I'm not much into investing in real estate. My only real estate exposure comes from my REIT (real estate investment trust) investments. However, you don't have to rely on REITs if you want to see success in real estate investing. You don't even need a large chunk of capital.
There are several ways to find success in real estate investing, if you know how to approach it. Brandon Turner of BiggerPockets.com has been earning money from real estate for several years.
If you think real estate might be your investment calling, you can learn from Brandon's success. We interviewed him to find out how he's been successful with investing in real estate.
Invest With a Small Amount of Money
“I was headed toward law school, something that was largely expected of me but that I didn't really want to do,” says Brandon. “In the process, I bought a cheap house to live in and realized how much I loved the real estate game.”
At first, Brandon thought flipping houses would provide the best result for his real estate investing aspirations, but he soon changed his mind. “I quickly found that rental properties fit my personality a bit better and provide better long-term financial freedom.”
One of the strategies Brandon is most fond of when it comes to earning money from real estate investments is to take advantage of FHA lending. It's possible to purchase a duplex or a fourplex using an FHA loan. Brandon suggests living in one of the units and renting out what's left.
The FHA loan is often easier to qualify for, and you don't need a very big down payment. Your renters can cover the mortgage — and you might even make money.
Once you are able, you can move on to a new property. You can sell the property you currently have and use the proceeds to put money down on a new property, or you can save up any extra cash from your tenants for a down payment on a second property you can then rent out.
“I like to buy fixer-upper rental properties, which I can clean and rent out,” says Brandon. “This way, I get some cash flow each month, but I also get significant equity in those properties so I can someday sell them and trade up for bigger properties. Essentially, I'm playing a real-life version of Monopoly.”
Consider Costs and Capital Needed
If you do buy fixer-upper properties, it's important to carefully consider the cost involved when trying to bring them up to a level of comfortable living. You need to have enough capital to make the necessary improvements and understand that you may not get a dollar-for-dollar return on your improvement investments. Careful planning is important if you don't want to overextend yourself and wind up losing what you've built up.
Brandon has made it a point to step carefully, making solid moves as he acquires his properties. Over the years, he's flipped about a dozen properties, but his focus has shifted toward building his portfolio of rental properties. Right now, Brandon says, he owns 42 rental units spread over nine different properties, ranging from single-family homes to a 24-unit apartment building.
Once you begin branching out into larger rental properties, such as multi-unit buildings, your financing strategy needs to change. You won't be able to use the FHA program to fund your purchases. There are other rules, and lenders will scrutinize your situation. However, if you are successful in your start with a smaller amount of money, you can build up to owning more properties.
In some cases, it might also make sense to hire a rental management company to help you manage your properties. Being a landlord can take a great deal of time and effort. The bigger your empire grows, the more likely you are to need a little help in maintaining and repairing all of your units, as well as keeping your units full so you have money coming in.
So far, Brandon has been happy with his efforts to earn money from investing in real estate. He isn't to the point where it's a full-time job for him, and he's fine with that.
“I just bought another property and hope to add another two to three more per year going forward,” says Brandon. “I don't need real estate to be a full-time job for me, but I want to continue buying property gradually and building my portfolio.”
Readers: Are you hoping to start investing with real estate? What has your experience been?