Not all of us are born as real estate agents, and, unfortunately, schools rarely touch upon this topic—unless your school offers business and finance subjects. Because of these, investing in real estate can feel like navigating a maze. But trust me on this: With a little research and planning, you can learn how to start investing in real estate, no matter how complex it seems.
However, just knowing how to start investing in real estate and earning from these investments are two different things. After all, with real estate, you can’t expect to become a millionaire overnight by just knowing the difference between residential and commercial properties!
How to Start Investing in Real Estate
Anyway, if you’re in the research phase, then you’re in luck. This small but comprehensive guide will provide you with most of the information you need—from choosing the right investment property to navigating tax implications. Most of these are ideal for beginners and are truly practical.
With that said, let’s get started!
Step 1: Assess Your Financial Situation And Goals
Know your credit score, savings, and debts you may have. That’s the start: see if you have the capacity to buy a property. It goes without saying that your financial capacity will dictate the limit of what you can afford for your investment and how much you need to explore financing options.
For example, if you have excellent credit, a steady income stream, and a large sum of disposable money, you can go right away and buy rental properties.
On the other hand, if you don’t have enough money (and still have significant amounts of debt), you might want to explore other real estate investment options like house hacking and REITs (Real Estate Investment Trusts), which often require a smaller upfront investment.
Another thing to note is your financial dreams or what you actually want to achieve with the potential money you’ll earn from real estate investment! Ask these questions to yourself:
Are you chasing a consistent cash flow from rental property?
Are you aiming for long-term rental property appreciation by buying low and selling high?
Are you trying to get quick profits from house flipping?
In addition to your financial situation, your goals must align with the real estate investment property you’ll buy. After all, every real estate investing option has its own set of problems, challenges, and potential rewards.
Step 2: Educate Yourself About Real Estate Investing
Of course, you need to be very familiar with how real estate investing works! And I’m sure you’ve done a bit of homework before you got here, but let me tell you the first step: know and learn about various types of real estate investments, such as rental properties, REITs, real estate investment trusts, and flipping houses.
As I briefly mentioned in the previous section, each type of real estate investment offers distinct opportunities and challenges, catering to different investment goals and risk tolerances. Just investing in any of them willy-nilly can easily result in wasting your money.
Aside from the basics, you also need to grasp the dynamics—the changes and whatnots—of real estate market cycles and local real estate trends. After all, they greatly influence the outcome of your investments.
And if you’re aware and updated on them, you can easily make informed decisions about when and where to invest.
Then, you should focus on legalities, financing options, property management, and tax implications is also essential. Knowledge about these technicalities can save you from the troubles and grave pitfalls amateurs make. If unsure how, you can always work with real estate experts for financial advice, especially on tax breaks for owning property.
Once you get the basics, technicalities, and trends, you need some real-life experience—even if it’s not yours.
Observe investment strategies employed by successful real estate investors. If you can, ask for mentorship or try to shadow veteran realtors. Offer them coffee and befriend them. Ask them questions—many of them are willing and friendly enough to teach you the ropes.
Doing this for educational purposes can go a long way for you.
An alternative is to look into case studies regarding real estate investment. Don’t forget that the valuable experience and wisdom of experts can help you get up to speed and manage your career as a real estate investor.
Step 3: Develop a Real Estate Investment Strategy
Now, let’s start with the nitty gritty on how to start investing in real estate. Depending on your financial situation and knowledge of real estate investments, the next step is to develop a real estate investment strategy. Quite exciting, right?
Anyway, start with selecting a real estate option that perfectly matches your goals, expertise, and financial resources.
For example, you can focus on long-term residential real estate to acquire an additional income stream and grow your cash flow. Or you can buy commercial properties or undervalued properties now and sell them high in the future for capital gains.
Then, determine how you choose the location of the properties, whether that’s a commercial property or residential real estate.
Remember that location can massively affect the potential returns, so know what type of location you want. Do you want a location with high potential to appreciate property values in the near future? Do you want a place with an already stable income generated instead?
After that, set a reasonable price range that fits your budget. By the way, don’t forget to deduct expenses from property taxes, maintenance costs, and other upkeep costs! They can add up pretty quickly, you know?
Also, look at the properties themselves. Do they have reasonable rising rates and the potential to appreciate? Can they generate good rental income from tenants?
More importantly, determine your risk tolerance. How much are you willing to gamble or risk on the properties? Are you willing to hire help like lawyers, realtors, and property managers to assist you with your real estate investments?
And finally, determine your exit strategy to claim the fruit of your investment or escape massive losses. Know when you want to close everything out—the time you want to sell the property or the amount of property appreciation you hope for before calling it quits.
Step 4: Build a Network of Professionals
As I mentioned previously, ask yourself if you need help.
I do recommend getting it, though. After all, it’s very challenging to deal with real estate by yourself, especially if you’re new to it and have limited spare time.
It’s highly likely that you currently have a career, and I wouldn’t recommend abandoning it solely for this. After all, a stable income stream can significantly help you secure your investments and your personal finances as well.
With that said, who should be the ones on your team? Do you want to guess? Let’s start with the first three players: lawyers, realtors, and property managers. And they’re important because:
Lawyers can assist with legal issues related to your properties, which can easily plague you in the beginning.
Real estate agents help you gather information on locations and properties. A very practical player in your team, as they can also teach you the ropes.
Property managers are crucial for handling your properties. Optional, but critical if you want to do rentals.
In addition to those three, also consider connecting or befriending lenders, appraisers, and insurance agents. Aside from their specific services, they can be valuable sources of information for various aspects of property ownership and investments in general.
And also, tax advisors, contractors, and other specialists may be beneficial depending on your needs.
Of course, you don’t necessarily need to have all hands on deck right away and hire all of them.
It’s highly practical to have them in your network first. Doing so can allow you to access their expertise when needed—and only hire them when necessary. After all, their services can be costly, so prioritize based on your resources and investment strategy.
With the advent of the Internet of Things, you can easily find online real estate experts to assist you with your specific needs. Just do your due diligence before paying for their services.
Step 5: Identify Potential Investment Properties
Research properties and identify their potential investment value according to your developed strategy and your “team’s” advice.
Start with thorough market research and analysis of local trends. Based on this market data, consider property values and expected rental income. Then, evaluate properties against your specific investment criteria and goals as outlined in your strategy.
Perform due diligence before exploring a specific property. This includes personally inspecting the property and seeking assistance from your real estate investment group or connections.
Also, be sure to check and review the property’s history and relevant financial documents to identify potential future headaches. It’s also worthwhile to examine the tax break, maintenance fee, and potential environmental liability as well.
Step 6: Secure Financing and Funding
It goes without saying that you’ll need money to fund real estate investments. And if you don’t have enough, you’ll need to acquire financial backing to secure your funding for your real estate investing.
To do so, start with mortgage payments, such as getting help from financial institutions like banks and credit unions. Aside from the money you earn from financial institutions, getting help from them can also aid you in improving your credit score if you handle your payments properly.
Another option is private lenders.
They’re more flexible and might be your only option if you have bad credit or lack financial capacity but remember that they charge higher interest rates in exchange.
Crowdfunding is another option, but it’s kind of a messy affair and requires utmost due diligence, so I don’t recommend it as your first source of funding for your first investment.
Of course, you have the option to opt for a traditional real estate mortgage, which can be a very simple process but may limit your investment options. Also, remember that this option comes with stricter requirements like credit score and downpayment.
Step 7: Make Offers and Negotiate
You have the money and you know what property to buy, the next step is to make offers and negotiate. Thankfully, the prices you see on lists and the information you obtain can be bent a bit—meaning, you can ask or negotiate for a lower price.
Of course, negotiating real estate prices differs greatly from haggling. After all, you can’t make up things to justify your arguments or persuasions. Also, you must present your data and arguments in a way that can be a win-win situation for both parties—not just you winning.
Also, all your attempts at lowering the price of the property must be based on facts and your analysis of the local trends, comparable sales, and potential appreciation or depreciation. Thus, it’s essential to be updated on the real estate market.
Of course, adjusting the price of the sale isn’t the only thing you should negotiate. You should also look into negotiating financing contingencies, closing timelines, and potential repairs or improvements needed.
The goal here is to secure the property as quickly, hassle-free, and “fresh” as possible with minimal overspending.
It also goes without saying that you need to set a specific budget or your max offer. Stick with it as much as you can. However, at some point, learn to meet the seller in the middle.
There are some investments that you need to risk a bit more money if you believe that it will be highly profitable in the future. So, if the property’s that valuable, make sure to secure it even if you suffer a small loss.
But there’ll be times when negotiations won’t work, so you’ll also need to accept defeat and walk away and find a new property to focus on.
Step 8: Manage and Maintain Your Investment
Once you secure the property you want, then your focus will be on managing and maintaining it. And that’s part of how to start investing in real estate—knowing to manage your property.
First and foremost, set up your maintenance and rent collection (if it will be a rental). If you can afford a property manager, do so, as it will make your life easier.
In addition, you should keep up with legal requirements to ensure that your property is always compliant.
Step 9: Monitor Performance and Adjust Strategy
Then, be prepared to analyze the performance of this investment, particularly if it’s a rental property.
Analyze if the income it provides can keep up with your financial and investment goals—both long- and short-term. Know how much profit you gain from the rent and how much expense it causes because of repairs, maintenance, and other upkeep costs.
Depending on the results of your monitor, decide if it’s worth keeping the property, adjusting rent prices, and upgrading.
On the side, if you clearly see that the property can do well on its own, then it’s time for you to turn around and see other investing opportunities to diversify your portfolio. You can try to get another real estate property again, or you can dabble on your other investing options.
Step 10: Continue Learning and Growing
When you reach this point, it will be a wash, rinse, repeat process.
You need to be updated on trends, regulations, and new opportunities. Find more people you can connect with to have a solid team for your new investments. Also, learn more about real estate as you move forward.
FAQs
How can a newbie start investing in real estate?
Starting as a complete noob in real estate can be truly challenging! If you want to get started right away, try direct ownership, REITs, and real estate crowdfunding first.
Is $5,000 enough to invest in real estate?
While $5,000 can’t get you a great property, it should be enough. However, know that your options will be severely limited.
For one, with that amount of money, you can mostly take part in real estate crowdfunding to actually turn a good profit. You also have the option to take a hard money loan to get a property, which I don’t really recommend due to the high interest rates in this type of financing.
Which real estate investment is best for beginners?
As I mentioned, REITs are a good start. REITs can take away most of the legwork and annoying processes. In this setup, you’re truly an investor who’s just buying shares in a trust and getting your returns or profit through selling your shares or waiting to get dividends.
What is the first step in real estate investing?
The first step is determining what you actually hope to achieve with your real estate investments. Doing so will let you develop the appropriate investment strategy.
Conclusion
Whew! This was a long one! Even if I did say that this is a comprehensive list, I highly recommend that you do further research! I can never stress enough that understanding how to start investing in real estate is critical.
So, keep yourself well-informed, and remain strategic yet cautious with your investments. Hopefully, you can make it big out there! Good luck!
