Building wealth, passive income, and financial freedom. That is the dream for those wanting to start real estate investing. Real estate investors are among the wealthiest people in the world!
The best part of real estate investing? You can start no matter your income or type of investing, there are thousands of success stories, like yours, of how smart entrepreneurs began their real estate investing journey.
Are looking to build long-term wealth, build a passive side-hustle, or just learn more about real estate investing? No wonder more and more entrepreneurs are looking to start real estate investing.
Follow these steps to begin real estate investing today.
Must-have knowledge for real estate investing
Real estate knowledge is a must for anyone looking to begin real estate investing. Without this skill set, you won’t be able to identify possible investment opportunities or problems.
In order to have a successful real estate investment, you need to have a basic understanding of these core concepts:
- Local Market Knowledge
- How To Find A Good Property
- Investment Property Red Flags
- After Repair Value Of Properties
- Gross vs. Net Income
Any real estate investor needs to have a clear understanding of their local real estate market. Knowing whether it is an ideal time to rent, buy, or sell is key to making smart investments. Markets vary, so one investment type can earn you more than others in the right areas.
Finding a good property will also be key to your real estate investing success! Some key signs to finding the best investment are location, repairs, after repair value, amenities, property features, property uses, potential profits, and demand for that property.
Knowing when to walk away from a property is also a key element to investing. From too many large repairs, bad sellers, or bad markets, knowing the sign of a bad investment will save you time, and money!
The after-repair value is the value of a property after it has been flipped! This is used by real estate investors to determine the future value of a flipped property before it is purchased.
To determine the ARV they take the comparable properties (comps) in similar conditions, age, size, build, and style that have recently sold. You will also need to know how to determine your profit from a potential property. Depending on your investment you may need to be able to calculate the gross profit, or net profit, depending on if you are renting.
Calculating your Gross Operating Income is key to determining the profit of your rentals, while net profits are the amount you earn after you flip or sell a property. Knowing your break-even points for your property is a must for any investment.
With the basics of real estate investing, you can learn more about the types and ways to find your investments.
Types Of real estate investments
There are many ways and types of real estate investments. Learning more about the basics of real estate investments is a great way to determine what kind of investment is best for you.
While the types of investment may vary based on your location there are about four different types of real estate investments.
Land Investments are empty parcels that are available to purchase. While the land may be cheap to purchase up front, the profit and length of the investment may not be ideal for those looking for a quick influx of cash.
The land is a great opportunity for investing if you are looking to build, or implement a buy and hold strategy to sell when the value increases.
Flips are a great opportunity to earn fast income but come with greater risks. Flipping property involves the purchase, repair, and selling of a home for a profit.
House flippers find undervalued homes and make improvements to sell the home for a profit. Flips will cost a real estate investor more upfront then rentals or land investments but can see larger one-time profits than the others over time. A benefit of flipping a home, there is no need for tenant management.
Rentals are a preferred way to create passive and long-term wealth. After the purchase of a rental investment (home, townhome, condo, etc.) You will need to maintain, repair, and manage tenants and payments. Long-term or short-term rentals can provide less up-front costs than other investments, and produce a steady income for the investor.
Lastly, investing in commercial real estate is a great way to earn substantial long-term income. These investments from offices to warehouses can be sold or rented to potential businesses for large profits.
These require a large investment upfront, potential tenant management, and maintenance depending on your investment. You can learn more about residential and commercial real estate profits here.
Each investment type comes with its pros and cons so heavily research in your local market to determine the type of investment that is right for you.
Different Ways To Start Real Estate Investing
There are many different ways to start investing in real estate without a large down payment. With so many different styles and types of investments, anyone can start real estate investing. Depending on the types of property you currently own, you could even begin real estate investing today!
Renting is a great way for beginners to start real estate investing. You can easily start real estate investing by renting a room of your home, either short term with Airbnb, or a long-term tenant. This is often called house hacking, as you use the renters to buy for the expenses of your home.
If you own a vacation home, you can even start renting it as a vacation rental as well! This is a great way to get your feet wet with rentals and to begin to build your passive wealth and learn more about tenant management, before purchasing rental properties.
You don’t need to own property to begin your real estate investing journey. Using online investment platforms to connect with investors and get a share of the profits is a great way to learn the ropes on investments. Similar to trading stocks, you get a share in the investment depending on how much you personally invest.
If the property does well you can see a return on your investment. These apps help you connect to investors who are working on properties raising funds for their investments, if you choose to invest you can share in the profits, depending on the amount you invest and can see returns.
Another way to invest in real estate is to buy REITs (real estate investment trusts). REIT operates similarly to mutual funds making it easy to invest and profit from real estate without purchasing the properties yourself. REITs tend to invest in high performing real estate properties, like warehouses or apartments.
A popular way to start real estate investing is by house flipping. Flipping is when you purchase a home, make vital repairs, and sell the home for a profit. This requires a lot of knowledge for finding properties, identifying repairs needed, and having access to contractors and funds.
Wholesaling homes is another way you can start investing in real estate. Working as a 3rd party for home sales, wholesalers contract home with a buyer and a seller and keep the difference in prices as a profit. This is a great option for those looking to invest, without owning properties.
In order to succeed in home sales, you will need to build buyers and sellers list to move properties quickly. Whether you own properties shouldn’t hold you back from starting your real estate investing journey!
Funding your real estate investment
Finding properties is a must for any real estate investors, and having the funds to back it up is a critical aspect of closing!
Like real estate investing itself, there are a large variety of ways you can fund your investments, depending on your type of investment, and property.
The most common ways to fund real estate investments are:
1. Traditional Loans
Mortgages, and home equity loans can be used to fund your real estate investing. This is a great option for investors with good credit scores and looking for long-term investments with the lowest payments available.
Traditional loans can be used to purchase and repair investment property but should be used responsibly as this comes with high risks.
2. Commercial Loans
If you decide to invest in commercial properties, these loans offer great incentives for your investing. These can be used to purchase warehouses, office buildings, and much more.
To apply for this type of loan you will need good personal credit, a business plan, and a cash flow projection in order to be approved. The Perfect Loan for your commercial investment, these are usually offered by a bank. You can learn more about lines of credit here.
3. Hard Money Loans
Hard money loans can be used for nearly every type of real estate investment. These are asset-based loans that are used by real estate investors to purchase and repair their investments.
Asset-based loans use the value or after repair value of a property to determine the value of the loan, instead of the borrower’s credit. These are short term loans, and have high-interest rates, but can fund within a few days of applying.
Each loan type has its pros and cons, so make sure to closely weigh your options and make sure it works best for your investment. Make sure to math your investment type with your long-term investing goals before using any loan. You can learn more about real estate loans here.
Real estate investing is one of the fastest ways to build your personal wealth, and achieve financial freedom. Once you know your market, and ideal investment type it’s a matter of finding the right investment, and funding!
How to start real estate investing:
- Must-Have Real Estate Knowledge: Before doing any investment, make sure you have a great understanding of your local market and know what your local market needs.
- Types Of Real Estate Investments: Flips, rentals, and more! With so many types of real estate, find the type that works best for your local market.
- Different Ways To Start Real Estate Investing: You can keep it simple with investing apps, renting a room, or jump right in with a flip! There are so many ways to get started with real estate investing depending on your preferred method!
- Funding Your Investment: Mortgages, business loans, or hard money loans, are all great options depending on the type of investment. Make sure to do your homework and have your credit score, investment plan, and after repair value ready for your investment.
Are you ready to start real estate investing?
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Catherine Way graduated from Michigan State University with a Bachelor’s in Advertising. A freelance content marketer for industries such as photography, mortgage, and real estate. She has written for Silver Doctors, The Paper Source, Active Rain, and Progressing Income. She enjoys creative outlets like writing, designing, dancing, and modeling. She currently writes and reports for Prime Plus Mortgages – Hard Money Lenders Arizona.