Our perception of real estate investors may be a bit misguided by pop culture. When many of us picture a real estate investor, we’re likely to think of a wealthy individual in an expensive suit coordinating deals worth hundreds of thousands, or even millions, of dollars.
That kind of real estate mogul certainly exists (and they are undoubtedly competitive in the market), but the average real estate investor is much humbler. In fact, if you’ve ever thought about becoming one, you should be aware that it’s much easier than most people believe.
The Basics of Real Estate Investing
Let’s start by covering the basics of real estate investing. It can be approached in many different ways, and you may use real estate to help you achieve various financial goals.
The basic idea is to buy, hold, and sell properties strategically in a way that maximizes your potential financial return. There are several prominent tactical angles here, including:
Short-term flips. Some people buy cheap houses that are seriously in need of repairs. They invest in fixing up the house, then market the property and try to sell it for a profit. If you’re skilled (and a little lucky), this can produce a massive return; however, it’s a risky and unforgiving strategy for newcomers and therefore unsuitable for most beginning real estate investors.
Long-term returns. For other investors, it’s more important to optimize for long-term returns. If you buy a property in a neighborhood that’s growing or improving in its demographic makeup, you’ll benefit from the appreciation of your property’s value over time. Most owners benefit from this, whether it was part of their initial strategy or not, which makes this an extremely friendly angle for newcomers.
Recurring cash flow. It’s also possible to optimize your strategy for recurring cash flow. The idea here is to purchase a rental property, attract tenants, and collect rental income that exceeds what you have to spend for ongoing expenses. Combined with the long-term gains of property appreciation, this can be lucrative even for amateur real estate investors.
Why Anyone Can Become a Real Estate Investor
Though house flipping and similarly risky investment strategies are mostly unsuitable for newcomers, anyone can become a real estate investor. Why?
Property management companies. For new and inexperienced investors especially, property management companies are extremely valuable. These firms can help you find and analyze the potential value of new properties. More important, they’ll take care of everything associated with managing the investment – including marketing the site, finding tenants, handling upkeep, and responding to repair requests – for a small percentage of your rental income. If you don’t have much familiarity with the real estate investing world, this can be your path in.
Public markets. It’s also worth noting that anyone can buy real estate. Some types of financial products can only be traded if you have the proper qualifications, and other assets (like cryptocurrency) can be confusing for the uninitiated. But real estate is bought and sold on the open market. As long as you have the money and/or credit to finance a purchase, you can compete with other prospective buyers.
Available lending and capital. Current economic conditions in the United States are favorable to people interested in buying land and buildings. Although real estate can cost hundreds of thousands of dollars, or even millions for commercial properties, you don’t have to have that much capital on hand. As long as you have a decent credit score, you can usually purchase properties for just a fraction of the total purchase price – sometimes as low as 3 percent.
Transparently available information. There’s an undeniably lot to learn about real estate investing. There are countless variables to consider and seemingly infinite investment opportunities. But thanks to the Internet, you can read free books and articles on the subject, listen to podcasts, and even engage directly with moguls and mentors on social media. If you have even a little bit of extra free time, you can pick up the basics from others.
REITs. If you’re intimidated by the thought of managing a complex, high-profile, and expensive real estate transaction, don’t worry: You can still be an investor thanks to REITs. Real estate investment trusts (REITs) are financial assets that can be traded like stocks, and they require far less capital and due diligence than purchase of a property. By investing in REITs, you’ll be investing indirectly in a range of different properties – and benefitting from gains in the real estate market.
Real estate investing isn’t the right fit for every individual or every investor profile. It’s also not a guaranteed way to get rich.
However, it’s much more accessible than people often assume – and even a small amount of research and preparation can set you up for a lucrative investing strategy.