These people tend to tell that the key is to use capital that’s not your own – like from a bank. I understand how it works with common mortgage. But let’s say I already have a mortgage, thus own one property/real estate. Now I’m in debt towards the bank and they’re not giving me another loan to buy another flat since I need to be repaying the first one (?).
So, how does it work? Where do these people get the needed money to buy the second property? The third one?
In: Economics
There is a skill, luck and hard work not to mention a risk taking mentality involved. And with risk comes the possibility of ruin (financial). The most talked about method is house flipping. Another is to accrue rental properties.
The luck part comes in being in a market that is growing. The skill part might be identifying properties that are undervalued for one reason or another. Frequently these properties need to be renovated and upgraded before putting it back on the market. So with a starting capital, start with one property, buy it, renovate it then put it up for sale for profit. Then reinvest the profit into more properties and repeat. Lots of hard work and knowing how to fix houses (cheaply).
If the market is appreciating fast enough, there may not even be much need to fix them. But decisions need to be made quickly in recognizing value. You need capital to service the loans until they can be sold. Even one or two bad calls can wipe out the investor. High risk, high gain.
Another way is to purchase properties for rental. A beginner usually starts at the low end (usually Section 8 housing). Being a landlord is thankless, time consuming and needs toughness to deal with recalcitrant tenants, frequent repairs etc. Once you get going and start earning more rental income from the property, it might be possible to take more loans (as the banks have more income/collateral to loan against) Relying on property managers reduces profit margins. So the more time the investor puts in, the bigger the returns. Hard work.
Of course, all of this depends on which country you’re in, what kind of markets you have, the tax laws involved etc. So probably need good lawyers, accountants and a reliable team of contractors. Also getting to know your banks well. Property investing is a business and not a get rich quick while lazing around. Of course, being successful might result in super high returns, but there are also lots of failures and people who have lost all their money (which you won’t hear about) Think about it – there is no “easy money” in life.
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