If you’re new to real estate investing, it can be an intimidating industry to break into. It’s a good idea to take stock of where you are and find a strategy that’s suited to your current level of knowledge and skills. Here are seven ways you can get started with real estate investing. As an investor, you need to build up your knowledge of how real estate works before diving in. You don’t have to receive a degree in real estate investing, but you should understand the basics of how the industry works. You should have a foundation that includes real estate basics like profitability, cash flow and financing. Learning the vocabulary and key concepts will then help you when you approach bigger topics like how to make money in real estate and building a real estate portfolio. One option is to take an educational course offered by a real estate trade group like the Institute of Real Estate Management or the National Apartment Association. Both groups offer webinars, courses and even certifications you can receive. Every investment is different and comes with its own unique risks. As an investor, you’ll have to determine your level of risk tolerance so you can decide which investments you’re willing to take on. 1. Make Sure You Understand The Basics Of Real Estate Investing
2. Determine Your Risk Tolerance
Your risk tolerance will largely depend on your personal and financial situation. For example, if you have a family to support, a mortgage and a lot of monthly expenses, you may want to choose less-volatile investments.
If you don’t know how to navigate the risk of investing, consider ways to take strategic risks. You may have to reevaluate your investment goals or revise your strategy.
However, one of the best ways to mitigate risk is by building a diversified portfolio. Trading in various assets with different risk levels will protect you if one happens to fail. In addition, building a strong portfolio lays the foundation for understanding your unique overall approach to real estate investment and portfolios of property.
3. Choose A Market
Your goals and financial situation will determine where you should focus your efforts. But there’s one factor that every real estate investor will need to choose, and that’s the location you want to invest in. The location plays a huge role in determining what’s a good investment real estate market.
Certain areas are highly sought after on the hot real estate markets, making them competitive but promising. They’re typically fast-growing locales with opportunities and entertainment available. So, you may need to research what the best places to invest in looks like to you.
To find a good location, you’ll start by figuring out how much money you’re able to invest and looking for properties that fit within your budget. You’ll also want to look at the local economy and job market in that area to determine whether it’s growing. It’s also important to consider the population growth and what the renter population is like.
4. Decide How Involved You Want To Be
Next, you need to decide how hands-on you want to be with your investments. Owning rental properties usually requires more work than investing in other types of real estate.
It also comes with significant costs, like paying for property taxes and routine maintenance. And you only make money on a rental property if you have a paying tenant. You’ll need to figure out the vacancy costs as well.
If you’re looking for a more hands-off approach with fewer expenses, you’ll probably want to look into more passive forms of real estate investing. For example, a REIT is a more passive form of real estate investing.
5. Start Searching For Properties
It’s important to assess the investment risk of your current real estate portfolio. Examine the market’s volatility at the time you want to begin investing. Learning when to take action based on the movement of the market is crucial for any investor.
You also need to research any investment properties you’re considering investing in. If the property is in poor condition or located in an undesirable area, it becomes less valuable. You can identify the profitability and volatility of an individual property through analytic software and reporting services.
6. Figure Out Financing
Once you find the right investment property, you need to work out the financing. Financing an investment property is more challenging than buying a primary residence.
You may be able to qualify for a traditional mortgage through a bank or credit union. However, these mortgages are riskier for lenders, so you’ll need to have a strong financial history and a good credit score to qualify.
You can also look into Freddie Mac’s Investment Property program which helps borrowers find financing for investment properties and is available for one-to-four-unit properties.
When looking for financing, you may have to seek out opportunities specifically geared towards your needs. Here are some other options you can consider:
- Real estate crowdfunding: Crowdfunding involves asking the public to help fund the venture. You’ll ask other investors to help you fund your real estate investment and share the risk with them.
- Holding multiple mortgages: You may be able to take out more than one mortgage to help finance your real estate investments. However, this can be a risky strategy and some banks aren’t willing to let you hold multiple mortgages at once.
- Loans for flipping houses: You may be able to obtain a loan from a private lender to specifically fund house-flipping ventures. A hard money loan, home equity loans or cash-out refinance may be a better way to fund house flipping ventures than a traditional mortgage.
- Opportunity zones: Opportunity zones involve investing in a disadvantaged community, which provides tax benefits under the Tax Cuts and Jobs Act of 2017. This is a good option for anyone looking to improve economically disadvantaged areas.
7. Monitor Your Performance
Once you begin investing in real estate, it’s important to monitor your performance and evaluate your gains and losses. There are a number of different ratios and calculations you can use to help you understand your progress.
Some work better for certain properties, like residential versus commercial, so it’s important to do your homework before using one. Examples of metrics you may need include net operating income (NOI), internal rate of return (IRR) and operating expense ratio (OER).
