Barriers to Entering Real Estate

Capital

When I say capital, I am speaking of the amount of money you need in your bank account to purchase your first property. Many people believe that you need an insane amount of money to buy a home or start investing, but that isn’t true in most cases. 

Although you don’t need lots of cash on hand, there are other factors that are unavoidable and must be met to start. 

The first is your credit score. In order to start investing in real estate without being able to make a sizeable down payment, you will need an exceptional credit score. As long as you have been responsible and building credit for at least five to ten years, you should be good! 

This is because, without a large down payment, you will be taking on a bigger loan. The bank wants to be sure that you will pay them back in a timely manner. So if you are interested in real estate investing but have a lower credit score, that should be priority number 1. 

As a first time home buyer in England, you are only required to put down a 5% down payment, sometimes even down to 3.5%, depending on your situation and the property. That means a £200,000 home would only require you to put £10,000 down. Not so bad, right? 

High Risk 

Big numbers scare people. Most people view real estate as a risky investment for a variety of reasons. I completely understand where this thought process comes from. The housing market is infamous for massive crashes every year or so. Homes can require lots of maintenance and upkeep, and every once in a blue moon, you may get a nightmare tenant. So let’s break down these risks and talk about how to avoid them.

Market Crashes

The housing market does happen to crash every so often, but this only happens due to significant economic crashes in general. It typically happens during a time of economic downturn, meaning there are fewer jobs, so fewer people are buying houses. 

Sounds risky, right? It is actually less risky than typical investments like stocks or ETFs because when the housing market crashes, the stock market does as well. Only when the stock market crashes, the housing market almost always remains strong. 

Secondly, when the housing market crashes and homes become less valuable, people take that as an opportunity and begin purchasing a lot of property, meaning that the market recovers very quickly. Also, it is important to understand that housing prices only go up, and when it crashes, it quickly becomes stable again and soon after begins to grow. 

Historically, real estate is the safest long term investment strategy because, with growing populations across the globe, housing will always be in high demand. 

Maintenance and Upkeep

This is a fun one, there is also a straightforward way to eliminate the risk of this issue. It is called DOING YOUR RESEARCH. If you buy a home without researching and understanding the costs affiliated with it, you will never be successful investing in real estate. 

When you have found a neighbourhood and a deal that may be right for you, it is ESSENTIAL to do a thorough inspection of the entire home. This means everything from a structural standpoint to the basement carpets. There are plenty of people who are willing to inspect the entire house for a small fee and report on anything that may need updating in the near future. 

Of course, there are some things that you cannot avoid. However, doing thorough research on a property will save you an extreme amount of money in the long run. 

Nightmare Tenants

This is another super easy one to avoid. It has three simple steps:

1. Do simple background checks on any applicants. Do not accept anyone who has been previously evicted.
2. Avoid certain groups of people. A family of four with two kids will be a much better tenant than a group of five university students.
3. Hire a great eviction lawyer. This won’t cost too much, and they will know exactly what to do when you need to evict a tenant.

 Multi-Family Homes