How to Get Started in Real Estate Investing
Financial investments lead many people to a more financially rewarding life. An investor has various options for investment, including stocks, bonds, and retirement savings. Real estate investing sits near the top of the list, but for most the process can seem difficult and time-consuming. You may wonder how to start investing in real estate and how to create wealth investing in real estate without having it take over your daily life. We have taken the time to create a quick guide to help you get started.
How do I start investing in real estate?
Beginning a new investment process can be overwhelming. Getting started is the hardest part. How do you know how to start real estate investing? Begin by identifying the possible strategies of real estate investing, which ones suit your goals/needs and level of risk the best.
The Lowest Risk – Renting in an Existing Property aka House Hacking
Do you own a home? Have you considered renting a room or several rooms in your home? If you have more space than you need or can open up space to earn income, consider renting the room out to others.
Renting comes with more than one option. Rooms can be rented long-term to people in the community that are looking for a place to live. Figure a monthly rent for the property based on your region’s typical rent amounts for the same amount of space as in your rental. Decide who pays utilities, on extras fees for pets or damage to the property, on any rules while living there, and develop a contract with payment guidelines as needed. You can rent month to month or longer.
Many people rent out rooms in their homes or in their second properties as vacation rentals through services like Airbnb, VRBO, and TripAdvisor Rentals. The renters pay vacation rates, which are higher than a long-term rental stay, to stay for a night, a week, or a few weeks. The situation is short-term and can be advertised through the chosen vacation rental site. The site may have some benefits such as initial screening, scheduling, and payment processing. You still set the guidelines for your property, so be upfront about it on the site.
Whether you’re renting short or long term, renting your own property requires maintenance. Generally, that means you have to fix whatever breaks or isn’t working, or you must hire a repair person. You’ll also be responsible for frequent room cleaning on short-term rentals and occasional cleaning between long-term renters.
You might think, how much money do I need to start investing in real estate? In the beginning, you’ll need to have enough money to cover maintenance, upgrades, cleaning, and to cover months when the rooms are empty. You may face difficult tenants including some who do property damage. A rental market slowdown can occur. Even with the costs involved in cleaning and upkeep, if you’re room isn’t making you money now, why not rent it as an investment in your future? You could be building equity for additional investments with very little risk to your current finances.
Thinking Bigger – Purchasing Rental Properties
It’s more of a commitment to make an intentional investment in rental properties, including homes and multi-unit buildings. In this case, you make money two ways: Through rent collection and building appreciation. Your investment and risk bump up a big notch when you’re purchasing a new property to rent. For the investment to pay off, look for a growing market with steady rental history and expected property appreciation.
Depending on your skills and the size and location of your rental property, you may want to handle the tasks of maintenance, upkeep, and cleaning or hire a contractor to take care of these needed responsibilities. You’ll spend more to hire out but often it’s necessary, especially as your investing business grows. Your costs will include paying a mortgage, property taxes, and insurance plus any utility costs not included in the rent. You may need to spend money on advertising and on a leasing representative as well.
Rent prices should be market-based yet pay for your property over a number of years that you determine is acceptable. Use this as a deciding factor in your purchase decision. Once your mortgage is paid, you’re making mostly profit aside from the regular expenses. Also, if you decide to sell the building, a building that sells for more than the purchase price can offer income for living or for future investments.
More tenants and more properties mean more problem calls, more visits with prospective renters, and more potential renter issues. If you can manage all the responsibilities, purchasing rental property can be a great investment.
Buying to Sell – House Flipping
Watching home improvement shows on house flipping makes it look very doable. It is doable, as long as you know what’s involved and are willing to work hard to meet the challenges. Flipping a house involves finding an undervalued house that needs work and is in a good market to sell at a higher price, enough to cover your purchase price, all improvement expenses, any expenses incurred to hold the property, real estate sales costs, and a profit to make it worthwhile. You fix up the property and list it at the best price possible.
You can buy a house to flip and live in it while you remodel it. This process saves money as you’re not paying a mortgage or rent for another home while working on the project. It’s not easy to live this way, so many people flip a house they aren’t living in.
If you chose the right house in the right neighborhood, will you do the updates yourself or will you hire contractors? It’s important to research contractors to find those that are reliable and perform quality work. It’s equally important to get on-the-money estimates on all your projects, so that when you walk through you can determine if you can afford the repairs within your budget and still make a profit.
Flipping isn’t for everyone, but some people get hooked on it and make a lot of money in the process. Maybe it’s time for you to explore this real estate investment option.
Changing It Up – Investments without Property Ownership
Not every real estate investment involves owning property. Listed below are real estate investment opportunities that can be very lucrative. These methods represent how to get into real estate investing without owning property. Some require a small investment to begin, while others require a major investment.
Real Estate Investment Trusts (REIT): Companies that own commercial real estate offer REITs to investors, some publicly traded while others are privately held. REITs are known to pay high dividends. The public trades tend to be less risky to purchase. It’s a good place for new investors to begin. To go this route, open a brokerage account first to find a REIT that’s right for you.
Real Estate Mutual Funds: Many investors are familiar with mutual funds. Real estate mutual funds contain investments in real estate companies and REITs. Different funds have varied goals for diversification, offering more of that diversification to individual investors for the amount of money they can invest in one REIT. Mutual fund companies provide information and analysis for the investor’s use. Investors can make choices on the funds based on this information and the mix of property types or geographical regions for investment.
Real Estate Investment Platforms: In an online platform, real estate developers are looking for investors to finance their projects. It’s risky with investors counting on receiving regular distributions from the project. You may need a large investment to enter the platform and invest, depending on which one you use, and the platform will charge a fee. Real estate investment platforms may be too speculative for the beginning investor who can’t afford a high-risk investment that can’t be sold easily.
Now that you know the various types of real estate investing, you may still wonder if all the methods all open to you. Important decision points include your investment budget and your acceptable level of risk. These factors vary by investor.
Is Real Estate a Good Investment in 2020?
As long as you do your research and make well-informed decisions, real estate investing can net a very profitable gain. Depending on your budget, the market you’re in, and the general state of the economy, some investments will make more sense than others. If you choose the right way to start, your investment will succeed. Real estate investing experts Pal Property Solutions can guide you on the road to investing in real estate. Contact Pal today with your real estate investing questions.
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