Beginners can find real estate investing intimidating, but they can overcome their fears and master the art by starting small and learning from others.
The term real estate investment is synonymous with owning a home. However, real estate investors can invest in other options that are not physical properties.
Maybe you have heard that real estate investment guarantees a positive return on investment, and you want to try, but you have no idea where to start. Don’t worry; this article has you covered. It offers practical tips, terminologies, beginner-friendly strategies, and mistakes to avoid to get you started.
What is real estate investing?
It is the act of purchasing real estate. But what is real estate? Real estate is a piece of land you buy and any property- man-made or natural attached to it. For example, if you buy a fenced house and the compound has trees, the house, land, fence, and trees are considered real estate.
Therefore, real estate investing is the act of buying land and any other structure or additions to the land.
You can invest in residential, industrial, and commercial properties. Furthermore, you can invest in companies that manage properties, such as real estate holding companies, REITs, REIGs, RELPs, etc.
Don’t worry about these terms; they are explained in detail in this article. Continue reading to find out.
How can you make money as a real estate investor?
You can make money with real estate in two ways: value appreciation and rental income.
Value appreciation: Real estate properties often appreciate value with time. A property in a prime location (proximity to amenities, transportation, desirable neighborhood, etc.) appreciates faster. You can invest in real estate near a growing town or a highway and wait for its value to rise before selling.
Rental income: You can also make money by renting out a property. This method is popular among realtors because it allows the property to appreciate with time and generates passive income.
You can use the rent money to pay your mortgage and retain profits
How can you invest in real estate?
Investing in real estate can overwhelm beginners. You may need some time to feel confident with your real estate investment decisions; that is why you need beginner-friendly strategies.
While these options feel comfortable for new investors, they can still help you make money when properly managed.
Beginner-friendly real estate investing is a good place to start before trying more complex investments. You can learn about the local market, create a network, and learn how to raise capital without over-committing. As you gain experience, you can use your knowledge and profits to take advantage of opportunities down the line.
Let’s consider some real estate investment opportunities beginners can start with:
Real estate wholesaling
This strategy allows you to secure a property by adding money to the final contract. You will not own the property but make money by claiming part of that property.
It also allows you to build a strong buyers list showing the names of potential investors in search of the next deal.
You can create a buyers list by gathering investors’ names, contact information, buying criteria, and type of funding. This information helps you easily reach them once you have identified a property to invest in.
Wholesaling does not require huge capital to start. However, you may need money for marketing to help you build a reliable network.
Investing in rental properties
This strategy requires huge capital to purchase land and build rental spaces. If you own rental properties, you are a landlord. You will handle several responsibilities, including paying the mortgage, insurance, and taxes.
Landlords also work at maintaining the property, advertising the house to get tenants, and addressing problems raised. This can be a 24/7 unpleasant job unless you hire a property manager.
You make money by collecting rent, which you can use to pay the mortgage. Your profit is determined by:
- The location of the property
- The rent charged by neighboring property owners
- The mortgage payments
- Maintenance and repair expenses.
Real estate flippers buy properties at a relatively lower price and hold onto them for three to four months before selling them at a profit. You can become a flipper in two ways:
- Repair and update: You buy a house that you believe will increase in value after certain updates and repairs. You complete repairs within the shortest time possible and sell the house at a price higher than your investment (including renovation costs).
- Hold and sell: This strategy involves buying a property in a rapidly growing market. You can then sit on it for a few months before selling it at a profit when its value appreciates.
The challenge with flipping is that your bear the risk of failing to sell the house at a profitable price. However, flipping can generate good returns faster if you do it right.
Real estate investment trusts are corporations that use investors’ money to buy, run, and sell properties. They act as real estate holding companies that offer investors divides or part of their profit rent collection, royalties, sale, or lease.
Establishing a REIT is not easy; your entity must pay shareholders dividends from 90% of your taxable profit.
However, you will benefit from avoiding corporate income tax, which regular real estate holding companies will pay on their profits. You can attract investors looking for a stable regular income.
REITs enable you to invest in malls, office buildings, mortgages, and healthcare facilities.
Real estate crowdfunding platforms
You can build a crowdfunding platform to connect investors with borrowers. The platform allows developers to post projects and deals they need to be financed, and investors can lend them money through equity or debt.
If you are an investor, you reap the benefit of owning real estate without the hassles of ownership and labor. On the other hand, the developer gets the finances they need to complete the project.
Note: Remember that investing in crowdfunding or real estate deals can be as risky as direct real estate investment. Therefore, conduct due diligence before entering into a deal.
Real estate investment groups (REIGs)
REIGs resemble small rental property mutual funds. If you desire to own a rental property but loath the idea of being a landlord, you can invest in a real estate investment group.
The company buys or builds apartments, then offers investors the opportunity to join the group by purchasing the apartments through it. You can own real estate by buying one of several units in the apartment. Still, the company operating the group will manage, advertise, find tenants, and maintain the units for a percentage of the rent.
Real estate limited partnership (RELP)
RELP is an entity that buys and owns a property portfolio or one property for a specific number of years.
The general partner must be a real estate development firm or an experienced property manager. RELP then woos investors to provide financing for a project for a share of ownership.
Investors become limited partners who periodically receive part of the income generated by the properties. You can get a huge payoff when RELP dissolves, and the properties are sold.
Tips on how to be an expert in real estate investing
You should create a workable strategy to reach the height of real estate investing. Consider some useful tips:
- Networking– Register at investment clubs and attend many real estate networking events if you are an aspiring investor. You need connections to break into the industry. You will likely meet experienced investor real estate agents who can offer useful tips to grow in the industry.
- Write down a real estate business plan– You should have a well-defined business plan that outlines your goals. Are you interested in investing in real estate because you want a house to live in or sell for a profit? Be honest with your goals, and you will achieve them.
- Register for real estate investing courses– You can learn much from online real estate investing courses. Several reputable universities and colleges offer these courses at affordable fees.
- Read– Learn about the industry from blogs, books, and magazines. Designate at least 15 minutes daily to read something about real estate investing.
- Get started– One way to get hands-on skills about real estate investing is by doing it. If you are scared of making horrible mistakes, work with real estate professionals in your region.
- Work with investor real estate agent-
Mistakes to avoid when investing in real estate
Did you know you can learn from other people’s mistakes instead of making yours? You can become an excellent real estate investor by learning about things you should not do. Here are common mistakes you should avoid when investing in real estate.
- Buying at market value– This will leave you with a limited chance of making a profit. Invest in properties below their market value.
- Following people– Many beginners make this mistake because they are uncertain about themselves, relying on speculation and hoping that the property will improve.
- Making emotional decisions– Some beginners get emotionally attached to the first deal and fail to conduct due diligence. You could land a raw deal and experience financial loss.
- Investing your personal funds– You cannot be 100% certain that your investment will be profitable. Sinking personal funds in a real estate investment can put you at risk.
- Not having several exit plans- If a project fails to go as planned, always be ready for an exit plan. If one exit plan does not work, you can always shift to another one.
Final words Real estate investing is certainly one of the most profitable opportunities available. Beginners may find it daunting to make the right real estate investing decision; however, with the right information, you can start small and learn on the go. Surround yourself with the right professionals and learn from their experience.