- Buy a Home to Live in and Start Building Equity
Once you are pre-approved for a mortgage, you can start looking for investment properties. There are many factors to consider when choosing an investment property, such as location, condition, and price. It is important to work with a qualified real estate agent who can help you find the right investment property for your needs.
People usually have two options when it comes to finding a roof over their heads, either renting or buying. If you’ve decided to rent, you’re already paying a monthly expense to your landlord. That’s a big chunk of money going out the door every single month. When you rent, you don’t have the ability to build equity. Therefore, you’re missing out on a valuable asset. Why not use your expenses from rent and put it towards your own home so you can build equity? If you’re still not sold on the idea, stay with me because this leads right to step four.
- Use Your Home Equity to Finance Your Next Property
One of the best ways to finance your first investment property is with a home equity line of credit (HELOC). A HELOC is a type of loan that allows you to borrow against the equity in your home. This means that you can use the money from your HELOC for any purpose, including buying an investment property. There are many benefits to using a HELOC to finance your investment property.
First, HELOCs typically have lower interest rates than other types of loans, such as personal loans or credit cards. Second, HELOCs are flexible, so you can borrow only the money you need and pay it back at your own pace. However, it is important to note that there are also some risks associated with using a HELOC. For example, if you default on your HELOC, your lender could foreclose on your home.
A home equity line of credit functions the same way a credit card does. Essentially, you’re allowed to access a certain amount of funds for a limited amount of time. There are many pros and cons involved with opening a HELOC, however, when done the correct way, it’s a great alternative funding source that can be used to purchase an investment property.
Before you jump into using a HELOC, I strongly urge you to do your research. Those who get burned are often the ones who jump in headfirst without any prior knowledge or understanding. Once you’ve acquired a HELOC, you can use it as a down payment on your first investment property.
- Build a Real Estate Portfolio
If you’ve made it this far in the process, I commend you. It’s not easy getting to this step, but this is the fun part! Now that you have one property under your belt, it’s time to use the lessons and equity from your first home to get the second. And then the third. And so on! This is when you get to take the knowledge, understanding, and wisdom you’ve gained throughout the process to start building your portfolio.
At this point in time, you should own a personal home and one investment property. When it comes time to look for your second investment property, do the following. Take the same amount of money you put in the first house, pay that house down, either obtain a HELOC or refinance, and put it towards your next investment property. Now all you have to do is rinse and repeat!
Buying your first rental property can be a daunting task, but it is important to remember that you don’t have to go it alone. There are many resources available to help you get started. By following the five steps outlined in this blog, you can increase your chances of success in real estate investing.
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Note: This post was originally published on Mar 11, 2020, and has since been revamped to ensure accuracy and comprehensiveness.
