It’s no secret that real estate is a smart investment strategy, but not everybody has the funds required to start down this path. If you are exploring real estate investments but don’t yet have enough cash to purchase property or are unable to get a traditional loan, other options are available to you. Take the time to do some research, learn about all of your lending options, and develop a strategy for your real estate investment goals.
The Advantages of Investing in Real Estate
Like any type of investment, real estate comes with some risks, but there are also clear advantages. Real estate investments offer multiple ways to generate income, such as residential rental properties, flipping, commercial rental properties, and more. Depending on the types of investments you pursue, real estate offers the potential for both short- and long-term gains.
It’s also possible to generate a stable cash flow with relatively little involvement, especially if you’re able to find long-term tenants. Real estate investors benefit from tax advantages such as deductions, depreciation, capital gains taxes (which are lower than income taxes), and tax-deferred or tax-free investments. Dividing your funds into multiple types of investments—also known as diversifying—is a smart long-term strategy that will help protect you if one type of investment fails.
One of the other major advantages of investing in real estate is that it allows you to build your portfolio through leverage. When you own real estate, you can use your equity to secure financing for other investments.
How Hard Money Can Help You Get Started
Real estate investments require cash, and hard money allows you to compete with cash offers by allowing you to close in one week or less. If you can’t get a bank loan, either because of your credit history or because the property doesn’t meet the lending requirements, hard money is a viable option.
Hard-money loans are based on your equity and, depending on the type of loan, sometimes the value of the property you intend to purchase. You can get hard-money loans to:
- Fix and flip: buying a property, improving it, and selling it at a profit
- Purchase a vacant commercial property and rent it out
- Purchase a property for use in the cannabis industry
- Invest in residential rental properties
Preparing for a Real Estate Investment
Becoming a real estate investor doesn’t happen overnight, but with a clear strategy, you can set yourself up for success.
Choose your strategy
If you have a high tolerance for risk and want to put in the effort for a potentially high ROI in a short period of time, a fix and flip might be a good option. If you want steady passive income, commercial or residential rental properties could be a better path.
Research your market
Learn more about the area you are considering investing in. This will help you spot a good opportunity when it arises.
Start a business (optional)
Create an LLC for all of your investment properties to get even more tax advantages. This step is not mandatory, and you can do it at any time.
Build a relationship with a hard-money lender
Identify a local lender and learn about the various products they offer. The more informed you are before jumping in, the faster the process will go when the time comes.
Grow with Socotra Capital
If you’re in one of the communities where Socotra Capital lends, get to know us. Whether you’re ready to get a hard-money loan now or you just want to know what your options are as you develop your real estate investment strategy, our team is here to help. Check out our free Borrower’s Guide to get started on your path to success.