A Basic Guide to Investing in Real Estate

If you’re interested in investing, it may seem like real estate is too much work.

Why would you buy and manage houses when you could buy a stock and sit on it?

But when done right, investing in real estate can provide stable returns for the rest of your life. There were millions of homes sold and 612,000 new homes built in 2018.

But if you are new, then you might not know where to get started. Our guide to investing in real estate will change that.

Keep reading to learn the types of real estate investing and simple tips that can help you get started.

Types of Real Estate Investing

Before you get started with real estate investing, it’s essential to know the types of investments you can get involved with and how each of them differs.

Below are the four most common types of real estate investing that people use.

REITs

If you don’t want to put the time in scouting houses for yourself, a REIT is a good option that will still allow you to invest in real estate.

A REIT is a trust that allows you to buy into a real estate fund. A company that runs a REIT is full of people that are heavily involved in real estate.

You can count on them to do their due diligence when using your money to invest in property.

You can reap the benefits of real estate while not doing the heavy lifting yourself.

Rental Properties

While the home buying market is still huge, people are buying fewer homes than before. 2018 saw more people renting houses than ever before.

Buying rentals have more long term benefits than becoming a real estate agent or house flipping. The properties you buy will continue to provide you revenue streams for years down the line.

If you have a large number of rentals, you can fund your retirement and pay a management company to handle the day to day details for you.

House Hacking

House hacking is a variation of rental properties.

Instead of buying single or multi-family units, you will obtain property and live in it with your tenants.

House hacking makes it easier to get properties because you can qualify for live-in mortgages. This classification can give you a lower down payment and lower interest rate.

Live in a property for a year, refinance, and then do the same thing with another property.

House Flipping

House flipping is the process of finding a property that needs improvements and flipping it for a profit after an amount of time.

This process can lead to quicker profits than rentals because you can profit by a significant amount in a short amount of time. But you do need to do more research.

This method takes a lot more upfront work since you will need to spend time and money on improving the properties you purchase.

It’s also risky because you can lose money on the whole deal if you make a mistake.

Tips for Picking Your First Property

No matter which type of investing you get involved with, there are some simple tips you can follow to guide your decision making.

Follow the tips below when you are picking out your first home.

Look at the Property History

If you go into a deal without learning about the property history, then you could be walking into a disaster.

Make sure you learn the history of the property. This history includes value over time, structural repairs, and owner details.

For rental properties, it also helps to know what the occupancy rate is for a property. You don’t want to buy into a property that you can’t keep rented.

Click here to read more about finding a property history.

Get Your Finances in Order

Before you start your property search, make sure your financing is already in place. If you take too much time getting the money for a deal, someone could come along and take it from you.

There are a lot of loan types out there, so make sure you find one that works best for your needs.

Look for Up and Coming Neighborhoods

It’s hard to buy into areas that are established and already high value. It’s an easier task to find a property in a newer area that’s still being built.

You can buy a home and let it sit for a few years while the home value in the area goes up.

New and popular areas are also great places for rental properties. People want to live in the trendy parts of town.

Form an LLC

From a risk management perspective, you shouldn’t buy an investment property with your personal details. When you do this, you open yourself up to lawsuits.

An LLC or other business formation will protect you personally from any legal trouble. Instead of you and your personal property being at stake, your business will be.

Take Your Time

You’re probably excited to make your first down payment, but don’t jump into a deal too fast. When you rush, you’re more likely to make a mistake.

It’s okay to take a lot of time when buying a property. It isn’t a race.

Do your due diligence, so every property you find has the best chance of being a winner.

Learn About Taxes

Taxes in real estate is different than your regular job. Make sure you learn about taxes, so you know how much money to save and how much you owe.

If you don’t want to learn this for yourself, then find a tax professional to help you navigate the tax code.

Guide to Investing in Real Estate: Final Thoughts

Getting started in real estate can be challenging. But if you follow this guide to investing in real estate, you can get off to a good start.

Make sure you take your time and do your research before you commit to buying your first property.

If you are looking for more real estate tips, our blog has you covered. Head over to our real estate section for more tips for investing.

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