Investing in real estate was previously reserved for those with deep pockets or extensive property experience. However, as the housing market has recovered and mortgage interest rates have fallen to record lows, purchasing a home or investment property has become more accessible and affordable than ever before.
In fact, 75% of rental homes are owned by individual real estate investors, not big corporations.
If you want to get into real estate, knowing where to start can make the difference between failing and succeeding. Follow the real estate investing for beginners guide below to get started the right way profiting from property.
Pick Your Property Market
Many people immediately think of residential property when they think of real estate. However, that isn’t the only type of property you can invest in.
There are many different types of real estate properties. You can choose between commercial space, industrial property, or residential property. Residential is the most popular type, but owning commercial or industrial space can be lucrative, as well.
Commercial property has a lot to offer investors. It usually has a higher gross potential than a residential property and is more likely to be in an area with job growth. Commercial properties also carry more risk, so you will need to account for that when looking at potential profits.
Industrial property is also another lucrative market if you do things right. It is also considered a niche market compared to commercial and residential properties. Industrial property can be cheaper than commercial, but it also tends to be in less desirable locations with fewer tenants.
Determine the Right Business Model
There is no one-size-fits-all investment method for real estate. You have a few options to pick up in real estate investment. Let’s take a look at those property investing strategies below.
1. Buy and Hold
The general idea behind buying and holding real estate is buying a property in an up-and-coming area and waiting for the value to improve. Once you see a return on your investment, you sell the property and invest the profit into other properties.
This is the likely path you will take if you are looking at a longer-term investment strategy, like five to ten years. Your money will be tied up for a long time, so you will need a solid plan to find success with this method.
2. Rentals
Like buying and holding, renting out properties can be a long-term strategy to generate income. However, you will need to have a property manager on staff to take care of the building’s day-to-day needs.
This is the right strategy for someone who wishes to create long-term assets that generate revenue. Once you have income coming in, you’ll use your profit to buy more rental properties and increase your cash flow.
There is a lot to learn about rental real estate investing for beginners. Do your homework, so you know what is involved in being a landlord.
3. Flips
This is real estate investing done fast, compared to long-term strategies. Your goal is to purchase an undervalued property that needs some work, take care of the repairs, and sell the property within a year or two.
You will need a good eye for property value to make this method work. It is not uncommon for investors to bite off more than they can chew and waste their profit margin on repairs. Make sure you know what repairs a property needs before buying and budget accordingly.
4. REITs
Do you want to take advantage of real estate without owning property yourself? REITs are an excellent choice for people in this situation.
A REIT is a fund that owns multiple properties in different industries. Some REITs only own commercial properties while others only own residential property.
The fund managers do all the legwork and purchase the property for the funds. Once the REIT managers buy the property, they work on making a profit on their purchases. In many cases, a REIT will rent out the property for rental income.
Your income comes from a dividend. You’ll get a portion of all the profit the REIT makes.
Situation Yourself Financially
While you don’t need a fortune to get started in real estate, you need to have some money. Luckily, you have many options available to help.
If you have decent credit, regular banks are likely to provide a mortgage to buy a property. Set up an appointment with the lenders in your area and find someone who can offer you solid mortgage terms.
Things are a little different in real estate investing for beginners with no money. If you can’t prove to lenders that you are a safe borrower, they might not lend you money. In this situation, you will need to reach out to private investors.
You will need to come up with a solid plan and show it to investors in your area. A private investor might go for a simple loan or decide to take an equity stake in your real estate business.
Build a Team
Once you have the money to start investing, the next step is to assemble a team. You will need someone to manage your portfolio of rental properties, house renovations, and property flips. Of course, there are also the people to run all the other parts of your business.
Once you get your inner circle, you will need contractors’ support to do the dirty jobs. This involves heading to property, figuring out what is wrong, and ensuring that everything gets fixed.
This part of your team doesn’t need to be full-time employees. Reach out to local contractors to find a company to help. You can send them on small test jobs to see how they perform and work with the best of the bunch in the future.
Real Estate Investing for Beginners: Don’t Jump in Without a Plan
Real estate investing for beginners sounds like a dream for many people, but you quickly learn that real estate isn’t as glamorous as it seems. It takes a lot of work, and the chances of losing your money are still there. Follow the steps above to maximize your chances of a successful real estate career.
If you want to learn how you can run your real estate venture like a business, head to our blog to learn everything you need to know. Visit the Real Estate and Business sections of the Everything Entrepreneur Blog to learn more about property profits.
