How to Get Started in Real Estate Investing to Become Financially Independent

How to Get Started in Real Estate Investing to Become Financially Independent

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Today’s guest post comes from Ben Mizes, who generously offered to write some great content on how to get started in real estate investing to become financially independent. Although I currently own only one rental unit, real estate will most definitely play a factor in my financial independence journey. Enjoy!

20 years ago, you needed serious money to get started in real estate investing. That’s no longer the case in today’s world, with options like Fundrise allowing you to invest in a portfolio. There are also far more loan options than there were before.

If you have good instincts and some extra cash-on-hand, you too can become a real estate investor. While you might not know everything about finances or real estate in the beginning, there are amazing resources that can help you get started.

It doesn’t matter how old you are — there aren’t age barriers to financial independence. Retirement doesn’t only have to be for those above 65. Adversely, recent data shows that millennials are 52% more likely to invest in real estate than Gen X-ers and baby boomers, as they strive to achieve financial independence.

Here’s how you can get started.

What Do Your Finances Look Like?

After considering your primary home (and maybe a vacation home), real estate investment is just another way to grow your money for the eventual goal of no longer needing a job. Real estate investment can be used to save for retirement, grow your income, and eventually become financially independent.

Before you can begin investing in real estate, your finances need to be in order. Ensure you’re paying all your bills on time and have as little debt as possible.

If you have an auto loan, it may be useful to pay it off before you start on this journey. Carrying credit card balances and paying interest month-to-month also isn’t a sound financial strategy. Once your finances are in order, you can start saving money to invest.

Begin by putting aside whatever you can after paying your usual expenses, whether that’s 10 percent, 20 percent, or even 40 percent of your after-tax paycheck, assuming you work a regular job. If you have income from other sources, you can put some aside in an easily accessible savings account.

After you’ve completed these steps, you can start looking at potential real estate investments.

Your First Real Estate Investment

Get Started in Real Estate Buying First Property

How do you decide on your first property? One of the easiest (and most logical) ways to get started in real estate investment is to purchase a rental property you can live in.

You can purchase a duplex, multi-family, or even an apartment building and live in it yourself, while also renting out the other units to tenants.

You should have at least 5 percent to put down, but 20 percent is preferred for your first home. Putting down a larger down payment will often enable you to get a better interest rate and skip paying private mortgage insurance (PMI).

Financing Options

When you first begin investing in real estate, you likely won’t have the cash reserves to purchase properties without using a bank or other lender, depending on where you are in your journey toward financial independence.

With conventional loans from banks and government loans like Federal Housing Authority (FHA), Veterans Affairs (VA), and United States Department of Agriculture (USDA) loans, you have plenty of options.

These latter type of loans are insured by the federal government and you must meet certain requirements in order to qualify, like being a veteran for a VA loan, while USDA loans are only applicable in certain rural areas.

Private lenders range from banks offering conventional mortgages to portfolio loans, which usually have shorter terms but lower interest rates if you can afford the monthly payments.

How Should I Invest?

There are two common paths for real estate investing: rental properties and house flipping. The former is a long-term strategy, while the latter can provide quick gains with higher risk. If you have the goal of financial independence, you need short- and long-term strategies in mind. You’ll need to generate passive income through to maintain independence while investing in house flips to accumulate larger sums to invest.

For a first-time real estate investor, it can be challenging to assess how much value a single-family home rental or an apartment can bring in the long term.

There are several models to determine the potential rental value of a property, like the Gross Rent Multiplier, which determines potential income, or the Capital Asset Pricing Model, which evaluates the rental potential against other investments.

If you decide to go with rental properties as a strategy, the initial process is similar to buying any home.

After you’ve inspected the property and closed, you should make improvements to ensure you can rent it for the top of market value to maximize your investment.

After you’ve found tenants, you can start collecting rent money. Then it’s a fairly passive process, especially if you utilize a property management company, which is a fantastic way of achieving financial independence.

On the other hand, flipping a home inherently carries more risk than investing in rental properties. This is particularly true if you’re planning to make major changes to the property, like taking down walls, updating electrical and plumbing systems, etc.

However, the reward can also be much larger in the short term. If you purchase a home for $300,000 and invest $70,000 in renovations and then turn around and sell it for $420,000, you just made a nice $80,000, less interest and agent commission fees.

This perfect situation is ideal, however. There can be larger problems under the surface of homes, cost overruns, and you can price yourself out of the market if you over-improve the property.

You can start real estate investing using one or both of these techniques. While some investors stick to one method, others diversify their portfolio by purchasing rental properties and flipping homes.

Become Financially Independent With Real Estate Investing

It’s important to note there’s no right or perfect way to get started in real estate investments and achieve financial independence. The essential part is keeping your finances in tracks and your debt load low. While you’re younger, it may make sense to be more bullish and invest more in house flipping and then transition to more rental properties for passive income as you get older. It’s all about what your goals for financial independence are.

As you grow your portfolio,  you’ll generate more cash flow, which will make it easier to borrow money and purchase more properties.

Start slow and learn as you go to grow your investments over time while you learn how real estate investing works and you’ll be set for success and financial independence in a way that works for you.

BenMizesHeadshot (1)About the Author: Ben Mizes is the Co-Founder and CEO of Clever Real Estate, the free online service that connects you with top Real Estate Agents who can help you save thousands on commission. Ben is also an active real estate investor with 22 units in St. Louis, and a licensed Real Estate Agent in the State of Missouri.

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Note: I am not a financial advisor or fiduciary. All the information presented in this article reflects my opinion. I am not liable for any financial losses incurred related to this content. My content is always written with the readers’ best interests in mind. I believe that my content is helpful and well-researched, but it is not professional financial advice. For more information, read our Privacy Policy.

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