Real estate is a great investment for people who want to diversify and build wealth. However, there are more barriers to entry in real estate compared to other investments such as the stock market. It’s a longer, complex process that often requires larger amounts of money to start investing. Since it takes more planning to get involved in real estate, there are things you can do now to start preparing.
What is real estate?
Real estate is a term that refers to property in the form of land, building, structures, and/or natural resources attached to the land. Real estate can be residential, commercial, industrial, or raw land. The real estate industry has many professionals involved in facilitating the buying, selling, and development of real estate. This includes real estate agents, brokers, investors, and others.
Many people become interested in real estate due to their personal wishes of becoming homeowners and wanting to live in a home they own. However, it’s worth considering purchasing real estate as an investment towards building wealth.
How much do you need to start investing in real estate?
There are multiple ways to invest in real estate so the amount you need varies depending on the type of investment you plan to get involved in. Actually owning property requires enough capital to purchase the property outright or a down payment if you are able to secure a mortgage. There are other ways to invest in real estate through a brokerage account such as Real Estate Investment Trusts (REITs) and Real Estate Mutual Funds.
For purposes of purchasing your own residential property to live in or to use as a rental property, we’ll cover five things you can do now to prepare.
5 Ways to Prepare for Buying Real Estate in the Future
1. Build up your credit score
Most people will require a mortgage (a home or real estate loan) to purchase a home. This means borrowing money from a bank or lender to pay for a portion of the home. One of the most important requirements that lenders consider when determining whether to approve a mortgage loan is a person’s credit score. If you have a high credit score, you’re more likely to be approved for a loan. On top of that, you’re likely to receive favorable loan terms such as a lower interest rate. Whether you plan to purchase real estate in one year or ten years, you should start building up your credit score now. You can do this by paying your bills on time, reducing your credit balances, and avoiding opening too many new accounts.
2. Save for a down payment
In most scenarios, you won’t be able to purchase a home without a down payment. A standard down payment for a home is 20% (meaning a mortgage would cover the remaining 80%). However, there are programs and financial products that may allow you to put down a smaller amount. In any case, real estate costs money – potentially a significant amount of money depending on where you live. Start saving as early as possible towards a down payment. Not only will this allow you more options when you’re shopping around for real estate, but it also builds the habit of saving for a big financial goal.
3. Research your local real estate market
Real estate markets and home prices can vary significantly from one area to another. Start researching your local market to get a sense of what homes are selling for and what features are most in-demand. This information can help you decide what areas you’d be interested in purchasing real estate based on your budget and your required features. You can also go to open houses to explore and get a feel for things to look out for once you’re ready to seriously start looking.
4. Work with a real estate agent
Consider working with a real estate agent if you’d like help throughout the home-buying process. Real estate agents can help you find properties that fit within your required needs and budget. During the home buying process, they help you navigate the complexity of the paperwork, process, and various people involved in the purchase. Remember, you can shop around with real estate agents until you find one that is knowledgeable and makes you feel comfortable.
5. Learn the basics of real estate
Even if you work with a real estate agent, you’ll be better off during the home-buying process if you understand the basics. Start learning about the process and the basic lingo now, and it will make you feel more comfortable once you’re ready to start looking. There are tons of educational videos online that can teach you the basics.
—
Buying real estate can definitely be a complex process. But with planning and preparation, you can invest in real estate in the future.
