Real estate investment can diversify your portfolio, and it’s an easier market to enter than many think. If you want a guide on investing in real estate, you’re in the right place. Real estate is an excellent investment opportunity, and there are many strategies out there to help a novice get started and begin making money. 

Beyond a side hustle, many REIs see it as their main source of income. But, how do you start if you’re new to investing? 

It’s easy to feel overwhelmed when you try to navigate such a tricky process. That’s why we offer one-on-one coaching to help our clients learn more about new markets, network, and identify new opportunities. Below, we offer advice, strategies, terms to understand, and mistakes to avoid.  

How to Invest in Real Estate

When done right, real estate investing is a lucrative opportunity. This is true even when we see a shift to higher interest rates. Real estate investing for beginners is a great way to diversify a portfolio, and for many, the goal is a passive income stream. 

While it might not sound appealing to be a landlord fielding calls about problems in a building, there are other opportunities that don’t require this. So, how do you start investing in real estate? 

Understanding Real Estate Investments

Let’s start with the basics: What is real estate investing? Put simply, it is the purchase of real estate, which is a property or piece of land. That land includes anything natural or man-made within the boundaries, and it’s all real estate. 

In some cases, REIs use real estate, property, and land interchangeably. However, there are slight differences between these terms. 

• Land is the natural surface and airspace. 
• Real estate is the land as well as any man-made additions, such as a house. 
• Property, or “real property,” are the benefits and incentives aligned with owning real estate. 

So, real estate investing for beginners means buying land and any man-made additions. Under the umbrella of real estate investments, there are several categories. However, the most popular options are residential, commercial, and industrial. 

Now, you might be thinking that it’s too expensive for a novice. However, REI is a proven way to build wealth. Let’s take a look at how they invest in the real estate market. 

How REIs Make Money on Real Estate

Real estate investing is a time-tested way to make money. Moreover, there are multiple ways to earn a profit. The two main options are rental income and value appreciation. 

Rental Income

One of the main tactics for a passive income in real estate investing for beginners is to build a rental portfolio. When you rent out a property you own, the property appreciates value over time as you earn a monthly income. Moreover, your level of involvement is up to you. 

For many rental building owners, it’s worth it to hire a property manager to take care of tenants’ needs. Then, you can truly label it passive income. 

Ideally, your tenants pay off the mortgage or loan, and you earn some profit off the top. Once you pay off the loan, it becomes pure profit. All you need to do is ensure you factor in repairs and maintenance. 

Alternatively, some REIs use the BRRRR method to refinance a rental property and buy a new investment property. As they continue to do so, they build out a network of rental properties. 

Value Appreciation

Value appreciation is the increase in value over time. Historically, property values continually increase. Overall, location is the top factor that impacts this. 

That’s because property value increases alongside the desirability of an area. As you learn more about real estate investing for beginners, you may hear some people say “Buy the worst-looking house in the best neighborhood.” If you want a short-term project, it’s a good idea to buy a house to flip in a great neighborhood rather than an okay house in an undesirable area. 

However, that’s not to be confused with an area that’s gaining popularity. In some cases, you can find a great opportunity in an area that is trending upward. 

8 Strategies: Real Estate Investing for Beginners

If you’re a novice REI, getting your start in the industry seems intimidating. That’s entirely normal, and many investors don’t feel comfortable and confident in those early years. However, if you have a beginner-friendly investment strategy, you have a good place to start. 

While these are targeted at investors with limited experience, there’s still a lot of opportunity to profit. Finding the right niche to break into the industry is a great way to learn the ropes and build a network. With a more accessible strategy, you learn more about your local market, connect with other investors, and learn how to build capital without committing to more than you can handle. 

Then, you can use your profits and experience to invest in different strategies down the line. Let’s take a look at eight beginner-friendly investment strategies. 

1. Wholesaling is a strategy in which the investor acts as a middleman between sellers and buying. You enter into a contract with the seller and assign a buyer to that contract. 
2. REIT investing refers to a real estate investment trust (REIT), which is a company that manages properties that produce income. As an investor, you can purchase shares and view it as a stock investment.
3. Prehabbing is when you position a property for resale after minor cosmetic changes. Typically, you sell it off to another investor who finishes out the full rehabilitation. 
4. House flipping is a popular strategy in which you buy, renovate, and sell a property at a profit. 
5. Real Estate Investment Groups (REIG) are businesses that focus mainly on real estate, pooling capital from multiple investors to invest in a larger opportunity, such as a commercial property. 
6. Online real estate platforms allow investors to connect with developers in order to finance projects. In exchange, the investors receive monthly or quarterly payments with interest. 
7. Real estate syndication is similar to crowdfunding, but there’s a team approach. Investors pool skills and resources to buy larger properties and share the profits. 
8. Rental investment properties can help you secure a monthly income stream, especially if you want to be a landlord. However, you can also work with a property manager instead. 

1. Wholesaling

One of the fastest ways to break into the REI world is wholesaling. First, you secure a property under the market value. Then, you find an end buyer and assign them to a contract. 

You never actually own the property. Instead, you add a fee to the contract at the end. The key to success in real estate investing for beginners here is to build a strong list of buyers. Essentially, it’s a list of investors looking for a new opportunity. 

Luckily, this strategy does not require significant capital to start. You may need some funds to market yourself or your opportunities, but you never directly purchase a property. Moreover, you build a network over time and gain a better understanding of your market. 

2. REIT Investing

REITs let you invest in real estate without specifically identifying and purchasing property. Often, people compare these trusts to a mutual fund. An REIT is a company that owns commercial real estate, such as retail spaces, hotels, offices, and apartments. 

Typically, they are a common investment for retirees because they tend toward high dividends. If you don’t need a passive or regular income, you can reinvest dividends into additional growth. 

But, are they a good investment for beginners? They can be either simple or varied and complicated. Some trade like a stock, but others aren’t public. If you invest in an REIT, the type is important because it impacts the risk you take on. A non-traded REIT is harder to sell and harder to value. 

For beginners, it’s a good idea to start with a publicly traded option, which you can invest in through a brokerage firm. To do so, you just need an account, which is easy to set up. 

3. Prehabbing

With real estate investing for beginners, prehabbing is an excellent option. Unlike a flip, which involves more of a financial investment to make significant updates, a prehab focuses on small changes. 

Typically, investors enhance the property just enough through sweat equity to make it more appealing to other investors. Here are a few examples of how they might update the property. 

• Landscaping is a great way to improve the curb appeal of the property. If someone doesn’t want to look at the outside, they won’t look at the inside. 
• Painting can be a simple way to touch up the indoor and outdoor spaces of a property, even for beginners. 
• Cleaning up a property, removing any trash or debris, can have a strong impact on the appeal. 

If you want to use this strategy, it’s important to understand that not every property is a good fit. Look for opportunities with good structural integrity that just need a little TLC. Always avoid houses that require expensive repairs outright. 

Remember to keep location in mind as well. Do some market research to find a popular area or a trendy neighborhood. 

4. Flipping Houses

If you’re a fan of HGTV and home improvement shows, this might be the strategy for you. To flip a house, you find an underpriced home that needs work, renovate it on a budget, and sell it for a profit. When it comes to real estate investing for beginners, house flipping is not as easy as it looks. 

It’s a more expensive endeavor, especially with higher costs for building materials. That’s why flippers tend to work with cash instead of mortgages. If they do use a loan, they are more likely to work with a private hard money lender. 

A lot of the math behind house flipping requires an accurate estimate of what repairs will cost. That’s not an easy thing to do. For a novice, it’s a good idea to find a partner with experience.

If you have the time or capital, you can work with a contractor who knows how to estimate expenses or manage renovations. 

5. Real Estate Investment Groups 

A Real Estate Investment Group (REIG) focuses on real estate investments. The group pools investor money to buy a commercial property or multi-unit complex. In some cases, they also choose to flip properties for a profit. 

These companies are a bit different from an REIT because they offer more flexibility. To leverage more strategies or diversify income, they may change their investment strategies over time. Alternatively, they might invest in different types of real estate depending on the cash flow or income generated.

Typically, REIGs attract investors seeking returns without actively managing properties. 

6. Online Platforms

Online real estate investment platforms connect developers to investors in order to finance projects. For investors, the goal is to receive monthly or quarterly payments in exchange for the risk. Generally, you pay a fee to the platform. 

As with private REITs, it’s more difficult to value or unload these investments. To put it simply, you need money to make money, so it requires capital you’re willing to part with for a certain amount of time. 

Moreover, these platforms remain open mainly to accredited investors. The SEC defines this as someone with an earned income over $200,000 in each of the last two years or a net worth of $1 million or more, without considering a primary residence’s value. 

However, there are alternatives, such as RealtyMogul or Fundrise, if you do not meet those requirements. 

7. Syndication

Real estate syndication is a strategy in which you partner with other real investors. The common goal is to identify and purchase properties. Generally, the group splits responsibilities between the investors and the sponsor. 

• The sponsor finds potential investment and secures a contract. Additionally, they may manage the property. However, they don’t always contribute capital to a property, offering skills and time instead. 
• Investors provide the funding and cover additional costs for repairs or renovations, receiving payments over time. 

The syndication occurs once they complete the exit strategy. For instance, the exit strategy may be to renovate and sell the property. Typically, the sponsor receives an agreed upon amount in exchange for their work. 

8. Rental Property Investment

In this guide to real estate investing for beginners, we’ve mentioned rentals several times. One common example is to purchase a multi-unit building, live in one, and rent out the others. This sort of setup can cover the expenses of the property while bringing in a profit. 

Often, people refer to this as house hacking, and it’s a way for investors to find their start. Investing in a rental is a great way to earn a monthly income. If you purchase a building at the right time, in a good location, you can cover the mortgage as well as any expenses. 

As the owner, you can decide how active or passive your role is. For example, you can hire a property manager to handle the day-to-day business while you enjoy the profits. 

Closing Thoughts

Real estate is a proven investment with historical success. However, real estate investing for beginners is a tricky path to navigate. The challenge comes in breaking down how to invest and doing your due diligence to find the right type of investment. 

Unfortunately, there’s also a common problem of capital. Luckily, there are private lenders who work with real estate investors to provide flexible, personalized loans that meet their specific needs. 

Above, we covered several strategies on how to break into real estate investing. At King James Lending, that’s the type of coaching we provide to our clients every day. Our goal is to help each of our clients grow a stronger investment portfolio and develop a thriving community across Houston, the Gulf Coast Bay Area, and beyond. 

Take some time to learn more about the REI world, and contact us to see how we can build a better partnership and find the right strategy for you.

Eventually, though, you might want to replace it with a longer-term loan. For example, if you want to turn an investment property into a rental, refinancing a hard money loan can help set you up for long-term success. 

However, the process isn’t always as straightforward as it may seem, so let’s take a look at how to refinance a hard money loan. 

The Benefits of Hard Money in Real Estate Investing

When you work in a competitive real estate market, it’s important to have access to funds quickly. You may hear people say that cash is king. However, many real estate investors know that it’s not always necessary. 

When investors use hard money, there are several benefits. 

• First, it allows investors without “cash in hand” to purchase a property and fund their flip. As such, they are able to compete with local or national cash buyers. 
• Second, the flexibility and speed make it much easier to act on an opportunity because you don’t have to wait for traditional loan processes. 

While these loans are great for investors, it’s important to remember that they are short-term loans, lasting 1-2 years at most. If you want to sell the property, you can pay off the loan and pocket the profits. 

However, if you have a different exit strategy, refinancing that loan may help you with a longer-term plan. 

Why Refinance an Investment Property?

So, how can you refinance hard money loans to use a different investment strategy? Let’s take a look at an example. 

REI Ian wanted to sell a property at a profit and pay off their loan. Why would Ian choose a different exit? Well, there are many reasons and many options. 

If Ian feels that the market is volatile, he might choose to keep the property. Refinancing a hard money loan can help him hold onto that property without the short-term restrictions. 

Alternatively, Ian might choose to convert the property into a rental for a passive income. He could refinance the property, pay back the loan, and rent the property out to build up his income. 

That’s actually part of how the BRRRR method works. This method uses the best benefits from other investment strategies and combines them into a single, ongoing technique. 

How to Qualify for Refinancing

Before you look at how to refinance a hard money loan, it’s important to understand the requirements. While the precise requirements depend on the loan you choose, it really breaks down into two metrics. 

Financial Terms

Refinancing hard money loans may involve more work than a conventional mortgage loan. This is especially true if you choose to refinance hard money with a traditional loan. 

If that’s the case, you would go through the mortgage process, as you might for buying a new property. That includes the bank’s requirements for credit scores, income, employment history, etc. 

If you used a hard money loan because these requirements were a hurdle, that may be a problem. However, some refinancing options don’t have as many requirements. 

Additionally, the new lender will ask to see the payment history on the hard money loan. Any history of late payments will make it harder to get approval. 

Property Terms

If your finances check out, you have to ensure the property qualifies as well. Generally, that means it needs to be ready to rent, not in the middle of renovations. 

Additionally, most lenders only allow you to refinance seasoned rental properties. That means you may need to wait six months or so to build equity. 

Can You Refinance a Hard Money Loan?

Yes, you can refinance a hard money loan. However, there are parts of the process that may make it more difficult. Overall the process is similar to refinancing any type of mortgage. You just have to understand the terms and conditions. 

How to Refinance Hard Money Loans

These are the three most common ways to refinance hard money loans. 

• Traditional bank loans 
• Government-backed loans
• Long-term rental loans

There are unique advantages and disadvantages to each.

Traditional Bank Loans

As mentioned above, to use a conventional loan, you have to meet the usual requirements. These vary between banks, but these are the common requirements. 

• Mortgage insurance: required if under 20% equity
• Minimum equity: 20% for cash refinancing or as low as 5% for rate-and-term
• Credit score: Over 620 for many banks
• Debt to income ratio: Under 50%
• Seasoning for cash refinancing: Six months is standard but varies by state and lender

Again, these are not set in stone and will vary by lender and your specific financial situation. However, it can be challenging to refinance hard money loans with a conventional loan. 

Rental Property Loans

Rental loans are a long-term loan specifically designed for real estate investors. The purpose is to resolve the issues involved in conventional loans. 

• Secure funding faster
• Looks at property as an investment instead of your personal qualifications
• May be able to waive “seasoning” if you have a signed lease

If you plan to follow the BRRRR method, some lenders can help you with a more personalized solution. For example, they might bundle a short-term bridge loan with your refinancing into a rental loan. This can save you money on fees while providing different incentives. 

Rental loan rates won’t be as low as traditional loans, but the benefits may be worth it. 

Ready to Refinance?

So, the bottom line is that yes, you can refinance hard money loans. In fast, doing so may be your best option. It all depends on your specific situation. 

If you have questions about your loan or how to handle a rental property investment, please reach out to the team at King James Lending. As your partner, we are here to help you grow.

However, investors have a variety of opportunities, such as DSCR loans, to leverage. DSCR loans help real estate investors of any experience level purchase a property and grow their portfolios. Unlike traditional mortgage loans, DSCRs do not require specific proof of income. 

Instead, REIs qualify based on cash flow, providing them with faster closing times and flexible solutions for funding flips. 

So, what is a DSCR loan, and how do you know whether it’s the best option for your next project? These loans make it easier to qualify based on income, which allows investors to reach ROI more quickly. Below, we take a look at the risks and opportunities that come with these loans. 

If you find you still have questions, our team is always willing to help you find the right solution for your situation. 

What Is a DSCR Loan?

DSCR stands for debt service coverage ratio. It’s a metric lenders use to determine whether someone can repay their loan. Typically, a real estate investor has a lower net income once they deduct expenses from their taxes. 

Unfortunately, that impacts their ability to secure a conventional loan. Generally speaking, traditional mortgage lenders have strict requirements that they follow. This prevents them from providing loans to many REIs. 

However, a DSCR makes it much easier for an REI to qualify on a loan for an investment property based on cash flow, such as rental income, instead of their job history or personal income. 

How to Calculate DSCR

To calculate DSCR, you divide the gross rental income by the debt service. The product is a decimal that tells you whether a property has a high enough income for you to repay the loan. 

DSCR = Gross Rental Income / Debt Service

How Does a DSCR Loan Work?

A DSCR is specific to real estate investors. It is not meant for someone to purchase their primary residence. Instead, it allows an REI to purchase and renovate a short or long-term rental property, which can apply to apartments, condos, townhomes, and houses. 

The DSCR is a calculation that tells your lender whether you will be able to repay your loan with the rental income. If your DSCR is 1, it tells your lender that you will have exactly enough income from your investment to repay the loan. 

However, that’s not an ideal figure because there are other obligations as a landlord that result in expenses. From maintenance and repairs to employees and contractors, there are many factors to consider. 

So, lenders typically look for a higher DSCR, such as 1.25, as proof of your ability to repay while maintaining extra cash flow to cover expenses. The higher the figure, the more appealing it is to lenders. In turn, you are more likely to qualify for higher loan amounts. 

What DSCR Do Lenders Accept?

DSCR requirements vary from lender to lender. While many look for 1.25, there are other lenders who work with higher-risk projects to offer more flexibility. Still, it’s important to increase your ratio as much as possible for a few reasons. 

• Reduce interest rates
• Ensure you get the loan you need 
• Gain a proper calculation that provides a cushion for your profits 

While lenders don’t look at your personal income, there is documentation to review to ensure the cash flow meets any DSCR loan requirements. To apply for these loans, it’s important to show a signed lease agreement with current rental income. Alternatively, you might show an appraisal of your investment property. 

Benefits of DSCR Loans

• Faster approval process: Typically, DSCR loans have a faster application and approval process, which is good for real estate investors who need a quicker turnaround to take advantage of opportunities. 
• Continuous cash-out: With a DSCR, you have the option to take out additional funds when you need to cover expenses such as renovations or repairs. 
• Accessibility: The ratio is the main factor for eligibility, which allows REIs to bypass personal income limitations. 
• Flexibility: REIs can use a DSCR for any type of rental property, including short-term rentals and long-term rentals, as well as any type of property. 
• Multiple properties: Investors who use this type of loan have the potential to work with multiple properties at once. While traditional loans don’t allow an investor to purchase another property until they repay the debt, a DSCR program allows you to build out your portfolio. 

Risks of DSCR Loans

As with any type of loan, there are pros and cons with a debt service coverage ratio loan. It’s important to understand both so that you can find the best financial solution available to you. 

• High interest rates: The rates with DSCR are higher because the loans carry an inherent risk, as any investment does. 
• Rental investments only: These loans are specific to rental properties, not to purchase your primary residence or flip a property. The goal is to generate cash flow continuously. 
• Limited financing: These loans offer amounts up to $5,000,000. When your goal is to purchase a property in a more expensive market or to buy multiple properties at once, you may need a different loan. 
• Higher down payments: Often, lenders require a sizable down payment, which may be higher than a conventional mortgage. 
• Vacancies at the rental: It’s common for a rental to have vacancies at times. Unfortunately, that means reduced cash flow. Lenders don’t always take this into account, so a vacant property can impact your ability to repay the debt. 

Are DSCR Loans Right for Me?

With a clearer idea of the opportunities and risks associated with DSCR, how do you know whether it’s the right way to fund your next project? Keep in mind that these loans are specific to rental properties. 

Whether you are a new or veteran investor, a DSCR loan is a good option to consider. This is because it allows you to qualify based on rental income instead of your personal finances. 

If you are a novice real estate investor, this type of loan can help you reach your financing goals to fund your first project. For veteran investors, it’s a good way to finance projects and increase your rental income. 

While no loan option is perfect, whether it’s a good fit depends on your goals, situation, and project. If it doesn’t seem like a good fit, work with a lender who can help you find the right solution for you. 

Ready to Start Your Next Project?

With DSCR loans, investors have a way to build out their rental portfolio without worrying about the limitations of traditional mortgages. Instead, fund your next project quickly and easily so that you can benefit from a streamlined timeline. 

Contact the team at King James Lending today to learn more about our loan options. Let us help you find the best solution for your funding woes. Call us or apply for a loan with King James Lending today.

In real estate, a short sale is an offer on a house at an asking price reduced based on the amount of the mortgage left due. Most often, the sale covers a distressed property when someone needs to sell to avoid foreclosure. After this type of sale, the proceeds go to a lender who can choose to forgive the remainder of the mortgage. 

What to Know

• Short sales often indicate a distressed property.
• The mortgage lender has to approve the sale in advance. 
• Lenders can either forgive the debt or require the payment of a shortfall. 
• For a real estate investor, a short sale can be a great opportunity. 
• Typically, the financial impact of this type of sale is less severe than foreclosure.

How a Short Sale Works

Usually, a short sale occurs when a homeowner is in a dire financial position. Often, it’s because they missed a mortgage payment once or several times. As such, there’s a fear that they may face foreclosure in the near future. 

Generally speaking, there’s a rise in these sales when the housing market falls. A common example is the 2007-2009 financial crisis, which led to plummeting home prices and a steep slow in sales. 

For instance, when real estate values drops, a homeowner might sell a house for $150,000 while they still owe $180,000 on their mortgage. That $30,000 difference is the deficiency. 

Key Considerations for Homeowners

While a short sale hurts the homeowner’s credit score, it does far less damage than foreclosure. This is because there’s a note on the property sale that marks it as “not paid as agreed” which puts a dent in their credit score. 

However, these sales don’t always meet the remaining debt on the mortgage, as shown in the example above. There are two aspects to a mortgage. 

• The lien against the property secures the loan to protect the lender, giving them the right to sell the property.
• There’s a promise to repay the loan, which lenders can enforce through a new note or collection of the debt. 

In any situation, the lender has to approve the short sale, which can leave the homeowner in a tough situation. 

Advantages of a Short Sale

Typically, the homeowner stays in the property during the process. With certain restrictions, they may be able to purchase a new home immediately after. 

While a foreclosure has dire consequences for your financial situation, it allows you to walk away from the property. Alternatively, this type of sale requires more legwork but can be more beneficial in the end. 

Understanding The Process

Here are the steps involved in the process. 

1. Consult your mortgage lender: Be sure to cite new circumstances and financial difficulty when you make your case. 
2. Consult experts: You can work with a lawyer, tax specialist, and a real estate investor or agent to explore your options.
3. Set a price: If you’re working with an REI, they will make you an offer. You just need to know whether it works for your situation.
4. Gather documentation: The more you can prove your financial situation, the better. 
5. Find a buyer: For a quick sale, you can work with an investor to get a cash offer. 
6. Submit a proposal to your lender: Once you have everything in order, submit the proposal. 

When you work with professionals, you can make the process easier on yourself. Those with experience can help you navigate the details to ensure your proposal is appealing to your lender. 

Final Thoughts

A short-sale property is a tough situation for the homeowner but can be a great opportunity for a real estate investor. Often, these homes are in decent condition, although they may require some repairs and renovations. While the purchase price may be higher than a foreclosed home, the cost of repairs tends to be lower, and the disadvantages are nowhere near as severe. 

However, the process can take some time. With an experienced hard money lender on your side, you can find a fair offer and work to negotiate with the bank.

Done right, you never have to put down a dime of your own money. Real estate wholesaling is a way to conduct REI deals without ever purchasing a property yourself. 

Are you new to the REI community? If so, our wholesaling guide will lay out the basics of what to know and how to start. 

What Is Real Estate Wholesaling? 

Wholesale real estate is an investment strategy in which an REI has a contract with the seller of a property and sells that contract to another investor. Typically, a wholesaler starts by identifying distressed properties to put under contract. 

Much like flipping a house, you need to identify a house priced below its market value. Generally speaking, these homes require repair and renovations, and the property owner has a motivation to sell outside of the traditional real estate market. Often, their goal is either speed or avoiding the cost of repairs. 

Next, the REI enters into a wholesaling contract and reassigns the contract to a new buyer at a higher price. The difference is a wholesale fee, and it’s usually about 5-10% of the total property value. 

If want to start your career as a real estate investor but don’t have the capital, real estate wholesaling can be a good entry point to build capital for another project. 

Wholesaling In Action: A Clear Example of the Process

Now, the process may seem complex, but it’s simpler than it sounds. Let’s look at an example to break it down. 

Scott is a homeowner who feels that he can’t sell his property because it needs too much work to make it appealing to buyers. He doesn’t have the funds for the renovation process, so he drags his feet on trying to sell. 

Jack approaches Scott with an offer to put the house under contract for $125,000. Then, Jack uses his network and finds James, a potential investor willing to buy the property for $160,000. James takes over the contract with plans to flip the property. 

Scott is able to sell his property, and Jack walks away with $35,000 in profit without putting his own capital on the line. 

Pros & Cons of Wholesale Real Estate

As with any investment strategy, there are advantages and disadvantages to real estate wholesaling. Here are some of the core benefits and drawbacks to consider. 

Advantages

• Wholesaling is a great entry point for those who want to start a career as a real estate investor. 
• It opens you up to real estate deals in markets outside of your immediate area. 
• You have a chance to build capital quickly. 
• The process requires limited capital, which reduces the risk of the investment. 

Disadvantages

• Finding the right type of property and buyer requires research and a network. 
• Success and profit in wholesale real estate require patience. 
• Property owners have to feel comfortable with the strategy, and investors have to be open to buying. 
• Other investment strategies have higher risk and higher rewards, while wholesaling provides a lower profit margin. 
• Profit depends on availability, making the process unpredictable at times. 

Real Estate Wholesaling Vs House Flipping

One important thing to understand about wholesaling is that it’s entirely separate from flipping houses. While both REI strategies involve the purchase of a distressed property, they approach it in different ways. 

When you choose to fix and flip a property, you buy it directly from the seller and take the time to renovate it. Once you increase the value of the home, you find a buyer and sell it at a profit. 

In wholesaling, you enter into a contract without directly buying the property. Moreover, you are not doing the repairs yourself. Instead, you charge a wholesale fee to another investor or buyer who then fixes the home. 

Generally, you see less money in these deals. However, you don’t have to invest your own resources into the deal. 

Whole Sale Real Estate Step-By-Step

When you want to get your start in the REI community without the cash, wholesaling is a lucrative opportunity. Below, we look at the eight steps of the real estate wholesaling process. 

1. Research

Take some time to familiarize yourself with wholesaling laws. Additionally, look into the markets to find one that is active and has opportunities that apply to this situation. 

2. Identify the Right Opportunity

Successful wholesaling requires the right opportunities. Your ideal property is listed below its market value and offers a profitable opportunity to your end buyer. 

First, identify a homeowner with the motivation to sell quickly without renovations. For example, a home in foreclosure or with liens is a good starting point. 

These tactics can also help you drudge up opportunities. 

• Direct mail targeting specific areas
• Social media networking 
• Online REI networking groups 
• Multiple Listing Services (MLS)

Diverse methods are a good way to cover a broad range of opportunities as you start out. Be sure to pay attention to the method that works best and make changes as you move forward. Over time, you can find the best strategies for you to identify the right opportunities. 

3. Work the Numbers

Once you identify the property you want to contract, find the numbers that make sense for you. Does it make financial sense for you to enter into a contract? 

To understand the situation, you need to find the fair market value of the property as well as the general estimate for repairs. When you have this information, you can find the highest price you can pay for the property. 

4. Contact the Homeowner

Next, you need to reach out to the owner and gauge their interest and motivation. This information isn’t always readily available, but you can find public tax records and search for them online. 

When you make an offer to the owner, it’s a good idea to identify yourself as a wholesaler. Explain why working with you is beneficial and how you plan to help them sell the property. 

5. Due Diligence

If you invest in property online, it’s more difficult to do your due diligence. However, it is still possible. 

First, verify the fair market value of the home. To do this, you can compare similar properties sold in the area. Additionally, you can check occupancy rates, rental income, and other factors. 

6. Sign the Contract for the Property

Present your offer to the owner and enter into a contract with them. Be sure that your contract includes an inspection contingency. This contingency provides you with an exit if an inspection reveals unexpected issues. 

Include the right to assign the contract to another party as well. This allows you to sell the contract to your REI buyer.

7. Find a Cash Buyer 

Once you have the contract in place, your next step is to find a motivated buyer. If you have a network of real estate investors, you can present the opportunity to them. 

Alternatively, you can contact a realtor in the area who can identify recent cash purchases. Social media and networking events are also great tools to connect with investors. 

8. Reassign the Contract to Your Buyer

With an interested investor, you can assign the contract and close. DocuSign makes this process smooth and simple. Then, you pocket your fee and leave the buyer to do their work. 

Final Thoughts on Wholesale Real Estate

If you want to find an entry point for real estate investment that doesn’t require capital, real estate wholesaling might be the right option for you. When you wholesale, you have a unique opportunity to reach new markets and earn a profit. 

Typically, real estate investment, even wholesaling, requires some capital to pay for investment properties. At King James Lending, our hard money loans provide the resources investors need to make the most of every opportunity.

What sets this method apart from other investment strategies is that it focuses specifically on distressed homes and refinancing loans. If you are a real estate investor and want to explore this strategy, you’re in luck. Below, we break down how the BRRRR method works, the benefits and disadvantages, and whether it’s a good fit for your goals as an investor. 

How Does the BRRRR Method Work?

When used well, this method has the potential to provide passive income as well as a consistent means to buy and own rental properties. 

Here’s how it works. 

1. Buy the property: Ideally, you purchase a distressed property at a reduced price because it needs repairs and renovations. Your goal is to bring it up to code as a rental. 
2. Renovations: Any distressed property needs rehab, but some require extensive repairs. Here is where you renovate the property to make safety, visual, and structural improvements so that it is appealing to your ideal renters. 
3. Rent it out: Determine a rental price that will work for the type of renters you want. 
4. Cash-out refinance the property: With this type of loan, you turn the property’s equity into cash. You take out a bigger mortgage and borrow more money than you currently owe. Then, you use the cash for anything you need, including buying your next investment property. 
5. Reinvest: Lastly, you start the process again as you reinvest the difference into a new property. Find your next distressed property and renovate it before you rent it out and refinance it. 

Benefits & Disadvantages

Before you dive into your own BRRRR investment strategy, it’s important to weigh the pros and cons. It can be a solid strategy for investors, but it’s not for everyone. 

Pros

• Start a passive income stream
• Build your rental portfolio
• Grow equity through renovations

Cons

There are a few cons to consider. 

• Cost and labor of renovations
• Risk in continuous investment 
• Requires patience 

In some cases, it takes time to build equity in a property. Additionally, it’s not always easy to find good tenants. Luckily, we have a few tips to follow at each step of the process. 

Tips for Using the BRRRR Method

As you work through the BRRRR strategy, it’s important to follow the steps in the right order. Below, we provide a few tips to help you along the way. 

Buy

First, this strategy requires you to purchase a property that needs extensive repairs and renovations. Unfortunately, that makes it more difficult to get a traditional mortgage. There are a few reasons banks are wary of this. 

Generally, mortgage companies and banks require property appraisals. However, it’s more difficult to assess the value of a distressed property. Certain mortgages also have specific guidelines for approval that this type of property won’t meet.

Still, there are other options for financing, including fix and flip loans specifically meant for real estate investors. When you purchase a distressed property, it requires a careful calculation of the value after repairs, or after-repair value (ARV). You can estimate the ARV by comparing the end result with similar properties in the area.  

For a proper estimate, look for properties that have a similar size, number of bathrooms and bedrooms, type of build, condition, and age.

Rehab & Renovation 

When you renovate a property, you have to bring the home up to code so that it is safe to live in. Next, find the improvements that increase the value of the property. 

• Update the kitchen and bathroom 
• Improve the curb appeal with visual enhancements
• Install energy-efficient appliances and windows 

Before you start your rehab, put together a realistic budget and timeline. Leave a decent cushion for unexpected issues as well. 

Rent It Out

As you reach the Rent stage of the BRRRR method, you want to find renters before you attempt to refinance the property. Generally, lenders prefer that a property have tenants before they approve a refinance. 

So, how do you choose the right renters? There are a few qualities to keep in mind. 

• Consistent record of on-time payments
• A solid credit report 
• Steady income from a stable job
• Positive references 
• No criminal record or history of eviction

Usually, you can learn this information when you meet potential tenants and have them fill out a rental application. Then, you can review their credit report, call references, and perform a background check. Of course, you also want to ensure you have their consent and follow housing laws. 

Additionally, you need to determine a rent price that falls into your ideal range. Find a price that is fair for your tenants while providing a cash flow for your BRRRR strategy. One way to calculate this is to deduct the expenses of owning the home from the total amount of rent you plan to charge each month. 

For example, if you plan to charge $1500 for rent, and your mortgage is $800, you’d have a cash flow of $700 each month. Alternatively, you can look at similar rental properties in the area to find competitive rates. 

Refinance Your Rental 

The next step of the BRRRR method is a cash-out refinance on your rental property. This allows you to use the difference to purchase your next rental investment. To do this, you need to work with a lender who offers cash-out refinance and meet their qualifications. 

Every private lender has their own set of guidelines, which may include credit score requirements, debt and income ratio, and equity. Additionally, you may need to own the property for a specific amount of time before you are able to refinance it. 

Repeat the Process

Finally, you use your refinance to start the process from the beginning. Follow the same set of steps as before. If you want to continue using the BRRRR method, it’s a good idea to keep notes every time you use it. 

Examine your process every time and learn from any mistakes or problems you encountered. 

Ready to Start Your Own BRRRR Strategy? 

The BRRRR method is a great way to increase your passive income and build your REI portfolio over time. However, it requires a good amount of patience to renovate the property, find good tenants, and build equity before you refinance. 

Before you plan your next move, weigh the pros and cons and find a lender that will work with you throughout your investment journey.

Partnering with a Trusted Lender

Partnering with a trusted lender like King James Lending can provide real estate investors with access to various financing options, including hard money loans, fix and flip loans, and bridge loans. Our team of experts can help you navigate the financing process and find the best solution for your investment needs.

The BRRRR method is a powerful real estate investment strategy that can help investors build wealth and achieve financial freedom. At King James Lending, we understand the challenges and opportunities of real estate investing and offer various financing options to help investors achieve their goals. Contact us today to learn more about our services and how we can help you implement this method in your real estate investment portfolio.

Most successful real estate investors have years of experience and have learned through trial and error. It requires extensive research, but once you understand the intricacies, you’ll witness an increase in your financial portfolio.

If you’re a novice real estate investor, it’s crucial to avoid the five common financial mistakes that newbies usually make. By doing so, you’ll be better prepared to invest wisely and avoid potential pitfalls.

1. Lack of Research

Investing in real estate is a significant decision that requires thorough research, just like making a big purchase. It’s essential to research various properties, their neighborhoods, and price points to ensure that you’re making a wise investment. Here are some questions to ask before choosing a property:

• What is the seller’s situation, and do they need to sell?
• What is the property’s market value?
• Can I negotiate a discount on the purchase price?
• How much will it cost to renovate or repair the property before renting it out?
• Can I generate positive cash flow after all expenses?

Researching all the financial aspects of a property will save you money in the long run. Failing to do so can lead to unexpected expenses and losses. With proper research, you can make informed decisions and maximize your investment potential.

2. Paying Too Much for a Property

Finding a property to invest in is exciting, but it’s crucial to stick to your budget and avoid overbidding. It’s essential to focus on making a profit rather than becoming emotionally attached to the property and paying more than it’s worth.

Before making an offer, ensure that the property’s price is reasonable and within your budget. This ties into the research aspect, but don’t forget to compare the property’s price with others in the area. If you’re unsure about the property’s value, seek the advice of a real estate broker.

Negotiation is an essential part of the purchasing process, and you can always try to negotiate a better price with the seller. Remember that paying too much can lead to financial losses, so make sure to stick to the numbers and prioritize profitability.

3. Working With a Property Manager Before You’re Ready

Investing in real estate is about making money, not losing it. While it’s essential to seek professional assistance when needed, you can save money by taking on some tasks yourself.

As a landlord, you’ll need to manage the property’s maintenance and operations, which can be time-consuming. However, developing these skills and managing your time efficiently can help you skip hiring a property manager, saving you 8-12% of your revenue.

Learning how to manage your property yourself can also help you better understand the process and make informed decisions when it’s time to hire a property manager. By doing so, you can invest more money in your property rather than spend it on unnecessary expenses.

Investing in real estate requires careful planning and management to ensure profitability. While seeking professional assistance can be helpful, taking on some tasks yourself can save you money and help you better understand the process.

4. Not Prepping for the Project

Real estate investing is more than just a side hustle; it’s a business venture that requires careful planning and management to ensure success. Many new investors make the mistake of ignoring this fact, which can lead to costly errors.

To be a successful real estate investor, you must treat it like a business from the start. This means having the right mindset, putting in the necessary effort, and ensuring that your business is legally protected.

Make sure your business is properly set up, insured, and protected by creating an LLC or Corporation. Consulting a CPA can help you determine which option is best for you. As a landlord, it’s also essential to know how to work with your tenants to ensure they stay at the property and are satisfied. Low turnover will secure your income and ensure that you have a consistent cash flow.

Treating your real estate investments as a business can help you avoid costly mistakes and ensure long-term success.

5. Forgetting to Plan Your Expenses

Owning a property and being a landlord means you have ongoing expenses beyond just the mortgage payment. It’s crucial to maintain the property for your tenants’ satisfaction and your own financial success.

Think of your own home – you need to mow the lawn, replace appliances, pay taxes, make repairs, and more. These expenses add up and need to be factored into your budget, as they are not typically the tenant’s responsibility.

Create a list of all the necessary maintenance tasks and associated costs to maintain the property. This will help you accurately calculate the expenses and determine if you can generate long-term positive cash flow. Remember, properly maintaining the property will help secure your income and keep your tenants happy.

Final Thoughts

By being aware of these common mistakes that new real estate investors often make, you can take proactive steps to avoid them and set yourself up for success. By doing your research, sticking to your budget, treating real estate investing as a business, and factoring in all expenses, you’ll be well on your way to achieving your financial goals through real estate investing. 

Good luck on your journey toward financial freedom! At King James Lending, our goal is to help REIs reach their goals and continue to grow with hard money loans for real estate.

Let’s take a look at this strategy and how investors use it to build a diverse portfolio. Then, we’ll provide a few tips for those new to the strategy. 

What Is Buy-and-Hold Investing?

The buy-and-hold strategy may sound complicated. However, it’s actually quite simple in practice. Instead of buying, fixing, and flipping a property, the investor purchases a property (or properties) to keep in a long-term portfolio. 

In many cases, these properties become rental properties. When real estate investors hold onto projects for an extended amount of time, it protects them from short-term fluctuations in the market. 

If you do the right research and choose a property that can appreciate in value, you have the ability to earn a passive income from tenants. Moreover, you have a property that steadily increases in value. 

5 Tips for New Hold Investors

This REI strategy can be quite lucrative with the right planning and hard work. However, knowing how to set yourself up for success is important. Here are 5 tips to help you handle buy-and-hold real estate investing. 

1. Find the Right Market

Markets appreciate at different rates. To ensure you invest intelligently, be sure to put in the research on the area as well as the property. 

2. Make Upgrades to Increase Rental Margins

If you intend to rent out your property, maximize your passive income by making minor yet meaningful improvements. Consider some simple renovations, such as the following: 

• Refinishing cabinets
• Adding newer appliances
• Updating with a new coat of paint

3. Crunch the Numbers

Before you make a purchase, understand the numbers of your investment. Know the monthly fees and any associated costs. Additionally, plan out a range for the income you expect to receive from rental. 

For instance, some neighborhoods have a Homeowners Association (HOA), and these organizations require monthly fees. Often, REIs avoid buy-and-hold investing in these areas because the fees cut into their return. 

4. Know Your Landlord Duties

Typically, investors do not want to be landlords. Luckily, there’s a simple solution: a property manager overseeing the property on your behalf. Again, it’s important to take this into consideration beforehand so that you factor it into your calculations. 

5. Have an Exit Strategy

Before you dive into buy-and-hold-investing, many REI professionals recommend thinking through a way out of the property. Consider how long you plan to invest and what factors might make you pull out early. 

This helps you protect your investment, your portfolio, and yourself. Additionally, it will help you better understand the market. 

Plan & Finance Your Next Investment Today

Whether you are new to real estate investment or experienced in buy-and-hold investing, our team is here to help you build a better portfolio. The team at King James Lending is more than a group of private lenders. We are a community of REI professionals working together to improve neighborhoods. 

See how we can help you grow as an investor by contacting our team today.

New real estate investors may feel uncertain about where to start, making it crucial to heed advice from experienced investors. Here are a few tips to keep in mind when starting in real estate investing.

1. Choose Your Market & Time Your Investment

In real estate investing, understanding the local market is crucial for success. The factors that affect your specific market will significantly impact your investment more than broader national trends. A key strategy for success is to avoid markets that are experiencing a rapid increase in prices and activity, as these are often at the peak of their cycle and may soon experience a decline.

Real estate markets go through cycles driven by changes in economic conditions. Every market is at a different stage of its cycle. Identifying markets in the expansion phase (with rising sales and prices, good affordability, low construction, and increasing capital investment) is a good strategy.

It’s important to also consider the property’s location within the market. Investing in neighborhoods with high population density, development potential, and access to amenities is an intelligent choice. Additionally, avoid investing in properties at the peak of new construction, as oversupply and lower prices may follow in the short term.

2. Understand the “Hidden Market”

Acquiring property from a distressed seller is a beneficial scenario. it allows you to purchase it for less than its fair market value. Rather than focusing on foreclosure auctions, which may yield properties in poor condition, seek out homes with distressed sellers who have not yet listed them for sale.

Common examples include couples going through a divorce or families selling a loved one’s home. In these situations, people are motivated to quickly sell the property, and the buyer may be able to acquire a well-maintained home.

3. Know Your Market

To mitigate risks when investing in real estate, it’s essential to have a thorough understanding of your market. This will help you to accurately assess the value of an investment property. Familiarize yourself with the average cost per square foot of homes in the area and the potential rental income for a specific property. 

Additionally, make renovations that will appeal to the target market of buyers. For instance, avoid reducing the number of bedrooms in a family-friendly community or shrinking the size of the closet or master bathroom. 

Also, avoid installing features such as a hot tub or pool if they are not in high demand in the area. Instead, focus on investing in markets with growth history, such as the Greater Houston Area.

4. Get to Know the Rules

Before converting a basement into a second rental unit, ensure it is legal in your area. Similarly, check local zoning laws before converting the first floor of a building into commercial space. 

Additionally, never assume that you can add additional rooms or a second story to a building without proper permits. It’s important to understand the requirements and regulations before starting any renovation work.

5. Join a Networking Group

Joining a networking group of real estate investors can be a valuable step for those looking to expand their knowledge and connections in the industry. These groups provide a platform for individuals to share their experiences and insights and collaborate on potential investment opportunities. 

By connecting with other investors, you can learn about different strategies and market trends, gain access to exclusive deals and off-market properties, and receive mentorship and guidance from more experienced members. Additionally, networking groups can also provide access to industry professionals such as real estate agents, contractors, and lenders. 

It’s important to research and find the right networking group that aligns with your goals and interests. Joining a networking group can be a great way to learn from others, build relationships, and, ultimately, help you make better investment decisions.

6. Calculate Your Costs Up Front

As a new real estate investor, it is vital to have a clear understanding of all the costs involved in a transaction. Beyond the purchase price and realtor fees, there are expenses such as repairs and renovations to consider. Many novice investors struggle to accurately estimate the cost of fixing structural issues, electrical problems, and pest infestations. 

It’s important to remember that DIY work on a property can often decrease its value. Attempting electrical or plumbing repairs without proper training and experience can make a property unsellable. Additionally, don’t forget to budget for closing costs, insurance, and utility expenses to ensure a profitable deal.

7. A Rainy Day Fund

Having a contingency fund in place is crucial to handle unexpected expenses. This fund should be able to cover any future costs that may arise. The size of this fund will depend on the property type and the investor’s specific needs. It is essential to always be prepared for any eventualities.

8. Know the Tax Laws

Stay informed and up-to-date with the tax laws in your area. This way, you understand how to file for the right deductions based on local and state tax laws. 

9. Manage Your Risks

Risk management is crucial for success in real estate investment. To minimize risk, aim to put at least 10% down when buying a property, and aim for 20%, if possible, to eliminate private mortgage insurance and secure a lower interest rate. 

Keep a large cash reserve on hand to cover unexpected expenses and avoid the need to sell at a loss. Avoid properties with poor financial prospects, and do not become emotionally attached to a property. Remember that it’s an investment. 

Assess your risk tolerance and take action accordingly, whether it’s avoiding fixer-upper properties or building up your cash reserve before making a purchase. Consider turnkey properties as an alternative if the stress of fix and flip is not suitable for you.

10. Best in Class vs. “The Best”

A mistake often made in real estate investment is attempting to create a property that surpasses all others in the area. This can involve trying to turn a working-class area into luxury homes, which can result in financial losses as the property will not be able to be sold for the same price as it would in an upscale area. 

Instead of over-building, aim for “best in class” improvements that add value without excessive cost. Start by fixing broken or damaged items and make small, noticeable changes, such as adding two-tone paint or convenient soap dispensers. Avoid costly upgrades such as top-of-the-line appliances or expensive countertops and decor.

Developing Your Portfolio, Your Vision, & Your Career

Real estate investment is a viable path to financial success and freedom. It offers better cash flow prospects than the stock market, but it’s essential to be aware of potential mistakes. With the proper guidance and community, you can build a profitable portfolio alongside a group of investors looking to improve their cities. 

Common Expenses in Fix-and-Flip Investments

Before you think about how to get a loan for house flipping, know the costs that go into a fix-and-flip project. It might seem straightforward at first, but it takes a keen eye for detail to recognize the work and potential of a flip. 

So, calculate the costs you have to cover. Start with real estate itself and the improvements you plan to make. From there, review your cash flows to determine when money goes into and out of your bank account.

Here are some of the most common expenses for a real estate flip. 

Repairs, Renovations, & Improvements

When you want to renovate and flip a property, it requires labor, equipment, and materials. On top of that, distressed properties often require junk removal or even demolition. 

As you map out your project, remember that everyone runs into hiccups during a project. It happens for veterans and newcomers alike, but there’s always a way to work through the struggle. 

Don’t let those unexpected hurdles chip away at your budget and your profit. Maintain a cushion for yourself in a reserve fund to give yourself that wiggle room. 

Utilities & Monthly Costs

Often, real estate investors pay out utilities, ranging from water and gas to sewage and trash. If you aren’t sure about the average expenses in your project area, check with a local utility provider. 

Utility providers offer helpful insights to minimize your costs and make recommendations. For example, solar panels or smart thermostats can regulate your power expenses. 

Insurance

We all know how quickly the weather can change in the Gulf Coast area. Insurance coverage gives you a safety net in unfortunate yet unpredictable situations. It helps to protect your investment from natural disasters, accidents, and other concerns. 

Check with your insurance company to see what coverage they can provide. Distressed properties are a higher risk for them, so you might need a separate policy. 

Miscellaneous Expenses

You can’t predict every expense without the details. Map out your project as much as possible so that you have a clear road map and a nice cushion. 

For example, you might not want to change the floor now, but it might look a little better with natural stone tile instead of hardwood. That change means additional labor and materials to calculate. 

Alternatively, say you uncover a mess of rotten wood in a room that you didn’t plan to replace. Your cushion protects your profit from such unexpected expenses. 

Who Offers Funding for Investment Projects?

Different lenders offer different loan programs that may or may not be a good fit for your project. 

Here are a few common categories of lenders: 

• Traditional lenders: Credit unions, banks, and other financial institutions 
• Hard money lenders: Private lenders
• Crowdfunding sites: Services that allow you to solicit funds from a pool of investors
• Fintech services: App-based lenders

General Loan Types for Flipping Houses

The traditional types of loans, like the average 15-30-year mortgage, aren’t ideal for a short-term flipping.

As you wonder how to get a loan for house flipping, here are your best options: 

• Hard money loans: These loans are short-term and based on a different value model from other loans. Typically, they come from an investor group or a private lender. 
• Cash-out refinancing: With a cash-out refinance, you can capitalize on the equity built up in a property. It provides you with cash in exchange for a larger mortgage, meaning you can borrow more than what you owe and keep the difference. 
• Home equity lines of credit: A HELOC is a second mortgage that lets you borrow money against the equity of your current home. You obtain access to the funds as a line of credit. 

Not sure which option is right for you? Work with a lender you trust to explain what’s available and provide sound advice for your investment. 

How to Get a Loan for House Flipping in Texas

Many lenders offer a way to ease into the fix-and-flip world. The key here is to find the right property and the right lender for you. 

Think about the benefits of each option. Do they offer the support or personalized service you need? Does the lender provide any type of coaching to help you with your investment?

Service is key, and a good lender provides more than just a loan.

The Bottom Line: Get a Partner 4 Life

There are plenty of opportunities for real estate investors to finance a flip. Before you apply for a loan, do your research and get to know your lender. At King James Lending, we value our community and want every investor we work with to become a Partner 4 Life. 

That’s why we provide personalized coaching to our clients. We aim to help you make the most of your investment. 

Ready to see how to get a loan for house flipping with King James? Our process is simple and reliable, designed to help you close a deal fast. Contact our team today to fund your next project!