Do you think that investing in real estate is only for the rich and famous? You will be surprised what you can achieve, even with a very modest starting capital. Almost everyone can invest in real estate. After reading this article you will know how to get a nice return on your savings.
We know that real estate is much more than a financial decision, it is also an emotional one. Nevertheless, real estate investing can be a source of financial success if done in the appropriate way and I am going to explain what kind of real estate investment strategies are worth considering, depending on your budget.
So do you have a limited budget and are thinking about how to get started with investing in real estate? Here’s the article for you! In this post, we’ll cover everything from what makes up an investment property all the way down to finding financing. By the end of it, I hope that you feel confident enough to start looking into your first investment property.
I will begin with the basics. What does investing in real estate mean?
Real Estate investment: The Basics
Real estate is simply a term used to describe real property, which is land and anything that is built on it. So if you are looking to invest in real estate, you’ll be looking at real estate properties. If you are looking to invest in real estate, then you will be buying real property with the overarching goal of reselling it later for a much higher price and receiving monthly rents which can be used to repay the loan taken out.
This real estate investment strategy is called real estate investing. You can understand real estate investing as a sort of real life “Monopoly” game in which you buy properties and then wait for the value to increase so that you can sell them at a higher price, without any improvements necessarily being made to the property itself.
Investing in real estate
What real estate properties are good for real estate investing?
I understand that you may not quite know what real property to look at when looking to invest in real estate. There are all sorts of real property including residential real estate, commercial real estate and vacation real estate.
So let’s dive into the details. When investing in real estate: how much money do you need?
What real estate properties you choose to invest in will very much depend on how much money you have available. If you are just getting started with real estate investing, then the good news is that real estate investment doesn’t need to be expensive! Some of the most profitable real estate investments can be those which require the least amount of money.
Contrary to popular belief, real estate is not only for the wealthy. With a starting capital of around €25,000, you are well on your way to becoming a successful real estate investor. An own contribution of approximately 20% is sufficient for most banks to lend you the remaining capital for this investment. So you can invest in real estate for as little as € 125,000.
Dare to borrow (responsibly), that is the golden tip for successful investing.
Start investing in real estate – 5 tips for real estate investing with a limited budget
1) Plan your real estate investment strategy
If you haven’t yet, then you should do some real estate research before committing to your first real estate investment. Do I want to buy real estate for my personal rental property or do I want to build it out and rent it as an income-generating real estate investment? If I am going to be renting it out as real estate investments, then what real estate market is the best for real estate investing? What real property will increase in value over time? These are all questions that you should ask yourself about real estate investing before making your move.
2) Choose an area with growth potential
When real estate investing, you should aim your real estate investment strategy at real estate markets that have proven to provide strong returns on investments. Think about what real estate property can bring the highest returns?
Location, location, location. The ideal real estate also depends on your budget. Projects in medium-sized cities or developing neighbourhoods combine a good location with affordable purchase prices. And last but not least: the quality and experience of your real estate partner are decisive.
3) Get creative with financing your real estate investment purchase
With a starting capital of €25,000, it is real estate investing real estate investment possible to real estate investment purchase real estate with a loan from a bank.
Low interest rates are bad news for your savings account, but ideal for borrowing. Once you have learned about the leverage effect, you will know why borrowing to invest in real estate pays off.
By borrowing money at a low rate, the return on your own capital increases exponentially. Borrowed money acts as a leverage, making your own contribution much better (earning 5 EUR on your 100 EUR is good, but earning 5 EUR on only 20 EUR own contribution and 80 EUR borrowed capital is better!). Borrowing to the maximum (but wisely) increases this leverage even more.
The trick is to negotiate your mortgage loan that allows you to pay only interest during the first year and only principal in following years of your fixed rate loan. That effectively saves you thousands of dollars in interest payments on your real estate investment purchase
4) Consider rental rates and cap rates when real estate investing
In real estate, the average cap rate on investment real estate real property has been steadily climbing an average of 2% per year over the past 20 years. The cap rate is a measurement of a rental income that you get from your real estate investment property as a percentage of your investment capital. If you purchase an apartment, the cap rate will be around 12% to 18% depending upon how much money you have and the type of mortgage loan that you are going to get on your rental property.
5) Start small, Start young
The earlier you start investing in real estate, the quicker your money will pay off. A smart person in their twenties or thirties can actually buy a €20,000 parking space, or a student flat to rent out. In your 40s, you may have been promoted, or perhaps your parents may have given you something. Then, in your fifties, when you have paid off your house and the children have graduated, a lot of money becomes available again.
Real estate investing is not only for the rich and famous. With a real estate investment strategy that fits your real estate investment budget, you can achieve splendid real estate income returns, even with a starting capital of just €25,000. You just need to take the time to think. Inform yourself and make plans.
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