real estate investing

How To Get Started With Real Estate Investing

Everyone has dreams of owning their own home someday. For most people, it’s still a dream because it takes a lot of money to buy property these days. In the past investing cost thousands of dollars and you had to have pretty good credit to get financing. Although financing is still hard to qualify for, there are other ways of breaking into the real estate market that doesn’t take a lot of money and is relatively easy to accomplish. Read on for more details on how to get into real estate investing.

Many new investors don’t know where to start when it comes to real estate. Here we’ll look at some general types of real estate and then get into how to go about getting started. Some of these are low-maintenance and very affordable. We’ll start with the highest one first and work our way down to the lowest.

What is real estate investing?

In the simplest terms, real estate investing is the purchase of a property with or without a house on it, for the purpose of earning money from it. There are home sales and land only sales. There are 3 different categories of real estate:

Residential real estate includes houses, apartment buildings, and vacation properties. This is often the easiest type of investing to get into.

Commercial real estate involves storefronts, office spaces, or any type of building used to run a business. It’s more expensive than residential real estate and harder to manage. The best way for new investors to get into commercial real estate is to buy shares in a real estate investment trust.

Industrial real estate includes storage units, warehouses, and other types of buildings used by companies involved in production.

Easiest Ways to Invest in Real Estate

It might sound like a challenge to get started in real estate investing, but these days there are several easy ways to get going. Even with little money, you can become a real estate investor.

Here are a few easy ways to get started.

Buy Real Estate Investment Trusts (REITs)

Buying real estate investment trusts is like buying stock in real estate. REITs are companies that own and operate, income-producing real estate such as office buildings,  apartment buildings, shopping centers, warehouses, hospitals, and hotels.

Are they considered to be a good investment? Yes, they can be a good investment but they are also a bit complicated. Some publicly trade on an exchange and others don’t. They also carry a certain amount of risk, depending on one the type you purchase. As a new investor, you should stick to publicly-traded REITs, which can be purchased through a brokerage firm. To buy publicly-traded stock you’ll need to open a brokerage account. It takes less than 15 minutes and requires no upfront investments.

TIP! DiversyFund makes it easy to buy shares in a portfolio of fully vetted, multifamily real estate — a low-risk type of real estate. You can own a piece of the SEC-qualified Real Estate Investment Trust (REIT) they manage. Historic returns vary from 11% to 18%.

Online Real Estate Investing

Online investment groups connect borrowers with lenders willing to invest in real estate for a certain percentage on the return. It may also be called peer-to-peer lending. Lending Club and Prosper belong in this category. People can apply for a personal loan and investors put up the funds for the loan.

These online platforms connect real estate developers to investors who want to finance property or projects. For investors,  they receive payments monthly or quarterly in exchange for paying a fee to use the platform and for putting up the funding for the loan. This type of investment is not fluid and you can’t dump it quickly to get a return. Sometimes there are rules and regulations for joining an online platform and you may have to qualify by income to get approved.

Investing in Rental Properties

While the first two options are more complex, this one is easier and just takes a little creativity. A college used this method to invest in real estate while in school and earn enough money to make the payments by renting out the empty rooms. A 2-story, 3 – 4 bedroom house can be set up like a dorm-style housing for roommates. 

The buyer purchases the property and takes one bedroom for himself, then rents out the remaining rooms to other students in need of housing. The kitchen and living areas are shared as well as the mortgage payment and utilities. For example, if the mortgage payment is $900 for a 4 bedroom you would charge each person $300 + utilities which covers the monthly payment. This method is sometimes referred to as “house hacking.” It basically means you’re occupying the property so you can qualify for a residential loan and paying it back by renting out empty rooms.

This also works with multiple units like an apartment building. Or you can rent out the entire property. You would just need to find one with low enough payments so you can make a little bit of cash after collecting everyone’s rent. You could hire a property manager to collect rent and manage repairs if you don’t want to live on-site.

Start with one property and live in it until you get some of it paid down and then find a second property and do the same thing again, only this time getting a loan big enough to cover the new property and pay off the balance on the first one Then you have one property free and clear – all the rent money goes to you.

Buy Investment Properties to Flip

This is a concept that most people understand due to TV shows on the HGTV network. The principle is pretty simple and straightforward; you find properties in need of repair and bid on them. Once you acquire the property you renovate it as cheaply as you can and then resell it for a higher profit. This is called house flipping and it’s not quite as easy as it looks on TV.

Some of these properties sell for a lower price because they need intensive repairs that the buyer may not realize if they are not trained to spot problems. There is a bit more risk involved because you have to know how much you can resell for and make repairs on a small budget so as to come out with a profit and not just break even. It’s a bit like gambling. This may be something you could learn to do successfully as you learn the market and how to estimate costs.

A good suggestion would be to find someone willing to go in as a partner and help you with the renovations. You can split the expenses and the profits when you sell. If you partner with a contractor you can cut out the middleman and just buy the supplies and do most of the work yourselves.

The idea is to hold onto the house as little as possible because during the time you’re making the repairs you’re making payments without any income coming in from the property. On the other hand, you could live in the property eliminating one payment until it’s ready to sell.

TIP! CrowdStreet is a real estate investing platform that gives accredited investors direct access to commercial real estate investment opportunities. They have a track record of impressive returns. Please note: the majority of their investment opportunities have a minimum investment of $25,000.

Rent To People on Vacation

If you want to earn money from real estate investing without a huge commitment you could take advantage of shared housing with sites like AirBnB. You don’t have to look for a long-term tenant, you just rent out an empty room or the whole house while you’re away on vacation. The company screens applicants for you and makes all of the arrangements. You decide when you want to rent and can stop any time you no longer want to do it. This would also work with a vacation property you own out of state that you hardly ever get to use. You can rent it out for so much per month or by the week to other people on vacation.

This option requires the least amount of involvement on your part. You don’t have to collect rents or find tenants. Everything is done for you. All you’re required to do is have the place clean and ready for the next renter and deliver the keys at check-in. If this idea appeals to you, then try it out to see how you like it. Rent out a spare room in your house or apartment for a couple of weeks to get a feel for what is like to own a rental.

So there you have it. These are some ideas for how you can get starting in real estate investing without a whole lot of money upfront. The best investments are the ones that offer you the biggest returns. It all depends on how much time and money you can devote to getting started. If you don’t have any handyman skills you might want to hire a property manager and have a repairman on-call.

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