I have been investing in houses for over 20 years. I assumed that my son had learned a little bit about what I was doing along the way. I assumed wrong. I would like to clear up some of the easiest concepts to understand about how you can easily turn your first house into a money-making machine.
Myth1: Investing in house’s is hard and expensive
Sure, it could be if you make it that way, but what if you thought about it differently. Have you ever heard of house hacking? Do you really need a single family home when a duplex could pay for your rent? What about buying a house with more rooms to rent out? Could you rent out your house for a few weeks a year?
House hacking is when you use your house to make money. Buying a house is an investment, but buying a house does not provide cash flow. When you rent out your house you get money, but you don’t have to rent all of your house to make money.
This is a great strategy for a single person looking to buy a house. Buy more rooms than you need. You can also convert the garage into rooms if you have the space. This method can easily pay for your rent and provide extra income above your mortgage expenses.
Rent out the downstairs
If the house is designed right then you may be able to add a door to separate the upstairs from the downstairs and rent out the downstairs as an apartment unit. This works better for families that have kids and don’t want strangers sharing their living spaces.
This is by far the easiest way to invest in 2 units at once for single people or families. The hardest part about this is getting your hands on one because everyone knows this is a great way to invest in real estate. A good deal will have your tenant paying for most of your rent. A duplex is a great way to get your monthly living expenses knocked down.
You don’t have to rent your house out for months at a time to make money on Airbnb. Maybe you have a vacation planned or you have family you can stay with in order to be able to take a few weeks out of the year to make an extra couple thousand dollars. Depending on where you live it might only take three or four weeks to make an extra five grand. If you time it right you can take a vacation, you can visit family, or you can go on a work trip in order to get your house empty to list it and make money renting it out to people coming to the area for short trips.
Myth 2: You Need a big down payment
There were times in the past when you did need a big down payment but today there are 0 down home loan programs depending on where you live and if you’re a first time buyer. With 0 Down Home Loans you usually still have to pay for closing costs so keep that in mind.
How to find a 0 down program
Call a mortgage broker not the bank. Generally speaking you will get the best rates and fees through a mortgage broker. Now this is not always the case so shop around, but you will get the most options from a mortgage broker. Only one time have I ever found a better rate through a bank. After you add up all the fees, banks are usually more. In addition a mortgage broker can often match an offer you take from another competitor so always get multiple quotes.
If you can’t find a zero down Home Loan program then your next best option is an FHA loan with a 3.5% down payment. However, on a $300,000 house that’s about $10,500 which is more than a lot of people can come up with. There’s also a 0 down program with the USDA, Usually you would think USDA is only for farmland but there are plenty of rural areas that are not necessarily farmland but qualify for USDA loans. The only way to find out is to check their map on their site to see if the land you are looking at is in the right zone.A general broker won’t know about USDA loans and you will have to find someone who specializes in them.
Myth 3: I’ve bought a house so I’m not A First Time Buyers
A first time home buyer is someone who has not owned or purchased a home in the last 3 years, that is to meet FHA standards. That means you could have bought a house in the past and still qualify as a first-time home buyer if you don’t currently own a home. There may be other programs that have different definitions of a first-time home buyer, things change a lot so be sure to ask the right questions.
Myth 4: My credit is not good enough
In order to get the 3.5% FHA loan you only need a credit score of 580. Anyone should be able to do this. That means if you have some stuff on your credit you need to clean up then get to work. It shouldn’t take long to get to at least 580, this is a low score. My credit score is over 800, but you don’t need an 800 credit score, you don’t even need a 720 credit score like many banks want you to have. You can literally have terrible credit and still get an FHA loan.
Myth 5: You need to know how to work on houses to buy them
Sure it helps to know how to work on houses and it’s easy enough to watch some YouTube videos and learn the basics of any project you’re working on, but it is not a requirement. There are plenty of handyman services that a homeowner or landlord can call to fix issues with the house. It’s also better to be proactive and do proper maintenance to prevent problems from starting in the first place. Just about anyone can learn to maintain make basic repairs in the home. If you’re not interested in managing your property there’s also lots of great real estate management companies that will charge you a fee to find tenants and deal with repairs.
Real Estate investing is an exceptional way to make money in the long run. Buying your first house should be done as soon as you possibly can and you should turn that into an investment that makes you money in order to start building wealth early. These are just some of the basics that I wanted to go over, hopefully they were helpful. Now if only I can get my son to read this. More to come in the future.