If you are interested in investing in real estate, give yourself a pat on the back. You are already further along than most people when it comes to building true wealth.
Real estate gives you the opportunity to invest in something, well, real. Real buildings, real homes, real property that will always be in demand. No matter what happens to the economy in uncertain times, people will always need a place to live.
Looking to learn about real estate investing basics? Want to discover how to start investing in real estate and build true wealth? Keep reading our real estate investing for beginners guide below.
Real Estate Investing Basics: Types of Investments
When it comes to investing in property, there is a multitude of methods. Depending on how involved you’d like to be, and what types of returns you are looking for, you can choose from a number of different strategies.
Some of the most common ways people start investing in real estate are:
- Buy and hold rentals
- Flipping houses
- Investing online
- House hacking
This is a common beginner’s starting point. There are many other ways to invest in real estate once you’ve got a bit more capital and experience. Here’s why you should consider the above strategies.
Buy and Hold Rentals
When you purchase a property with the intention of renting it out to tenants, you are a buy-and-hold investor. Rather than trying to sell the home, you are trying to collect rent each month.
The rent you collect from your tenants covers the mortgage on the home, the home insurance, the property taxes, and maintenance. If you buy right then you will also have money leftover. This is your cash flow.
Some people try to acquire as many properties as they can to multiply their cash flow into a full-time income. Others only want to get a couple of homes, pay off the mortgage, and have a higher cash flow on each property.
Rentals require working with tenants, maintenance and upkeep, finding new tenants, and more. Many investors hire a property management company once they have a few properties.
Flipping houses is the process of buying run-down, or outdated properties, fixing them up, and selling them for a profit. It’s generally a lot more work but is perfect for those with construction or carpentry experience.
Some people flip homes by hiring a contractor to manage the remodel for them. When you are flipping a house, time is of the essence. If you don’t have the cash upfront, you’ll have to get a short-term, high-interest loan.
Your goal is to fix up and sell the property as fast as possible. And when you sell any property that you haven’t lived in for over two years, you’ll also have to pay capital gains tax.
If done right, your profit can be tens of thousands of dollars or more after selling the home.
House hacking is a very beginner-friendly approach to real estate investing. Basically, it’s the process of buying a home that you intend on living in and renting out a portion of the home.
Those who are single often buy a single-family home and rent out the spare bedrooms. If you aren’t comfortable with sharing space, you can look for a property that has a mother-in-law suite, or a duplex or triplex.
The benefit of investing in real estate this way is that you can get a low-interest, low-down-payment mortgage because you intend to occupy the property. The rental income then covers your living expenses and potentially earns you a profit.
Invest in Real Estate Online
For high-income earners who’d like to invest in real estate without investing a lot of time dealing with flips or rentals, you can invest in real estate online. Many websites offer investors the opportunity to crowdfund different residential or commercial investment opportunities.
All you need to do is put up the money and enjoy the returns.
How to Invest In Real Estate: Your First Property
Whatever strategy you choose to start with, the process of getting your first property will always be similar: organize your personal financial situation, improve your credit score, save up money, and search for deals.
You want your financial situation to be as stable as possible. Do your best to eliminate consumer debt as much as possible. In doing so, you can also improve your credit score, which lenders love to see.
While there are always ways to borrow money for real estate, the best way to start is to fund your first deal by yourself. Set a budget and save as much as you need for your first down payment and rehab expenses.
Having your first deal under your belt will give you experience and make it easier to get funding for your next deal.
Then, it’s just a process of finding your first property. Scope the MLS, get a realtor, knock on doors, and let others know what kind of property you are looking for.
How to Get Your Next Property
Once you’ve gotten your first investment property under your belt, it’s time to get the next one. Depending on your preferred investment strategies, whether flips or buy-and-holds, the process will be different.
Getting Your Next Flip
If you’ve flipped a house, then hopefully you’ve made a profit. That’s the money you’ll be using to get your next property. Hopefully, you can get a bigger property with greater possible returns.
Or, you might be able to use those funds to acquire two properties, allowing you to start scaling your investments.
Getting Your Next Rental
If you are pursuing the buy-and-hold strategy, you have a few options for getting your second property. One way is to simply repeat the original process. Save up enough money for a down payment. Now, you have a little extra cash flow each month thanks to your first rental.
Saving up money takes time. If you’d like your investment portfolio to grow faster, you can use the BRRRR strategy.
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. Essentially, once you’ve fixed up and rented out the property, you’ll now have equity in the home.
You can refinance the house, pulling out your equity, which you can now use to acquire your second property. This process is very repeatable, allowing you to constantly reuse your equity to expand your portfolio and multiply your cash-flowing potential.
To learn more about how the BRRRR strategy works, check out this article. It’s a powerful way to build wealth quickly.
Building True Wealth
The process of getting started isn’t as hard as it might seem. When it comes down to it, you just need to choose your starting point. Once you do, there will be a clear path forward for acquiring your first property.
And you don’t have to go it alone. There are many online resources and communities that support would-be real estate investors. Read books and listen to podcasts to learn more about real estate investing basics.
The sooner you get started, the sooner you’ll build true wealth. Looking for more helpful articles like this? Be sure to subscribe to our blog today.