Investing in real estate is one of the smartest money moves you can make. Whether you are investing in a single-family home for yourself or to use as a rental property or buying multi-family residential property, it’s a stable and safe investment.
It’s a smart move to plan for retirement using a mix of different investments, including real estate.
Unlike investing in the stock market, investing in real estate means you always have the physical asset to show for your expenses. Real estate investing for beginners might seem overwhelming, but it doesn’t have to be. Keep reading for 8 tips to help get you started.
Real Estate Investing for Beginners: 8 Tips To Get Started
There will certainly be a learning curve involved in navigating the real estate market as a beginner, but there are some steps you can take as you get started to minimize those mistakes.
Before you even start considering buying real estate, make sure your credit is as good as it can be. If you need to repair your credit, consider a secured credit card.
1. Don’t Rush
It can be tempting to jump into a purchase, but you should take your time. As a new real estate investor, you’ll want to really understand the market conditions, like how much properties are renting for, how they hold their value for resale, and neighborhood factors.
You might see 100 properties before you decide to buy one. It’s a big decision and commitment, so take your time.
2. Know Your Market
Don’t just rely on real estate agents or other investors to know the market that you plan to purchase in. Do you own research and know the values of the properties in that area.
Knowing your market helps ensure that you make good decisions and will be successful.
3. Buy REITs
REIT stands for real estate investment trust. Buying into an REIT allows you to invest in real estate without actually getting the physical property. REITs are sort of like mutual funds. Companies own commercial properties, such as office buildings, apartments, hotels, and retail stores and then you invest in the company.
They often pay high dividends, making them a good choice for investors. If you’re a new investor, it’s best to stick with a publicly traded REIT, which you can purchase through a broker. You can find the best stocks to invest in by searching popular finance sites or reading stock market newsletters.
4. Invest in Rental Properties
Whether you buy a property and live there while renting out rooms or purchase a property solely for renting, rental properties are a good source of passive income. They aren’t totally passive though, as you’ll have to provide some maintenance (or pay a property manager to handle it all), but in general, they are a stable investment.
You could do something called “house hacking” which is occupying an investment property and renting out rooms in the property or living in one of the units while renting out the rest.
An even better choice is buying turnkey real estate. The property is renovated and has renters already, so you have to do little, if anything. The first rent check you receive is immediate profit to put towards the mortgage. When investing in rental properties, whether it be of the house hacking type or a traditional rental property, it is always a smart idea to have a proven rental application form on hand to use that is written up by a lawyer, real estate company, or a contract writing service.
5. Start Small
Start out with just one property or a duplex or multi-unit property that has only a few units. Don’t get in over your right off the bat. As you get more experienced, you can buy more real estate and get more involved, but don’t burn out early.
6. Consider Flipping Homes
Just like you see on HGTV, flipping homes can be lucrative IF you know what you’re doing. Purchasing a home for a low price, fixing it up, and then selling it for a profit isn’t as easy or quick as it looks on TV, though.
There is more risk involved, as you have to accurately predict renovation costs and sell quickly, to minimize the amount of time you are paying for the home. There’s always the chance that the home doesn’t sell, or takes a long time to sell, too, so keep that in mind.
But, if you have the DIY skills to renovate a home or have a partner who can, flipping homes might be the right move into real estate investing for you.
7. Buy A Vacation Rental Home
A vacation rental property serves multiple purposes. It gives you somewhere to vacation but also provides you with an income to pay for that vacation. You can purchase a vacation home or condo, live in it for part of the year, and rent it out the rest of the year.
The return on investment varies, here, depending on what type of property it is and where it’s located. The downside of investing in a vacation property is that it’s located away from where you live, so you need to rely on property managers.
8. Consider Commercial Real Estate
Commercial real estate investing is typically used by more experienced investors, but not always. It’s usually more expensive than residential real estate, but the upside is that it often generates a higher cash flow.
There are downsides, though, such as empty spaces if a tenant vacates or tenants who are late or don’t pay their rent. Even if the space is vacant, you still have to pay the mortgage.
Commercial properties also often have long leases, so you won’t be able to raise the rent for 5 to 10 years. While this means you might have a stable tenant, it also means you can’t adjust to meet market prices on a regular basis like you can with residential property.
The Bottom Line
Real estate investing for beginners doesn’t have to be overwhelming. Start small, do your research, and consider your short-term and long-term goals. Talk to experts and learn more about investing and the market where you wish to buy, and most importantly, don’t rush!
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