Real estate investing is a popular path to wealth with significant flexibility. Some investors buy properties, fix them up, and flip them for a profit. Other investors accumulate rental properties and collect recurring cash flow. These investors make money from rent and appreciation. If you want to become a real estate investor, you’re in the right place. We’ll cover strategies to help you buy your first property and build your real estate portfolio.
What Is A Real Estate Investor?
A real estate investor is a property buyer who strives to earn a positive ROI. Investors can select from various assets such as residential properties, commercial buildings, and land. Then, they create a strategy that guides their investments and objectives for each property.
Real estate investors don’t sit back and collect cash flow and profits. Real estate portfolios become businesses. Investors hire people to manage the property, recruit tenants, and fix issues. Real estate is a people-oriented business with no salary cap. Real estate investors can raise their income by completing more purchases, raising rents, and performing other actions.
Traditional real estate investing is less passive than investing in the stock market. However, real estate investing gives you an asset you can control. Investors can apply sweat equity to a property to increase its value. Stock investors can only hope companies continue to report solid earnings and beat analysts’ expectations.
Things to Consider When Becoming a Real Estate Investor
Real estate investing is an exciting opportunity, but it comes with risks. You’ll put considerable money down on a single property. Real estate investors with limited funds have extra pressure to get their first few deals right. Acing those initial deals can open the door to appreciation, cash flow, and portfolio expansion. Consider these factors when buying real estate.
Location
Your property’s location plays a vital role in valuations. A small property in Manhattan may more valuable than a small property in a rural town. However, it may not be the most profitable. Additionally, not everyone can buy a property in Manhattan, while many other locations provide tremendous opportunities.
Real estate investors consider a location’s current and future demand. Investors can review construction activity, changes in the local population, and other stats to determine an area’s demand. Some investors buy properties in up-and-coming areas near big cities. As demand grows and people get priced out of the city and nearby counties, further out counties can benefit. Investors make predictions based on local data and insights about nearby areas.
Beginners should focus on properties in their area. Local areas are easier to manage, and you can stay on top of the people you hire. Buying properties in another state requires remote management and inspections. Investors can buy remote properties in the future to expand their choices, but it’s not the best practice when getting started.
Short-term vs. Long-term Investments
Each investor has different ambitions. Some want to flip properties, while others embrace a buy-and-hold mentality. Knowing your preference influences your investing criteria.
Short-term investors look for the worst properties in the best neighborhoods. They want a house in need of some help so they can fix and flip it at a profit. Short-term investors prefer walking away from properties without managing tenants.
Long-term investors prefer consistent cash flow from tenants. They can raise the rent each year to increase profits. Long-term appreciation can help you retire early and gain significant tax benefits. It’s more consistent work than short-term investing. You can flip a property and take a break before making your next investment. Long-term investors turn their portfolios into full-time business operations.
Time Investment
No matter what property you buy, real estate requires a significant time investment. You can get out of a fixer-upper in 1-2 years, but fixing it takes time. You’ll have to find the proper handy workers, do some work yourself, and find buyers once your property is ready.
Tenants may call you in the middle of the night about problems. Property maintenance takes considerable effort. Even if you delegate those tasks, you will have to communicate frequently with the property manager.
Examples About Real Estate Investments
Investors have many choices for real estate investing. Here are some common ways to get into these assets:
- Buy-and-hold rental properties: Find great properties in ideal locations, keep them in good condition, and take care of tenants. Some people buy and hold and wait for appreciation instead of managing tenants.
- Fixing properties and flipping them at higher prices: An intense 1-2 year project that can bring a solid ROI. Make sure you don’t overspend on the repairs. It’s an investment, not a dream home.
- REITs and crowdfunding: These assets require the least work and money to enter, but you also have the least control over these assets.
- Wholesaling: Discover arbitrage opportunities for real estate contracts instead of buying and selling properties.
- Multifamily properties: Some properties accommodate several tenants. Having multiple units in a single location helps with property management. Some multifamily investors live in one unit and rent the others to tenants.
How to Become a Real Estate Investor
Real estate investors make money from appreciation, cash flow, and unparalleled tax advantages compared to other investments. However, some people are afraid to invest due to time and money commitments. We’ll help you dip your toe in the water so you eventually get comfortable swimming with experienced real estate investors.
Learn About Real Estate
Experienced real estate investors are surprisingly accessible. They write books, create videos, and upload podcast episodes detailing their successes and mistakes. Consume educational real estate content for at least 15 minutes each day.
Make A Business Plan
Business plans are roadmaps that bridge the gap from your current position to your desired future. Learning more about real estate will help you create a more detailed business plan, but start with your current knowledge. Every real estate investor must raise capital for a down payment. How will you get that money?
After saving up enough funds, your next step is to find a great property. A great property means different things to different people. Some people shiver at the thought of a fixer-upper, while others passionately embrace the project. An investing ruleset narrows your focus and helps you effectively deploy every dollar. You can use the following factors to create your criteria:
- Desirable locations
- Budget
- Square footage
- Within a set number of miles from a Whole Foods or another specific venue
- Pool or no pool (pools draw some tenants but require more maintenance)
Do Your Due Diligence With The Local Market
Review property prices, average rent, crime rates, and other stats across a local market’s areas. This due diligence will reduce the likelihood of buying unprofitable properties and help you identify a max bid. Overpaying for a property will hurt your profit outlook and stall your portfolio expansion, especially if you are getting started.
Rental investors search for local markets where average rent payments exceed average costs. Flippers look for a property priced under the average selling price in the area. These investors then decide if the margin of safety is sufficient given the property’s condition.
Talk To Other Investors
Surrounding yourself with real estate professionals will accelerate your knowledge and expand your network. Local meetups and online groups provide a space to ask questions and receive feedback on your ideas. You can also ask for property manager and real estate agent recommendations for your local market.
Real estate is a people business. Successful investors reach that status because they know great people. Knowing those same great people and getting their help with maintenance and repairs will help you become a successful real estate investor.
Consider Passive Real Estate Investment
You don’t have to turn real estate into a full-time job. Some people invest in passive real estate assets that require minimal work on their end. You can invest your money into a REIT, crowdfunded investment, or similar opportunity and never work on the property. Professional investors put your money to work to provide shareholders with profits.
Become a Passive Multifamily Real Estate Investor
Multifamily real estate investing is one of the best ways to enter the space. It’s more feasible to manage several units when they’re all in the same location. Some people appreciate the idea behind multifamily real estate investing but don’t like the work involved.
