It’s no secret that the real estate market is hot right now. Buying real estate is a good investment, but that does not mean it is easy to get into the game.
If you are curious about how much do you need to invest in real estate, the answer is: it depends on what you aim to accomplish. Buying a rental property can be a big risk, and you want to be certain you understand the risks as well as the rewards.
You don’t need to be a millionaire to be an investor. You do need to have a solid sense of the type of investments you want to make and a realistic outlook based on your financial situation. Keep reading to find out more.
Table of Contents
Types of Real Estate
When people talk about buying real estate, they are often referring to residential properties. If you are considering a property to use as a rental, you need to be realistic about the down payment, mortgage, and upkeep needed to maintain it.
For single-family homes, the lowest down payment allowable is 15 percent. However, when you consider expenses involved with the new property, 20 to 25 percent of its value may be a safer estimate.
Residential is only a small part of the real estate market. Commercial real estate comprises any property that is used to further a business’s goals. This could mean anything from office complexes to retail stores, apartments, condominiums, or hotels.
A lot of people assume that they need much more money in general for commercial real estate investing, but that is not always the case. It all depends on where you live and how likely you will be able to rent the property for its intended purposes.
There are other options besides going “all in” on a single business property. One is a “real estate investment trust” (REIT). These have existed since the 1960s and are modeled after mutual funds.
REITs are companies that allow individual investors to get in on commercial investing. For as little as around $1,000, you can add commercial real estate to your portfolio.
Obtaining a Loan
When considering how much do you need to invest in real estate, it is not only about cash on hand but borrowing potential. If you do not have enough money for a down payment on the property or project you would like to invest in, then you might consider a loan. There are two main options here: equity or bridge loans for real-estate investors.
As the name suggests, an equity loan requires some collateral, such as an existing piece of property. These are often longer-term loans and will get you the best interest rate.
Bridge equity loans are designed for investors during a transitional period. For this reason, they are for a shorter duration.
Since they are riskier for lenders, you can expect a higher interest rate on a bridge loan. But, if you are trying to buy and sell property simultaneously, then these may be the best option.
Learn More About How Much Do You Need to Invest in Real Estate
Now that you have an idea of how much do you need to invest in real estate, you can determine if it’s the right move for you and your family. There are many resources online on investing for beginners. Do your homework, become knowledgeable about the local market, and be realistic about your financial capacity.
We hope you found this information on real estate investments helpful. If so, be sure to take a look at some of our other posts on all things money. We cover everything from corporate and personal finance to investing tips, technology, and many other topics.