8 Low-Cost Homebuying Strategies to Become a Real Estate Investor
Are you interested in owning rental property but think you can’t afford it? Here are 8 low-cost homebuying strategies to help you become a real estate investor.
Investment properties build wealth
Investment properties have historically been an asset class which protects against inflation, provides passive income and garners numerous tax advantages. In fact, it has been used by millions of Americans to increase current revenue and build generational wealth. While purchasing a home in today’s real estate market is difficult, there are strategies for real estate investors that will make property ownership a reality.
Do your research!!
Before you start your home search, read everything you can about investment properties. Download a few books on the subject and read them or listen to podcasts. The phrase “knowledge is power” applies to real estate investing. For example, an investor must learn about building codes, real estate taxation and zoning ordinances for the area where the property is located. These ordinances can be significantly different from one jurisdiction to the next. Additionally, one property is often subject to codes and ordinances for several municipalities. Failure to obey these laws can cost an investor huge sums of cash. Always do your research before making your purchase.
get a mentor
Talk to other real estate investors to learn the ropes. Real estate investing is not new and there are tons of people doing it. Ask them how they got started investing or how they handle problems such as bad tenants. Many of these people would be willing to share their experiences for free or a nominal fee. If you don’t know any investors personally, find an online group for real estate investing.
8 Low-cost homebuying Strategies
Here are the strategies that you can use to begin investing.
1. try the fha
Get a loan backed by the Federal Housing Administration (FHA) to buy a multi-family home. The FHA requires a down payment of 3.5% with a FICO score of at least 580. A 10% down payment is required with a credit score between 500 and 579. In addition, the FHA offers financing through Section 203(k) to help with necessary home repairs. This option does have its drawbacks, however. The FHA process can increase the time to close on the property. It also requires the borrower to live in the home and pay private mortgage insurance for the entire time that the loan is outstanding.
2. invest in a “reit”
Invest in a real estate investment trust (REIT) which is a stock/real estate hybrid. REIT’s buy the real estate and sell shares to investors. The trust is required to pay 90% of its taxable income in dividends. Many REIT’s are publicly traded so they are easy to purchase and/or sell.
3. crowd funding
Crowd funding sites such as Fundrise are investment platforms that are similar to REIT’s, except they are not publicly traded. These options allow people to invest in real estate projects from construction to completion. An investor in these clubs can expect their money to be tied up indefinitely. It can take months to get your money out and can cost early withdrawal fees. The minimum investment can be as little as $1,000.
4. grab a partner
Partner with a friend with similar goals and financial resources. Sharing the cost and the work with a like-minded friend is another tried and true strategy to help first time buyers get into the real estate game. Your partner should NEVER be your boyfriend or girlfriend. Also, select someone who has as much money or more money than you. If your partner is broke, then you will have to pay for unforeseen expenses. You will also need to plan how income, expenses and management roles will be divided. For instance, one partner may deal with the tenants while the other partner makes needed repairs.
5. purchase tax liens
A homeowner who fails to pay his property taxes for an extended period will have tax liens put on the property by their local taxing authority. Anyone can purchase these liens at a tax lien auction to get ownership. While there is a great deal of interest in this investment method, there are significant drawbacks to be aware of. For instance, after you buy the lien, the homeowner may still have about a year to redeem the property. Also, other liens, such as IRS liens, may be attached to the property and transfer to the new owner. Before investing in tax liens, a comprehensive lien search must be done for each property of interest.
6. occupation based programs
Teachers, law enforcement officers, fire fighters, military members, healthcare professionals and emergency medical technicians can qualify for special programs that require smaller down payments and offer lower closing costs for home purchases. Some programs offer a 50% reduction in the list price of the house. These homes may be in revitalization areas in some cases. The home must be the primary residence of the buyer for 36 months. Discounts will be forfeited if the purchaser does not abide by the guidelines. Benefits are also available for the sale of real property owned by teachers and first responders. Check out homesforheroes.com and the FHA’s Good Neighbor Next Door for details.
7. funding for veterans
Current and former military personnel and their spouses can qualify for loans guaranteed by the Veterans Administration (VA). In some cases, the VA will be the direct lender instead of a bank. These VA loans require NO down payment!! Private mortgage insurance will be required but not for the full loan term. VA loans are only issued for the veteran’s primary residence but can be used to purchase a multifamily home. Check va.org for more information.
8. Homebuyer assistance programs
Home Buyer Assistance Programs have become a popular way to buy homes. Numerous organizations have recognized that the high cost of homes is making it impossible for low-to- moderate income families to buy homes. To address this need, some entities provide grants for down payments.
Another option is the Neighborhood Assistance Corporation of America (NACA) which provides an in-depth training program for first time homebuyers. NACA teaches financial literacy to avoid the pitfalls of buying a house. A successful NACA candidate will receive 100% financing, no closing costs and a low interest rate. There are drawbacks to this program. The loan recipient must live in the home while the loan is outstanding. If the recipient decides to move or sell the property early, the funds must be repaid.
the takeaway
Low-cost homebuying strategies exist for potential real estate Investors who know where to look. If you are interested in supplementing your income and increasing your wealth, you must get creative. There are opportunities available for anyone with the drive and discipline to pursue their dreams of homeownership.
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Naypeer Property Ventures, LLC is a real estate company licensed by the state of New York and abides by equal housing opportunity laws. License number 10401346647. All material presented herein is intended for informational purposes only. Information is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. All measurements and square footages are approximate. Nothing herein shall be construed as legal, financial or other professional advice outside the realm of real estate.
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