we’re not ‘the experts’ when it comes to real estate investing, we’ve got someone who started from zero and now has 15 years of experience in the field.
Agostino Pintus is a multi-family investor syndicator and entrepreneur and has been involved in the acquisition of $35 million worth of commercial real estate. Today, he will help us learn real estate investing for beginners.
How to Get Started in Real Estate
One way to get into this business, and the way Agostino started his journey, is to rent out your current home and then buy another house.
But why would you wanna do something like that? Well, because when you’re getting into a new home, you only need to put typically 3 to 5 percent upfront. Some banks even today are offering to finance even the closing costs, meaning you can walk-in basically for next to nothing.
And while you do that, you can rent out your first house and start cash flowing that from day one. The key is to make sure the rent you get is higher than or at least covers your mortgage for the other house.
When looking for a new house, try to get something you can afford. Try to make sure that you have more than enough leeway in case the old house goes vacant for a month.
Also, tenant underwriting is infinitely important because the last thing you would want as a real estate investor is getting stuck with two mortgages.
One more important thing you must know to avoid getting stuck with two mortgages is that the more units you have, the more risk you can spread out across the multiple units.
Now, in a single family house, that is not possible. So what Agostino recommends if you’re following this strategy is when you get into the new house, try to do house hacking, meaning renting out portions of your primary residence to generate income.
In many markets, you can find these duplexes, triplexes, and fourplexes, which are considered residential. So instead of buying a single-family house, you can buy one of these.
So, for example, let’s say that you buy a fourplex. Now, you can live in that house as well as rent that out to three other people, who will pay for the mortgage, insurance, and everything for that fourplex.
In this case, even if somebody does default, you’ll hopefully make enough money from renting out the first house that you won’t be in trouble. And in an ideal situation, the rent that you’ll be collecting from the first house is your positive cash flow and passive income.
Ways to Make Money in Real Estate
There is not one but many ways you can make money in real estate. Let’s see what are some of the best ways to make money in real estate investing for beginners.
The feeling of getting a cheque in your name at the beginning of every month for doing absolutely nothing is very special. And that is what you get to experience when you earn by renting out real estate.
The way it works is, you buy a property on a mortgage by putting down a small percentage of money and then rent out the place to someone else for a sum higher than your mortgage payments.
Now, you might say that your credit is not so good or you’re not sure if you have a good banking relationship to do this. Well, you can still do this. The way around that is doing something called owner financing.
It is a little more advanced way of financing that many people are not even aware of. Owner financing is a type of agreement where if a house is owned by someone, they can finance you the amount required to buy that house, instead of the bank.
So now, instead of making interest and principal payments to the bank, you directly make those payments to the owner.
You might have to put a little more money down and go through an underwriting process, but at least that gets you in the deal of your liking.
It is a completely legal process and anyone can do it if both parties agree. Of course, see an attorney before you do all this.
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House flipping is basically when you buy a house for lower than its actual value and sell it in the market for a profit after doing some renovations on it.
Agostino started in the real estate business doing house flips and does such deals even at this point of his career. His basic process includes buying older, beaten-up homes and then putting in 10-50 thousand dollars to fix them up to sell them for a profit.
Once you find such a house that you see value in, you can find the owner using city records or other public data that is available and give them a call to see if they are interested.
The reason why it would be easier to make such deals even as a beginner is because you’re actually helping the owner get rid of this asset that is costing them money on taxes, utilities, and maintenance.
There are plenty of such deals you can find everywhere and can easily make tens of thousands on each one of them.
Should You Buy the Whole House in Cash?
According to Agostino, it never makes sense to buy the whole house in cash, and he would never do something like that himself.
The last thing you wanna have as a real estate investor is something called dead equity. You can define dead equity as a pile of money sitting in one place doing nothing.
If, for example, you have $400000, and you can just use $40-50k to get in a deal. Why would you put all the money in one deal when you can use the rest of the money and put it into other deals and get them all cash flowing.
Basically leveraging the bank’s money and lower interest rates to get into more deals and increase the cash flow. When you’re using cash, you’re missing out on using the power of leverage, which is a great tool in real estate investing, when used correctly.
How to do Real Estate Investing Properly
Just like anything else, it is easy to make mistakes while doing real estate investing, especially for beginners.
If you’re also a beginner just getting started in real estate and you’ve never done something like this before, then the best piece of advice Agostino can give you is to try to partner up with somebody that has done it before.
That’s going to be the absolute key because trying to do it on your own could be quite a challenge. But if you partner up with someone that has done it and has the trusted contractors, then that takes a lot of burdens off your shoulders.
Maybe you and your partner can split the payment required for the deal, or if you have the money and the lines of credit to get the deal done and your partner doesn’t have to use theirs, you can structure it in a way to give them a little bit of equity in the deal.
It entirely depends on your preference, convenience and your relationship with the partner how you wanna structure the deal. This is a really easy and great way to get started in real estate investing for beginners.
Learn From the Experts
Now, if you’re not down with the idea of partnering up with someone, there’s another easy way to get started, and that is, learning from Agostino himself.
If you go to bulletproofcashflow.com, you can see information on various courses that are available. You can also visit Agostino’s YouTube channel, where he talks a lot about real estate investing for beginners and other things such as mindset, sales techniques, and everything you need to get started.