Real Estate 101 October 26, 2022

How to Start Investing in Real Estate


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Article written by Ricci Julia

The US housing market has been fraught with high borrowing costs and increased home prices; California is no exception. In a Times feature, mortgage rates in California have jumped to an all-time high of over 7%. Despite the recent turmoil, those interested in real estate investing within the state shouldn’t be daunted. After all, in our post ‘Owning a Home: The Ultimate Catalyst for Building Your Generational Wealth’, we showed how 63% of the net wealth of 80% of Americans comes from their real estate.

If you currently reside in California, you’ll certainly be given opportunities to secure valuable properties, granted the right approach guides you. Below are the steps you need to take to begin real estate investing:

Determine your strategy

For starters, real estate investing provides you with several routes. For rental properties, profit is primarily from rent, which depends on how much you charge. It’s advisable for rent to cover expenses until the mortgage has been fulfilled. Otherwise, profit is made through appreciation, though circumstances in which you can sell your property can be volatile due to price surges. Another thing to note is that the number of completed property sales in Mendocino County, specifically, is a mere 18.8%.

In light of that, real estate investment trusts (REITs) can be another great option. REITs utilize investors’ cash to buy, operate, and income-producing properties. Potential investors can diversify their portfolio here, as REITs can oversee different property types in Mendocino County, like healthcare facilities, malls, mortgages, and office buildings.

The strategy you choose shouldn’t be informed by preference alone; it should also be based mainly on your current financial situation.

Evaluate your finances

Investing in real estate won’t automatically yield great results. It’s essential to consider your overall financial situation, especially for serious California investors who value cash flow and equity upon securing a property. Real estate investing necessitates closely monitoring trends and pricing, which is where collaborating with a financial analyst proves beneficial.

Maryville University discusses how financial analysts conduct in-depth evaluations of potential properties. Although buying properties can lead to high returns, it comes with numerous risks. New York Times reported that median sale prices of houses in California were up by 12.3% in 2021. An average home will cost around $798,440. Investment costs are high, so it’s crucial that an analyst helps you gauge an investment’s quality and progress. You can also better gear your existing finances and take out a manageable loan if necessary.

Secure your financing

With a better understanding of your financial health, you can now secure funding for real estate purchases. Most of these are associated with mortgages. The referenced Times feature suggests that you should look at the following financial options:

California Housing Finance Agency loans:

For first-time real estate buyers (or those who haven’t owned a house in the past three years), they offer down payment assistance through the MyHome Assistance Program. This loan provides you up to $10,000— more if you’re purchasing a manufactured property or a new construction home.

Southern California Home Financing Authority loans:

These offer down payment and closing cost assistance to California residents. You can be given around 4% of your mortgage amount, not to mention you won’t need to repay the grant.

USDA (United States Department of Agriculture) loans:

This best suits those who want to purchase properties in rural residential areas such as Mendocino, Del Norte, and Colusa. A USDA loan doesn’t require any down payments as well.

Raise your own funds for reserves

Although leveraging outside financing is enough to buy a property in California, you’ll still need to raise cash for reserves. Cash reserves cover renovation costs, mortgage fees, and property tax payments. As the Times feature mentioned, the average property tax rate for owner-occupied properties in California is 0.70% (around a 2% annual increase). That being said, reserves are especially relevant in abetting home upgrades, which increases your property’s net worth. Our referenced W Real Estate post shows that Mendocino County has a 12% home appreciation rating. The jump from 7.2% over the past decade is primarily due to home improvements.

Renovations don’t have to be as extensive as installing a pool. Kitchen or bathroom remodels can already heighten the value considerably. That rise can attract buyers and attain profit for properties in California. To raise your own funds, consider investing in stocks or finding a trusted partner that can help shoulder property expenses. Otherwise, certain mortgages offer cash back, which you can put toward your savings account for future costs.

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