How to Get Started Investing in Real Estate
A question we hear often is how to get started investing in real estate. This article will help you understand the easiest way to start investing and how you can go from being ready to actually ‘doing’.
The most common (and easiest) way to get started investing is with an owner-occupied FHA (Financial House Administration) loan. With an FHA loan, you can buy a multifamily with up to 4 units but are required to live in one unit. You can rent out the other units which typically pay for your mortgage, plus some, plus you get to live there rent-free while the property grows in value over time. FHA loans are also some of the easiest to qualify for and require the least amount to put down (only 3.5% down payment). They require you to have a 580+ credit score and you can use 75% of the appraised rental income from the property as additional income to qualify for the loan!
Here’s an example: Say you’re preapproved to buy a single-family home for up to $215,000. With the additional income of a 3 or 4 unit multifamily, you can now buy a property up to $400,000 – $550,000! (Actual numbers may be different and we recommend speaking with a loan officer for your exact scenario. You can find our go-to loan officer, here.)
With FHA’s 3.5% down payment you only need to bring a $15,750 down payment to purchase a $450,000 property, before any other closing fees.
Let’s run the numbers on a $450,000 multifamily with 4 units. Let’s assume all 4 units can be rented for $1,500 a month. You’re living in one (without having to pay any rent) and the other three are bringing in $4,500 a month or $54,000 a year in rent. FHA loans have some of the lowest interest rates so for this example, we will use 2.5% a year for a 30-year loan. Your monthly payment, before taxes, insurance, or PMI is $1,778! And you are bringing in $4,500 a month on top of living there for free and the value of the property growing over time.
This is only an example and we can help you work out the real numbers of a property and find out what your real scenario would look like!
Not Looking to Owner Occupy?
So maybe you aren’t looking to owner occupy your multifamily but you are still ready to invest. The down payment will be higher than an FHA loan but it’s still well worth it. A conventional loan typically requires 25% down to purchase an investment property. So if we took that same scenario of $450,000 you would need a $112,500 down payment. (Purchase Price x .25 = Down Payment) But your mortgage payments will be much lower because you won’t be required to pay Personal Mortgage Insurance (required on any loan under 20%) and your loan won’t be as large because of your down payment. With a 2.75% interest rate, your loan payment is now only $1,378.
How To Find The Right Property
Finding the right investment property takes a lot into consideration. What is your budget? What is the minimum return you’d like to see? Which area are you interested in? How much work would you like to put into it? (If any). And once you find the right property it’s important to find out if the tenants are actively paying, if any units are vacant, and to understand the condition of the property.
Team Tringali can help with that. We are trained professionals who do this every day and we know what to look for, the right questions to ask, and can guide you in the right direction to get you into the right property for you. A majority of the team personally invests in real estate and knows first-hand the importance of doing the right deal.
Ready to take the next steps?
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