First steps in real estate investing: How to get started with little capital

Real estate investment and the steady cash flow it generates are one of the most effective ways to accumulate wealth, but many people who are interested in it are still hesitant to get started. Even today, real estate investment is shrouded in a mystical misconception that it is exclusively a pastime for the wealthy and lottery winners.

However, this idea can be dismissed immediately. Starting to invest in real estate does not require an annual income equivalent to the purchase price of a new Porsche. Starting to invest in real estate with a smaller amount of capital is not only possible but also highly desirable. And we are talking about capital that can be accumulated with the monthly income of an ordinary person.

In this article, we provide a few tips on how to get started in real estate investing, even if you have a very modest budget.

Choosing a strategy and the importance of capital when starting to invest in real estate

The first step is to choose the right strategy. The capital you have available largely determines what kind of targets and strategies you can pursue. The most common strategies are:

• Buy, rent, hold: A traditional and straightforward strategy where you purchase a property, rent it out, and hold onto it for the long term. This strategy is well suited for long-term wealth accumulation and generating passive income. 
• Buy, rent, renovate, refinance, repeat (BRRRR): With this strategy, you buy a property, rent it out, renovate it, refinance it after the renovation, and repeat the process with multiple properties. This strategy is suitable for those who want to actively grow their property portfolio and take advantage of leverage.
• Buy, renovate, sell (flipping): In this strategy, you buy a property, renovate it, and sell it at a profit. This strategy is suitable for those who have renovation skills and want a quick return.

An example of extremes: A family home purchased and renovated for flipping strategy in the vicinity of a large city center square requires a completely different class of capital than, for example, a pre-rented two-room apartment in a university town suburb, which can be purchased for around €30,000–40,000.

Let's imagine a situation using examples (calculated as 30% equity capital, 70% bank loan):

Flip apartment:

• Purchase price €170,000, equity capital for purchase €51,000
• Renovation costs €40,000
• Selling price €235,000

In this case, €51,000 in equity capital is required, and the renovation must be financed either with a loan or from your own pocket, bringing the total capital required to €91,000.

Pre-leased (e.g. Saarenkatu):

• Purchase price €31,500, equity capital for purchase €9,450

Although flipping can be an attractive way to grow capital quickly, it requires significantly more initial capital and can be a riskier strategy than, for example, a "buy, rent, hold" strategy with affordable apartments. 

A good buy-rent-keep property becomes even better when you remove the "rent" stage. When you buy a ready-to-rent investment property, you avoid the rental process and all its stages. So keep your eyes open when looking for investment properties that suit your situation, because a committed and satisfied tenant is a real estate investor's best friend. For this reason, every investment apartment sold by Horisontti Group is already rented. You can view the investment apartments for sale here.

Starting to invest in real estate always requires capital or assets that can be used as collateral, but often considerably less than is generally thought. With good purchases made below market price and, for example, by following a buy-rent-hold strategy, it is possible to achieve very rapid growth in terms of cash flow and number of properties. 

Financing

A real estate investor's most important partner is their banker. A bank loan is often a necessary tool in real estate investment, and a good relationship with your bank makes it significantly easier to obtain financing. 

Don't settle for the first bank you find, but compare different options and find a banking partner that suits you and understands your strategy and goals. A well-planned strategy and knowledge of your own finances are your trump cards in finding the best possible financing solution.

Before contacting banks, it is important to do your homework carefully. Prepare realistic calculations for potential investment targets and gather arguments as to why your investment will be profitable. The better prepared you are, the more convincingly you will be able to present your plan to the bank and negotiate favorable loan terms for yourself.

Remember that your banker is your partner, with whom you should build a relationship of trust. Open communication and clear goals will help you obtain the financing you need and succeed as a real estate investor.

Regional knowledge and purchasing channels

When investing in real estate, it is important to know the area you are investing in. Research different cities and areas and find properties that fit your strategy. Take into account the area's development prospects, rent levels, and demand. Take advantage of various purchasing channels, such as real estate agents, etuovi.com, and oikotie.fi. Also consider so-called "wholesalers," who often sell apartments below market prices. Be active and network with other real estate investors. Keep in mind that the real estate market is constantly changing, so it is important to stay up to date on the latest trends and developments.

Repetition and sticking to the chosen strategy

Success in real estate investing requires repetition and sticking to your strategy. Once you have found a strategy that works, stick with it and repeat it. Don't let market fluctuations or other factors rock the boat. Perseverance and patience are rewarded in real estate investing.

Summary

It is possible to start investing in real estate even with a small amount of capital. The most important thing is to choose a strategy that suits your situation, find good financing, and commit to the chosen strategy. 

Remember that real estate investing is a long-term endeavor, and success requires time and patience. However, with the right choices, carefully considered moves, and an active approach, you can start to build a solid foundation for your future investment portfolio, even if your capital does not seem sufficient in the early stages.