Steps for getting started in real estate investing
Real estate can be among the most profitable investments someone can make. However, real estate investing comes with a slew of potential obstacles and surprises. How you get started is critical to your success. Here are some simple guidelines for the novice real estate investor that may help you early on.
Line up your cash and financing options. Real estate is an expensive investing option, and you need some cash and access to funding. If you’re purchasing a rental property, plan for a boatload of expenses such as your minimum down payment, upgrades and repairs, licensing and inspection fees, maintenance costs, etc. You will also need a good credit score in order to get a good mortgage loan rate.
Start slow with passive real estate. If you don’t know much about real estate investing, you might want to start with a passive strategy. Most experts suggest investing in a REIT, real estate investment trust. A REIT is a corporation or trust that’s formed to use investors’ money to acquire, manage and sell income-producing properties such as shopping malls, commercial buildings, and health-care facilities.
Other suggestions include investing in mutual funds or purchasing a pre-vetted rental property, which are turn-key opportunities, meaning you don’t have to fix toilets in the middle of the night. You should consider investing in real estate limited partnerships, and joining an investment group has multiple benefits, which is passive in that investors don’t worry about placing tenants or managing their units.
Take an active role with active real estate investing. Buy or hold for rental income. Owning rental property is ideal for many investors who want a more hands-on start. The approach is to acquire and manage residential property for a profit. You could fix-and-flip, which is at the far end of the passive list. You buy a property that’s undervalued (usually poor condition) and you repair and improve it, then sell for a profit. And how about wholesale properties? A wholesaler finds distressed properties with motivated sellers and matches them up with investor rehabbers, without ever taking the title of the property themselves.
Become a real estate expert. In a lot of ways, real estate investing is a trade you learn by doing and from working with others. But you have to study and educate yourself as much as possible. Take a real estate course, watch YouTube videos, and visit with a friend who is a licensed Realtor. You need to research property values, market rents, and the neighborhood.
Connect with other real estate investors for fast-track learning. Frequent online forums, and go to a local REIA (Real Estate Investor Association) meeting to learn and network. You can also join an online group.
Know the risks in real estate. No article about real estate investing is complete without mentioning risk. It’s like stock trading…the housing market fluctuates. And the transaction
costs of real estate are high, and real estate investing is not for day traders. The biggest risk is buying the wrong property and paying too much for it.
It’s also important to be aware of the laws involved in the landlord-tenant relationship. You need to know the rules regarding the eviction process, security deposits, and insurance policies. And be sure to do a background check on prospective tenants to find out their credit score and any criminal record. Get their previous residence and landlord, banking information, and both current and past employment contacts.
There are a lot of books and programs out there promising you that you can get rich in real estate without having to do anything. They are all complete nonsense!