Updated: Jan 1, 2021
There are 3 main ways to get involved in Real Estate investing. The option you choose will solely depend on how involved you want to get, and your risk tolerance.
The simplest way to invest in real estate is through REITs [Real Estate Investment Trusts]. There are plenty of options here. You can invest in sector specific properties like retail, hotels, resorts, hospitals, industrial, and residential. REITs are generally large corps with extended market reach – [national and international]. You can invest in these companies separately or through an exchange traded fund. There are many types of REITs available with different risk/reward.
Investing through a Joint Venture partnership is usually done with a local investor in your market. The investor usually brings years of experience to the table to ensure the investment is safe and the process is seamless. The real trade off is time for money. This is a perfect option for someone that is interested in investing in the local market but does not want the hassle of managing the market research/real estate/renovations/tenants/etc. Another benefit of getting into a JV partnership is learning and development. If this is your first time investing and you are interested in creating a personal portfolio down the road, it might be beneficial to partner with a local investor. This way you can learn from years of experience on your first property and avoid costly mistakes when you decide to go solo.
This option is perfect for anyone that wants to take on the project themselves. This will require a lot of personal time and energy throughout different stages of the investment – especially if this is your first property. If you are a dedicated individual with time on your side this could be a great option. Although the first couple properties can be challenging due to steep learning curve – the ability to control your own portfolio is quite rewarding. Depending on how big you want your portfolio to get, you will find certain efficiencies in scale. This will enable you to offload a lot of the day to day activities for a truly passive revenue stream.
If you noticed, there is a wide spectrum of involvement when it comes to real estate investing. You can get involved in every aspect of the investment or offload all the work for a truly passive income. If you are interested in real estate investing – this is the number one question you must answer. How involved do you want to get? This will help you narrow down the path forward.
What if I do not have any money?
We invested a total of $44k on our first investment property. This included the down payment, renovations, and closing costs. Seems like a steal thinking back 7 years ago. Especially now that the property is worth $725k. We lived in this property, so we were able to get away with only 5% as our down payment. This is often referred to house hacking and in our opinion one of the best ways to enter the market.
Today the properties that we purchase require between $100k-$150k [which includes down payment, renovations, and closing costs]. We concentrate strictly on the Hamilton market, but we are sure you can get better prices outside the GTHA. Just do your homework prior to getting into those markets. Make sure there is good population growth, a steady diversified job market, and an upside to market rents [cashflow opportunity]. Our market requires quite a bit of money and can be overwhelming for those trying to get in. But let us step a back and break it down into smaller more achievable steps.
We have been able to purchase more properties not because we have big yearly bonuses at work but because of one thing – refinancing. As you pay down the mortgage and the valuation of your property goes up the equity in your home can be recycled to better use. Programs like the HELOC are a great way to utilize the stagnant cash that is not producing any income. The banks will give you up to 80% loan-to-value of your home. With all time low interest rates, we are essentially borrowing for free. We do implement several strategies to hedge against risk [interest rate fluctuation, vacancy rates, market downturn, etc.].
Look at the chart below. Pretend we purchased a $500k home with 20% down. If we “strategically” renovate the property we will automatically see an increase in the property value. This of course is during a regular market. During a downturn, this strategy helps protect our investment. We are essentially forcing the appreciation through a strategic renovation. Whatever you do – do not over renovate. This is probably the biggest mistake that new investors make. The renovation should consist mostly of finishing touches – [paint, trim, floors]. Try to avoid knocking down walls and layout changes.
Conservatively let us say the value of the home goes up by $75k after the renovation. At 80% LTV we will be eligible for $72k as a HELOC. What that means is we can literally [if approved] take out $72k and put it towards a new project/investment property.
The GTHA market has seen some steep market appreciation. If you have had your property for 3+ years most likely there is equity in your house that can be leveraged.
The first step would be to find out what is the house worth? We would start with calling up a real estate agent – they can confirm based on historical sales [comparable] what your house is worth today. The next step would be to call your mortgage provider and assess if the HELOC option is the right one for you. They would then send out an appraiser to your property and set up the line of credit in the back end [based on the evaluation]. Now you are ready to start investing. Not everyone has $100-$150k lying around to invest in real estate. Taking advantage of the HELOC program is definitely a great way to leverage equity in your home. This could also help bridge the gap between your savings and the required down payment amount.
If this is still a significant amount for you, there are other great options that would help you get started. This would include but not limited to is investing in REITs and Joint Venture partnerships. REITs have an incredibly low barrier to entry with market purchase prices starting at ~$20/share. Joint Venture partnerships also allow more flexibility in terms of entry into the market and payment terms. The investment can be broken down into smaller amounts that make this option more appealing. Many times, the JV facilitator will have their own money into the deal along with other investors. This not only helps mitigate risk but also reduce barrier to entry into local markets.
If you’re interested in finding out more information on how you can invest with us on our next deal –reach out to us directly at 289-242-6294 or firstname.lastname@example.org.
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The information provided in this blog is for entertainment purposes only and is not intended to be a source of advice with respect to the material presented. The information contained in this blog do not represent legal or financial advice and should never be used without first consulting with a financial professional to determine what is in your best interest to meet your individual needs.
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