Investing isn’t exactly gambling as it is a far more calculated risk. But make no mistake about it. Investing is still a risk, and a rather large one at that. But, if you’re determined to try your hand at real estate investing, the first thing you are going to need to get started is money and lots of it. Here are some of the most common forms that investment money might take:
Your Own Money
By now it is common knowledge that the wisest strategy is to invest other people’s money. Even if your investment turns out exactly the way you hoped it would, you don’t want all of your money tied up in one investment. There are far smarter and more profitable ways to invest your wealth. Of course, the other downside of investing your own money is obvious.
Crowdsource Your Investment Funding
Crowdsourcing networks like Indiegogo and Kickstarter have shown that ordinary people are willing to invest in and fund interesting projects. But real estate doesn’t really fit into that mold.
In a way, taking your business public is a type of crowdsourcing. Many people lend you money in the form of buying shares of your business. Crowdsourcing is a little like that, minus the mountain of regulatory paperwork.
Spend the Bank’s Money
Although many factors – among them the loan-to-value ratio and the policies of the lender you’re dealing with – can influence the terms of a loan on an investment property, investors should check their credit score before attempting a deal. It will have the greatest impact on a loan’s terms.
The takeaway is that when dealing with a bank, you may think you are securing a loan against the real estate. But in truth, as with all loans, you are really securing it against yourself. The bank has to see you as a good risk, not just your business venture.
Commercial Property: The Long Bet
Before you secure the finances, you have to decide what type of real estate venture you want to pursue. There are many different kinds. Here are two of the most common. The first is the long bet of commercial property. This is not just a long bet, but a big one.
This is where you keep track of the local news in particular areas of interest. You look at the business incentives and tax situation. You make a huge bet on a wide open piece of land where the next Ford Factory might go, or the next Walmart, or some other big, commercial enterprise. Perhaps there is a piece of land that has valuable mineral rights that no one knows about yet. These are the big, long, commercial bets that take a log of money, time, and patience. But if they pan out just right, it will make your family very wealthy for generations to come. You only have to ever make one such deal.
Flip That House
Between the Discovery Channel, the Travel Channel, and all those other cable channels that don’t have real shows or movies, you will find a plethora of house flip shows that make it look easy to buy a distressed property, put a few thousand into it, and sell it for twice what you paid. Those shows have probably been the cause of more bankruptcies than the housing market crash.
That said, there is gold waiting for the house flipper who actually knows a thing or two about real estate. And that is the key to all of it. From the financing to the final sale, there is an awful lot to learn. Real estate is not for the lazy or greedy. It is a great business opportunity for serious business people.