This article contains all the essential information you need to get started when looking into investing in the US real estate market.
From why it’s a smart move to where the best places are to begin investing to how to begin financing your investment, we cover everything you need to know.
Let’s start with the reasons why investing in US real estate is a wise choice.
Why Invest in Real Estate in the US
There are quite a few reasons why to invest in US real estate. It’s a great source of passive income, if you rent it out. In the right market, it’s an easy way to build equity.
The real estate market is a great way to diversify your investments. The market size itself is worth $202.6 billion, and steadily increasing.
The hard part of real estate investing is that to make a larger profit, you have to wait.
The average real estate return on investment is 8.6 percent, but for residential properties alone it’s 10.6 percent.
Even commercial real estate returns are higher than the average, at 9.5 percent.
Best Places to Invest in Real Estate in the US
Any city with a strong real estate market is most likely a good place to invest, but there are some locations that are better than others.
The best US cities to invest in real estate stretch across the country, and include:
- Houston, Texas. Houston’s population exceeds 2.2 million people and is the largest city in the state of Texas. Demand for single-family home rentals rose by 7.1 percent, and townhomes and condo rentals rose by 5.1 percent over last year.
- Atlanta, Georgia. One of the fastest-growing cities in the country, Atlanta has many popular and thriving neighborhoods that attract investors. One-bedroom rent jumped 18 percent over last year.
- Phoenix, Arizona. Homes in Phoenix may be a little pricier, but rent for a one-bedroom apartment in the city increased by 28 percent over last year. This is a key indicator that the market is hot.
- Birmingham, Alabama. One of the largest banking centers in the country, Birmingham is home to 1.2 million people. With a high rent-to-home ratio and a low property tax rate, the city offers reliability for investors.
To help you decide where to invest in real estate in the US, make sure to look at a few key indicators on how ‘hot’ the real estate market is.
You want an area that shows continued growth in real estate prices, properties that don’t stay on the market for a long time, and areas with amenities that attract just about anybody.
Where to Find Real Estate Investment Opportunities in the US
If your first instinct is to go online and start looking at properties for sale on public marketplace websites, stop. These properties are available to everyone. When a large pool of potential buyers has access to a property, its price is likely to go up. Especially in a seller’s market, buyers can start a bidding war.
As an investor, you want to discover off-market opportunities. This will help you save quite a lot of money. So where to find investment properties that aren’t discovered by the general public yet? There are many ways that investors have been using for decades
They include driving around neighborhoods and looking for run down or abandoned homes, searching public records, visiting foreclosure auctions and estate sales, and similar time consuming methods.
However, with a rapid evolvement in technology in the last decade, there have been many online property marketplaces, including zillow, redfin as well as facebook and ebay, come into the picture and redefined the way investors find properties.
While investors certainly can find off-market properties on those marketplaces, most of the properties there are publicly accessible to everyone. That said, there is a subset of online property marketplaces that specialize in off market properties for sale which are more favorable for investments.
An online investment property marketplace provides you with a separate pool of real estate investment opportunities that aren’t listed publicly. You won’t have to fight with everyday home buyers going through MLS listings.
The best way to find off-market properties is to:
- Visit websites that cater specifically to real estate wholesalers and investors.
- Network at local real estate events, or simply build your own network of real estate professionals to stay in touch with.
- Join one of the local Real Estate Investors Associations to get access to its members.
- Reach out to real estate wholesalers operating in the geographical areas of interest..
- Attend real estate auctions, but make sure to review listings in advance to know if there’s any potential properties you’d want to bid on.
How Much Money Do You Need to Invest in Real Estate in the US?
To invest in real estate, you really need to think about money going into four different buckets:
- Down payment
- Repairs and maintenance
- Emergency reserves
While it’s great to have all the capital upfront to cover these areas, it’s not always easy to keep that much cash in the bank. It’s also not necessary.
You can invest in real estate without putting any of your money down at all. This happens with real estate wholesaling. This is a different type of investing, since you never actually own the property.
A real estate wholesaler goes under contract for a home with the current owner, then sells the contract to a new buyer. By acting as the intermediary, the wholesaler is able to keep the profits from their contract’s sale (it’s called “assigning a contract”).
To make a profit as a real estate wholesaler, you will have to find someone willing to pay more than you offered for the property. This requires a lot of marketing and networking to connect with solid buyers.
How to Get Money to Invest in Real Estate in the US?
Should your goal as a real estate investor be to own your investment properties but not to have a lot (or any) starting capital, there are a few ways to get the necessary funds.
- Borrow from friends and family. Borrowing from someone you know means there’s no red tape to get approval. You will, however, feel a lot more pressure to pay them back.
- Find a partner. Bringing an additional investor is relatively common in real estate. This type of equity partnership means someone other than yourself helps finance the property, and then shares in the profits in a predetermined way.
- Take out a hard money loan. A hard money loan comes from groups or specific individuals. They usually have fewer qualification requirements, which means you can get one fast.
- Get a private loan. This type of loan comes from a bank, credit union, or a state-based organization. Terms and conditions are set by the lender, who’s often very risk-averse.
You may need to try more than one option to find the perfect way to access money to invest in real estate, but once you have the funds, you can begin exploring the profitability of this investment option.