“The best investment on earth is earth.”
– Louis Glickman.
Just like with any other type of investment, it is crucial to educate yourself before getting started. Investing in real estate without understanding what you are doing or being able to recognize good deals can be very costly. Before investing money in real estate, invest some time in researching the topic and educating yourself on creative financing.
These are the main things you need to be aware of before using creative financing to invest in real estate:
- Creative financing works best if you can find great deals, since the potential for profit is greater. Remember that paying full price on a property will result in higher mortgage payments, even if you do not have to make a down payment.
- As a rule of thumb, always look for the best profit margin, put as little cash down as possible, and negotiate with the seller.
- Be conservative when using creative financing. A number of things could happen to reduce your profit margin. You might have to pay several thousands of dollars to have tenants evicted. You might encounter costly repairs, or see taxes and interest rates go up.
- Always plan for the worst scenario so, if it should happen, you can avoid losing money on a deal.
- Be ready to make sacrifices. It’s possible to buy real estate with little or no money down, but this doesn’t mean you can get into real estate without working hard.
- You’ll be successful if you are highly motivated, ready to learn about real estate, and willing to put time and effort into looking for deals and negotiating.
- Put some money aside. You can get started with little or no money down, but you’ll still have expenses to cover in the long-term. You might have to pay for repairs or make up for a loss of income if a tenant isn’t paying their rent.
- Save up some money, ask for a raise, or look for a second job so you can build a comfortable cushion that will protect your investment from unforeseen expenses.
- Learn as much as you can about real estate. There are plenty of resources available to you, including books, classes, seminars and online material. Take some time to learn about the market, how to recognize good deals, how to negotiate, and gain a better understanding of different creative financing strategies.
- Should you invest in a property that’s ready to move into, or look for one in need of repairs? This is an important question to ask yourself before you get started.
- A move-in-ready property
is usually more expensive but you’ll be able to start renting it right away.
- A property in need of repairs should be more affordable, but you’ll have to invest time and money in repairs before you can even start renting it out.
“You ought to be able to explain why you’re taking the job you’re taking,
why you’re making the investment you’re making, or whatever it may be.
And if it can’t stand applying pencil to paper, you’d better think it through some more.
And if you can’t write an intelligent answer to those questions, don’t do it.”
– Warren Buffett.