The American Dream is to untether yourself from debt, a 9-to-5 job, and retire with passive income. But the nightmarish reality is that most people can’t escape from their crushing financials. The average American has a debt of nearly six-figures, depending on the generation.
It’s a dream that most won’t get to live at all.
Most of those strapped to debt, or those clinging to their cubicles, are unfamiliar with investing. Risk adversity can be paralyzing for some. Others associate investment opportunities with something beyond their reach or understanding.
This shouldn’t be the case. Investing may be difficult for the uninitiated, but entering the foray of wealth advancement isn’t as formidable as some will lead you to believe. Invest your time in this guide on how to start investing in property for novices.
1. Start Saving Right This Second
You’re probably aware of this by now, but owning a house is expensive. It’s even more expensive to purchase them.
In fact, this is often the biggest barrier to entry into real estate investment. People are over-encumbered by the capital required to start investing.
They’ll see signs go up in their neighborhood or on the street corner with huge listing prices. It’s true, some properties fetch a higher price than others, but don’t let that discourage you. Every person that’s capable of saving can invest in properties — it just takes a little more time than some.
It shouldn’t alarm you, but the median home value is around $270,000. It’s typical to put 20% of that down as a closing payment; a lot of banks use this to hedge against the risk of you foreclosing, it’s nothing personal.
That’s nearly $60,000 to secure yourself your first property. But that’s just a conservative estimate; the property you purchase could be more or less expensive, depending on your area.
To start your investment journey, you need to start saving money. Like, right now.
Set aside a portion of your income each month. You should be doing this anyway for retirement preparation. It’s not necessary to make a sizable contribution to this fund, but anything goes a long way.
A rule of thumb for saving money to invest is to set aside a portion of the money that you were already saving. It’s not going anywhere if you need it, but having a fund started is your starting point.
One thing a lot of new investors do is to get start-up money. Try going to a hard money lender or a bank for a loan.
2. Conjure Up a Budget
The hard part of investing in securing capital. That’s why you’ve started an investment fund for later use. The other side of that coin is creating a reasonable budget.
The biggest mistake new investors make is aiming their sights too high (overshooting).
They’ll try to get a big, beautiful home and not realize how much it costs to own a home. Or the investor neglected to account for all of their other expenses outside of owning real estate holdings.
When they realize they’re drowning in mortgage payments and can’t make ends meet, they’ll panic. And panicking isn’t something that goes well with investing. Emotional financial moves are harmful in the short and long-run.
Often, the new tycoon will try selling their asset quickly to cover their costs of living. To do so, they’ll sell their investment home for far too low under the market value. This, of course, nets them a total loss in profits.
Devise a proper budget that you’re willing to spend. Don’t ever overexert your ability to pay. Always aim for a conservative estimate for safety measures.
3. Consider Renting — or Not
Many people will buy a house and not know what to do with it. They’ve heard that owning property is a goldmine of wealth that hasn’t been fully tapped. So, they’ll snag up any piece of land with a house on it that they can find.
Then they’re just stuck with an empty home.
But, sometimes, that’s the beauty of owning property. Just like any other investment asset, it doesn’t have to do anything for you. It’ll continue to grow in value without it exchanging hands; you’ll need to do some upkeep, occasionally, but that’s about it.
The market is run by two main, and probably familiar, phenomenon: supply and demand. The less supply, the higher the price. The more demand, the more pricey an asset becomes.
Property has a fascinating property that a lot of investment vehicles don’t. It has a constantly dwindling supply and a constantly rising demand. That’s the recipe for profiteering.
Populations are bursting at the seams, and everyone is desperate to find housing. But there’s only so much land available. This is what causes that perfect storm.
However, there’s an analogy with gold. Banks hate to have gold in their reserve. Gold is a dead asset, meaning it doesn’t constantly offer higher returns, despite it increasing in value.
The same can be said about housing. If you’re willing to be a landlord, you should put the property up for rent. But, forewarning, owning a rental property is almost a job in itself.
4. Do Some of the Hard Stuff: Math
Nobody likes it. But it’s totally necessary. It’s math.
On the plus side, you won’t be doing trigonometry or derivatives. It’ll be simple arithmetic and a little bit of accounting.
Now’s the time to sit down and consider investing in properties. And one of the biggest things steps that are often overlooked is doing a cost-benefit analysis.
Do so, you need to tally up the total cost of owning the property. Then, project a feasible prediction of how much your property will cost in the future. This doesn’t have to be an exact science; use current prices and neighboring houses as an indication.
Does owning this property award you benefit in the long-run? Tying up all of your capital in an asset that won’t give a respectable ROI is worse than not owning any investments at all.
5. How to Start Investing in Property: Understanding Cycles
One crucial step in selling an investment property is knowing the market cycles. There are two prominent ones in non-commercial real estate: the buyer’s and seller’s market. They’re flip-flop back and forth depending on outside variables, like the federal return rate.
Being able to spot these cycles is key in turning houses into profit. Buying at the right time (during a buyer’s market) and then selling in the appropriate future is what yields the biggest profits. In other words: buy low, sell high.
There are a few signs that can indicate a seller’s market:
- Very few houses on the market
- Quick turn arounds on a house
- Typical houses selling for over market value
These are the ones that hint at a buyer’s market:
- There are a plethora of houses
- A lot of for-sale signs in front yards
- Houses sitting on the market for long periods
- Houses being relisted frequently
A seller’s market is indicative of high demand for houses, so there are few of them available for sale. In a buyer’s market, there’s an excess of homeowners selling their property; and agencies use different tactics to sell them quickly.
Aim to make your purchases at the right time. Then sell them in a seller’s market.
6. Crack Open the Books
Complacency is what kills investments. Investors think they’re safe by using stale tactics that have netted them money in the past. But that’s a mistake you shouldn’t have to endure.
Constantly evolving your investment strategies is direly important. Being adaptable to the current economic climate is a vitally important skill for all investors, new or old.
Things, like this pandemic, can be unprecedented. These events turn markets upside down and inside out. There’s no preparation strategy available to combat these situations, so evolving with them is paramount.
Always keep up with current trends in the market. Take any time that you can to diversify yourself or to learn something new about the economy and finance. Expanding your knowledge base will give you that certain edge.
7. Networking, Not Just a Thing for the Rich
Networking is like being a part of a fancy club. All of the members know one another, and the club is usually locked from the inside. It’s only accessible to those with club membership.
Networking has an unparalleled amount of usefulness in investing. Wall Street is essentially one giant fraternity with job positions inherited through family and friends.
At any opportunity, you must network yourself. Forming connections will open up more doors than any amount of learning, saving, or budgeting.
An Exit Strategy
Being tethered to debt is the new American Dream. It just happens to be a nightmare. But there’s one way to wake up from that fever dream: property investing.
How to start investing in property can be intimidating at first, but there’s a set formula.
You should save your money and budget well; then, consider if you want to rent or not and whether the investment is worth it. Never stop learning and understanding the market. Any time the opportunity to socialize arises, you take it.
Interested in learning more about finances and investing? Check out our other articles on business and economics.