3 Important Things You Need For Real Estate Investing
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My husband Chris and I have been doing real estate investing for the last three years. And in that time, we’ve acquired two rental properties that we have renovated and rented out! We love the passive income that comes from owning rental properties. And if you find the right tenants, being a landlord can be pretty hands-off.
Our plan is for our investment properties one day in the future, to help us retire. For anyone who is looking to retire from their jobs one day, I recommend real estate investing. It is pretty simple to manage. Just make sure your tenants are taken care of and make sure they pay their rent each month.
But even if that sounds like a bit much, you could always hire a property manager. Whether you decide to rent out houses, investing in real estate to flip houses, or renting it out for short-term rentals like Airbnb and Homeaway, there is so much money in real estate. It is just a matter of getting started.
You do not need to have a ton of experience, and you do not even need to know how to renovate homes (although having some knowledge in this area can be helpful), real estate investing can be done by literally anyone. While little experience is needed, there are some other prerequisites that you must do before getting started with real estate investing.
A Good Credit Score
The first thing you want to make sure you have is a good credit score. And when I say good credit score, I mean a score that is at least 650 or better.
Having a decent credit score is so important when it comes to real estate investing because you need lenders to give you money to buy your properties. Without good credit, you would have to do all of this process with cash.
Not only would you need a ton of cash to get to the level to be able to quit your job, but you would not see all the same benefits of real estate investing either if you cannot borrow money.
For example, because my husband and I were able to use hard money lenders when it came to renovating our home, our total out-of-pocket expense was a little over $5,000. That’s it! But if we had to pay out of pocket for that property including all the renovations that had to be done, it would’ve been more like $135,445 out of pocket.
I don’t know about you, but I don’t have that much money in the bank to buy 1 house. Let alone several! This is why having a good credit score is a huge ingredient when it comes to real estate investment.
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Money In Your Savings Account
Now that we’ve discussed the importance of the credit score it is also worth noting the importance of having some cash on hand too. Yes, you do not have to have as much cash on hand when you have a decent credit score. But you still need to have cash for down payments and renovations.
I think a good amount of cash you want to have on hand is about $15,000 before getting started in real estate investing. I choose this number because when using a hard-money lender, $15,000 is probably about the minimum amount you need to put in a down payment.
For Chris’s and my first rental property, we actually had to spend $22,000 out of pocket for our property. But luckily, we decided to save $30k to be safe. And as I mentioned, our last property only cost us 5k out of pocket. So it really varies from house to house.
One thing that does not vary is making sure you have some money saved to do real estate investing. Having thousands of dollars saved (preferably $15,000 at least) is definitely important when it comes to investing in real estate.
Having a little more than that can give you a little cushion. Just in case some unexpected things pop up that you were not expecting. Now that you have a good credit score, and some money in your savings, you need 1 more thing before you can get started in real estate investing. And that is a plan.
A Real Estate Investing Strategy
The last thing that you need is a real estate investing strategy. Believe it or not, there are a ton of different strategies out there for real estate investors. Mostly because there are so many ways to make money with real estate. So let me first by telling you about a few of them, then explain why Chris and I use the strategy that we do!
This is probably the most familiar most people are with when it comes to real estate investing. It is when someone picks a home that needs some work. Usually, some major work does the renovations, then sells it immediately.
This is a good strategy for those who are looking for large lump sums of money all at once. (After doing renovations over the course of a month or two.)
House hacking is pretty cool. What you do is rent out a multifamily property whether it is a duplex, triplex, or fourplex. And you must also live in one of the units yourself. You not only get owner-occupant housing interest rates (which are usually lower) but many people are essentially living rent-free.
Wholesaling is great for those who are good at research, negotiation, and selling. This is when you find good deals on properties to sell to real estate investors for a small upcharge.
Buy and Hold
Buy and hold is when you buy a property and hold it so that you can rent it out to a renter. What is great about this strategy, compared to flipping a property, is that you make passive income with rent every month. While your renter is simultaneously paying the mortgage on the house.
This one is pretty cool. What an Airbnb arbitrage person does is find a rental in a desirable area, and then pretty much sublet it out to people who visit. This means you can make more rent in a single month through various renters rather than just one in the buy and hold method, and you can find multiple properties to do this within more than one place.
There are so many more strategies you could delve into when it comes to real estate investing, but for the sake of time, I am going to leave you with the five listed above. While all of these are all of the ways I’ve done research into real estate investing, the strategy that Chris and I currently use is the Buy and Hold method.
We like this method for a number of reasons. We like the passive income each month and when we sell the property in two years, we will also reap the benefits of the capital gains as well.
There are a lot of resources out there on this very traditional method of real estate investing and because of that, we have decided to trust the experts we know to use this method to get us to our retirement. We joined a group called Lifestyles Unlimited that has helped us immensely with getting to where we are as Real Estate Investors.
I hope this was helpful! Real estate investing can be a bit intimidating at first but once you get your first property under your belt, it really feels like riding a bike. But if you have these important things you need for real estate investing, I am sure you will be fine. Good luck!
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