So, you’re curious about investing in real estate, but you have so many doubts.
Do you have enough capital?
Are you sure this is the right investment?
Not knowing enough feels like an empty pit in your stomach. Not to mention, you don’t have any experience in real estate investing.
Whether you long for financial freedom, passive income, or want to make it a career, you know real estate investing can change your life.
But making that initial first investment is scary.
So, I’ve provided you with the ultimate guide for real estate investing. As a beginner, you’ll understand the basics and can get started investing in real estate sooner than later.
Table of Contents
- Stocks and Property
- Preparing to Invest [5 Pieces of Advice]
- What Does a Real Estate Investor Do?
- How Do You Become a Real Estate investor?
- 9 Different Real Estate Investments
- Tips for Your First Property Investment
- Is Real Estate Investing Worth It?
- Online Real Estate Investing
- Real Estate Investing App
- Real Estate Investing FAQ
- Real Estate Investing Books
- Ready to Start Real Estate Investing?
What You Should Know About Stocks and Property
These are the two basic components of real estate investing. You can invest in one or both.
It’s the “Y” in the road of real estate investments, and each one offers different options for investing.
Deciding which one is better for you depends on two things – goals and money.
Preparing to Invest [5 Pieces of Advice]
Some things to know before you go:
- Have Decent Credit
A good credit score makes it easier to get money from lenders.
- Have Money to Spend
You need money to invest you can afford to lose and then some (a reserve). If it’s all the money you have left in your savings account, probably not the best idea.
- Have 2+ years of income
Lenders will want proof of income before they give you money because you have to pay them back. The same job for two years proves you have the income to accomplish this.
- Research Cities for the Best ROI
If you’re diving into property investments, this is a must. You’ll want to know which cities are tax friendly, the insurance costs in those areas, and if you can easily evict tenants (if you need to).
- Do Market Research
Familiarize yourself with the housing market, lingo, and pay attention to trends. The more familiar you are, the less intimidated you’ll feel.
What Does a Real Estate Investor Do?
As a real estate investor, your main goal is to make a profit from your investments. You are responsible for purchasing, maintaining, and selling your real estate to make money.
The nitty-gritty of real estate investing includes:
- Research properties
- Analyze demographics and taxes
- Knowledge of legal regulations
- Identify properties to avoid
- Running the numbers
- Negotiate transactions
- Add value to the property
- Sourcing leads
- Close deals
Other skills you should have:
- Verbal and written communication
- Detail oriented
- Understand cash flow
Sounds like a lot, right?
However, if you do it correctly, your first real estate investment can be successful, and you’ll benefit from your investment for the rest of your life.
How Do You Become a Real Estate Investor?
How much money do you have to spend?
How much time do you want to invest?
Becoming a real estate investor starts with making your first purchase. And to make that initial purchase, you’ll need to answer those questions.
If you don’t have the capital to buy a property, you can always invest in real estate stocks, trusts, or funds. You typically need $1,000 to open an investment account to get started.
Similarly, if you don’t have a lot of time to put into your investments, opening an investment account and getting involved in stocks is the more passive route to take.
On the other hand, if you do have the capital (10k and up) and want to make a career through real estate investing, purchasing property is a great option.
Let’s Get Our Real Estate Investing On!
8 Real Estate Investing Options
Have you ever considered becoming a landlord? Or does managing a property sound like too much work? Would you rather limit the amount of effort you put into a real estate investment, or are you ready to go at it full time?
If you’ve got the capital to put down and are looking to make a career out of your investments, properties are the way to go.
However, if you’re limited on money and have zero time and effort for managing properties, investing in stocks and funds is a great option.
Owning a rental property is a great way to get your feet wet. When you think of being a landlord, things like toilet problems, clogged pipes, and maintaining the property come to mind. Let’s be honest, it’s not all rainbows and unicorns. You will have to oversee these aspects.
But everything depends on location, location, location. Taxes, rent, tenants, management, and everything else depends on the location of your property. To save yourself time, energy, and hassle, *Do your research on the property before you invest.*
You’ll need to know things like:
- How much rent you can charge
- What is the ROI (return on investment) of the properties nearby
- Is your property in a city that is landlord friendly
- Is the city tax friendly
- Insurance costs
- What property management firms are nearby (in case you don’t want to actively manage the property)
One of the biggest mistakes people make starting with a rental property, is they overestimate their rental income and underestimate the repairs and costs. Don’t be that person. Do your research, know the numbers, and invest if everything aligns.
3 things to keep in mind for your first property:
- If your property has a mortgage, charge enough rent to pay it off. Once paid off, you’ll generate profit.
- Choose the right property and tenants, you’ll have an easier time managing the property.
- If you decide landlording isn’t for you after investing in your property, you can always make money through appreciation (where your property goes up in value and you sell for a profit).
Cons of rental property investments:
- Managing poor tenants
- Costs of property damage
- No income made off vacancies
Vacation Rentals and Short-Term Rentals
Ever thought about renting out a room in your house? Or renting out your entire home?
This can be a profitable option if you’re not quite ready to invest in a separate property.
You’ll need to do a little research to find out about other rental properties nearby and the local rental market. Research will help you get an idea of how much to charge and what amenities other renters are offering their guests.
Do you live in a touristy area? When are the high and low seasons for tourists? These are important answers to have so you can charge accordingly.
The fun part about vacation and short-term rentals is that you don’t need a lot of money to get started.
Start with cleaning up the space you’re going to rent and class it up.
Think about what places you’ve stayed on vacation. What made you feel comfortable? What did you love about the decor and design of those places? Take that knowledge and incorporate it into your rental space.
Airbnb is a popular option for posting your home as a vacation rental. Some third-party management sites will screen tenants for you, provide insurances for damage protection, and handle customer complaints.
You can also post to craigslist or on Facebook if you’d prefer to handle every rental aspect. Get to know your local rental laws and regulations incase there’s a time limit for how long renters can stay.
You know those DIY shows where people come in and remodel your entire house for you? Well, flipping houses is like that, except you sell it!
Flipping houses is recommended for anyone who has a lot of experience with the real estate market or has a lot of capital they’d like to invest in and can find an experienced real estate partner.
It works one of two ways:
But this is why you need to know the market. You don’t want to hold the house for too long and lose money on your real estate investment.
So if you’re up for the risk and you’re an expert or know someone who is, you can make money quickly by flipping houses.
Your First Property Investment
Ready to buy your first piece of real estate? Awesome! It’s important to know the role of being a property investor.
- Landlording – Unless you hired a property manager to handle your real estate, you need to keep a toolbox handy for making repairs and maintaining the property.
- Minimize personal debt – Owning a rental property comes with a lot of expenditures. Having low to zero payments on student loans or medical bills gives you the freedom and ability to focus on putting money towards your real estate investments.
- The ideal location – Make sure your first property is in a location that is tax friendly with low crime rates, access to public transportation, and an uprising job market to ensure you have plenty of potential renters
- Determine the risk vs reward – Is the payout worth the risks involved? Are you investing in a property that will cost you more than you get out of it? Consider everything from managing tenants to vacancy expenses to determine if the investment is right for you.
Have realistic expectations when it comes to your first property. If you choose wrong, it could be a catastrophic experience. Be well-versed in your potential investments before spending thousands. Starting off on the right foot sets the tone for a successful property investment.
Real Estate Investing Stocks
Investing in real estate stocks is a way to provide passive income, especially if you’re planning for retirement. All you need is a brokerage account. One upside to investing in stocks is you don’t need as much capital upfront as opposed to properties to start investing. These are valuable real estate investment options that will help you financially prepare for the long term.
REITs – Real Estate Investment Trusts
Investing in a REIT is investing in stocks. You invest your money into a trust (aka a corporation) that has purchased property. As the property appreciates (goes up in value) you earn dividends (a percentage of the property value). You invest in REITs through most major stock exchanges.
The trust pays out 90% of its profits through dividends to investors. Trusts avoid paying corporate income tax because of the high payout which in turn, gets you more money. REITs invest in commercial real estate such as healthcare buildings, offices, and malls. And the trust manages everything. As a beginner investor, this is an appealing option if you want a regular income from your investments without managing anything. It’s also a liquid investment where you can cash out without having to sell your property.
REIGs – Real Estate Investment Groups
Not interested in landlording but still want to get into the residential real estate market? You can join a real estate investment group that takes the challenges of landlording out of the picture. Large companies that own residential property like apartment buildings and condos, will sell you individual apartments out of the building. You won’t have to handle any management over the unit. No finding tenants. No advertising. The company takes care of it all and takes their cut from a portion of the rent. The rest is yours to pocket.
What if your room is vacant? While your name is on the lease of the apartments you own, every investor owning an apartment has their money pooled together to protect from the occasional vacancy. Yep, you’ll still receive money every month to cover the costs of your apartment even if it’s empty.
Seems ideal, doesn’t it? No landlording. No losing money. You’ll need to do some research to get in with a quality company because some charge really high fees. But otherwise, this is a fairly safe real estate investment.
RELP – Real Estate Limited Partnerships
A finite partnership for a real estate investment project. This is how it works:
- You join up with experienced partners, an expert real estate or property manager, and outside investors who will finance the project.
- You buy and hold one or more properties (generally for a few years).
- Then, you’ll sell the properties for a high profit and each partner gets their fair share.
Most of the properties you’ll invest in will range from constructing a residential neighborhood, a plaza, or a shopping center. Most RELPs are highly focused on a specific real estate niche, like commercial development or high-value residential properties.
RELPs have high returns. But they also come with a high risk. So you’ll want to be confident partnering with the right investors and have specific terms of agreement for contributions and payouts. This is also an illiquid investment. No investor can cash out at any point during the partnership.
REMF – Real Estate Mutual Funds
If you want an affordable and easy way into real estate investing, a real estate mutual fund is a group of investments managed by investors. The investors purchase stocks and bonds. They also buy mutual fund shares which are bought or redeemed at the fund’s net asset value. The asset value is based on the closing prices of securities in the fund’s portfolio.
Is Investing in Real Estate Worth It?
It depends on two things – your effort and risk tolerance.
Real estate property investments require effort on your part to gain a return. And both routes aren’t without risk. However, real estate is a valuable investment and is a great way to diversify your portfolio.
Some of the richest people in the world have solidified their wealth through real estate investing, given that real estate investing has outpaced all other investments 3:1.
The questions you must answer before making any investment is, “Does this align with my financial goals and investment strategy?”
Don’t Live Near Wall Street? Start with Online Real Estate Investing
Can you invest in real estate online?
Yes. And it’s never been easier.
Websites offer investment opportunities in rental properties or stocks. Online real estate platforms charge a fee to connect investors with developers. And investors receive a distribution based on what you put in.
Most online platforms have certain requirements, like a minimum investment, for you to begin investing. And others require you to be a certified investor. Fortunately, technology has made the whole process seamless, allowing you to start investing with the click of a button.
What to look for in online platforms
You don’t want to waste your time or lose money on a sketchy platform. Look for these important factors in an online real estate investing platform:
- Accredited investor requirement
- Terms of investment
- Property types offered
- Minimum investment threshold
- Easy to navigate dashboard
Online real estate investing offers you an immediate opportunity to start investing with just a few hundred dollars.
Easy to Use Real Estate Investing Apps
Welcome to the digital age where investment apps give you access to the stock market without ever setting foot on Wall Street.
Apps like Robinhood or Acorn allow you to skip having a financial advisor and invest your money independently. With investment apps, you can start investing money in a matter of minutes. There are apps for all levels of investors.
Apps that help you set up your investment portfolio. And others that offer quick access to trading with low fees.
While these apps are increasingly appealing, you’re subject to questionable decisions, like investing impulsively rather than making a calculated and intentional investment.
Real Estate Investing FAQ
Still have questions about real estate investing? These are other commonly sought questions:
How can I invest in real estate with $500?
- Fundrise – This online investing platform allows you to start real estate investing with as little as $500.
- REITs – You can invest in real estate investment trusts for as little as $100.
- Vacant lots – Buying land is much cheaper than properties. Hold onto it because you never know when the next corporation will want to use that lot for their retail outlet.
How to invest in real estate with no money?
Virtual real estate investing – A way to practice your real estate investing skills to prepare to invest with your real money.
Real estate financing – You can purchase a money mortgage where the seller loans finances to the buyer. And upon the agreed terms, the buyer repays the seller.
Hard money lenders – Loaning money from private investors.
Do I need a real estate license to invest in real estate?
No. But it’s beneficial if you do. Having your real estate license makes it easier to network with specialized agents, find listings, and take home a larger project if you don’t need an agent. However, getting your real estate license costs money and takes time.
Real Estate Investing Books You Don’t Want to Miss
- The Book on Rental Property Investing by Brandon Turner
- Rich Dad Poor Dad by Robert Kiyosaki
- The Millionaire Real Estate Investor by Gary Keller
- The ABC’s of Real Estate Investing by Ken McElroy
- The Book on Tax Strategies for the Savvy Real Estate Investor by Amanda Han and Matthew MacFarland
Ready to Start Real Estate Investing?
Perhaps more than any other factor, having enough capital will keep you from investing. But it doesn’t have to. You deserve to invest in something you’re passionate about and make money from it.
It’s time to put this knowledge to action. You’ve learned how to get started, your different options, and have helpful resources at your fingertips. So, what’s next?
Dive into an opportunity to test what you’ve learned about real estate investing. Remember, the only way to get experience is to begin investing. Start with one stock or renting out a room. The more time you spend learning about your investment, the more comfortable you’ll feel about investing in real estate.
Doing this will put you in a place to succeed. You’ll have inched forward towards your dream.
You’ll feel more confident with your investments.
You’ll be making money on the side.
And that money could change your life.
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