- The best way to learn real estate investing is to try out a beginner friendly exit strategy and work your way up.
- Take the quiz below to find out the best way to learn real estate investing based on your skills.
- Real estate investing information can come from a variety of sources including network connections, investing books and online research.
Historically, real estate has been an attractive investment opportunity for a number of reasons. Real estate can allow investors to establish multiple streams of income, break free from a regular job, and even achieve financial freedom. Although, the most important thing to understand is that the benefits of real estate are not exclusive to seasoned investors. In fact, there are several strategies on real estate investing for beginners that can help anyone get started.
Like any investment opportunity, there are certain risks involved in real estate. However, by taking the time to get acquainted with the industry investors can help ensure they avoid common mistakes. Whether you plan to pursue investing full time or just as a side hustle, real estate has proven its profitability time and time again. Keep reading to learn about investing in real estate for beginners and get started today.
Real Estate Investment Strategies for Beginners
Real estate investing can be intimidating to those not familiar with the industry. It can take several months (or properties) before investors become fully comfortable in real estate. That’s why beginner friendly investing strategies are a good starting point. While they are suitable to investors with little to no experience, they can still be highly profitable when managed correctly.
Starting out in a beginner friendly investing niche is a great way to learn the ropes before taking on more complex investments. By starting with an accessible strategy to start, investors can get to know their local market, build a network and learn how to raise capital without committing to a deal they may not be equipped to handle. Investors can then use their experience and profits, to transition into other strategies down the line.
Here are three real estate investment strategies for beginners to use as a starting point:
Wholesaling: This strategy allows investors to act as a middle man between sellers and buyers. Wholesalers will identify and secure a property under market value, and then assign that contract to an end buyer.
Prehabbing: Prehabbing is the process of positioning a property for resale by adding minor cosmetic updates. The property is then often sold to an investor who will complete a full rehab.
REIT Investing: A real estate investment trust (REIT) is a company that owns and manages income-producing properties. Investors can then purchase shares in REIT and benefit from the profitability of real estate without owning physical properties.
1. Real Estate Wholesaling
One of the fastest ways to get started in real estate is by wholesaling. This unique strategy involves securing a property under market value and then assigning an end buyer to purchase the contract. Wholesalers never actually own the property, and instead make money buy adding a fee to the final contract.
The key to wholesaling lies in creating a strong buyers list. This is essentially a list of investors who may be looking for their next deal. Wholesalers will often run a lead generation campaign to identify potential buyers. This involves marketing their business, often through emails, social media or direct mail, and then building a list of interested investors. To actually create a buyers list, you will need investors’ name, contact information, type of funding and buying criteria. This will ensure you know what kind of deals they are looking for and how to reach them once you’ve found the right property.
What makes wholesaling great for real estate investing for beginners is that it does not require significant capital to get started. While investors may need capital for successful marketing or payments of good faith, they will not be actually purchasing properties. Furthermore, wholesaling allows investors to build a reliable network and form a strong understanding of their market area.
2. Real Estate Prehabbing
Another great option for beginning real estate investing is through “prehabbing.” Unlike a rehab, which involves funds to make significant improvements, a prehab project requires only minimal upgrades. Investors will typically enhance a property just enough to visually entice other investors. Rather than making dramatic changes, prehabbing consists of improving a property through sweat equity. A few prehabbing projects include:
Cleaning: Taking the time to remove trash and debris from a property, including general cleaning, can have a powerful impact on its appeal.
Painting: At minimal costs, painting provides an affordable way for beginners to improve the appearance of a property.
Landscaping: If you can’t get people to like the outside of the property, they most definitely won’t be interested in taking the time to come inside. Believe it or not, curb appeal goes a long way in real estate, at very little cost.
Investors hoping to choose this strategy should know that not every property will be well suited for a prehab. Look for properties with structural integrity in need of an “easy” clean up, avoid homes that could require pricey repairs straight away. Additionally, always keep location in mind when searching for prehab houses. Research your market and identify popular or up and coming neighborhoods.
The allure of prehabbing should be easy to see when learning how to invest in real estate. Not only does it involve very little risk and minimal work in comparison to other investment options, but it will also produce a quick return on investment. Remember, the aim of prehabbing is learning how to sell the sizzle, not the steak.
3. REIT Investing
Real estate investment trusts (REITs) are a good jumping off point for those new to real estate. Equity REITs, which are the most common type, are essentially companies that own income-generating real estate. Investors purchase shares in these companies and generate income through regularly paid dividends. REITs are perfect for beginners who are unable to pursue real estate full time because they have the capability to generate steady, passive streams of revenue.
While REITs can be thought of similarly to investing in stocks, according to The Motley Fool REITs often pay above-average dividends. To get started, try researching publicly traded REITs and evaluate their records for yourself. Research the anticipated growth of the company and current dividends, as well as the funds from operations (FFO). It can be a good idea to discuss with a financial advisor when selecting a REIT to invest in.
REITs are used by a variety of investors as a way to diversify their existing portfolios, they still serve as an excellent gateway into the real estate industry. As a whole, REITs are well suited towards beginners because they allow investors who may not be ready or able to purchase properties the chance to benefit from real estate. Although there are variables that can influence the performance of REITs, this investment option is known for offering solid returns with relatively low risk.
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Everything You Need to Know About Real Estate Investing
For many aspiring investors, the closest they have come to a real estate deal is by watching reality TV. While television shows can be a good source of general information, they are often an unrealistic portrait of how to start a real estate business. Rather than watching HGTV in the hopes of picking up a new term or strategy, it is a good idea to form a concrete plan for learning the industry. The following list will outline some of the best real estate investing tips for beginners:
Networking Is Key
Aspiring investors should attend as many networking events and investment clubs as possible. This may sound uncomfortable at first, but anyone interested in breaking into the industry will need to form some connections. Try reading some networking tips online and attempt to identify a mentor after your first few meetings. By interacting with real estate professionals you can hear specific stories on how to land deals and overcome certain challenges. Networking events in your area can even expose you to information specific to your market.
Not only will networking events be a great place to learn, they are also where you can start building a contacts list. In terms of real estate investing for beginners, your connections will ultimately impact how you approach investments and uncover your real estate niche. Having the right team to count on will be crucial once you start closing deals.
One final note about networking: always keep your best judgement in mind when talking to other investors. Take in as much information as you can, but remember to do your homework on everything you hear. Just because a certain niche or neighborhood did not work for someone does not necessarily mean it will not work for you.
Draft A Real Estate Business Plan
A great place to start investing as a beginner is to draft a business plan. This will allow you to identify your “why”. For example, maybe you want to save for retirement or help your family’s financial situation. No matter what your reason is, visualizing your “why” before getting started will be a crucial source of motivation. The next step to creating a business plan is to write out your specific business goals. It may seem foreign at first, but the purpose of a real estate business plan is to produce a roadmap for investors. It will help you identify and outline your goals, while also strategizing actionable steps to accomplish them. With proper planning, a real estate business plan can serve as a critical learning tool for real estate investing beginners.
Read About Real Estate Investing
If you truly want to start a real estate business, it is crucial to learn as much about the industry as you can. There are countless investing books, blogs, and magazines that are a great place to start. While there are a ton of options out there, try not to overwhelm yourself at first. Instead, try grabbing a few investing books or subscribing to a real estate newsletter and designate just 15 minutes a day to reading something new. One thing all successful real estate investors have in common is that they never stop learning. This continual education mindset will serve you well throughout your career as an investor. Check out this list of real estate investing books for a few recommendations to get you started.
Finally, the single best way to learn the real estate business is by doing it. If you aren’t quite ready to go at it alone, try shadowing a real estate professional in your area on your next deal. You may need to assist on a few errands to make their time worthwhile, but after networking with other professionals you should have no problem finding a connection to shadow while you learn the ropes. Knowing how to make offers and negotiate with a real seller will be invaluable as you set up your own real estate business. Additionally, walking through properties with other professionals will give you an idea of what to look for when you are ready to start buying. First-hand experience, especially when it comes to real estate investing for beginners, will pay dividends in the long run.
Real estate investing has proven to be a highly successful investment vehicle time and time again. The best part is: no matter where you are starting out there is no reason real estate should be off limits. There are several investing strategies that can serve as a gateway into a successful long term career in real estate. Take some time to learn about real estate investing for beginners and find the right strategy for you.
Which real estate investing strategies for beginners are you planning on trying? Share your first steps in the comments below.
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