How to Start Investing in Real Estate [Guide for 2023]
Last Updated: March 17, 2023
Real estate is one of the best investments to grow your investment portfolio and gain high profits. When done right, this investment can be lucrative. But not many new investors know where or how to start. This guide presents tips on how to start investing in real estate, properties you should consider, and misconceptions about property investment.
Types of Real Estate Properties
Investors have the option to invest in five main types of real estate properties. Each property type comes with a set of pros and cons, but when managed properly, such investments can turn into a highly profitable venture. Note the following five real estate types to consider.
Residential Real Estate
Residential property refers to property used for lodging or housing. This type of property is a good option for real estate investing for beginners. It includes such places as condos, duplexes, homes, apartments, and cooperatives. When you have the relevant market knowledge, you’ll be able to purchase a residential property and then have two options:
- Renovate to resell for profit;
- Put it on the market as a rental property for tenants.
Real estate buyers interested in house flipping typically look for well-priced residential properties that need some sprucing up. The real estate owners will conduct maintenance and renovation and then resell the property at a profit.
Commercial Real Estate
Commercial real estate refers to property that is used to host service and business operations. It includes hotels, apartment complexes, stores, malls, parking facilities, hospitals, and gas stations. Business owners who want a business location for their employees or company are interested in investing in real estate of this kind.
Even though these businesses profit from their services or products, much of their cash flow comes from renting out office spaces in the same building.
Industrial Real Estate
Industrial property is usually located in designated areas according to zoning laws. This kind of property typically accommodates industrial-sized projects and operations, such as warehousing, large-scale production and manufacturing, distribution of products and goods, or assembly of industrial-type objects.
This is one of the less popular ways to invest in real estate because multiple factors determine the return on investment (ROI).
Ranches, farms, agricultural or undeveloped land (forest or wasteland) are considered raw land. Real estate developers typically purchase a piece of land to develop various properties, e.g., building units for housing or buildings for business or commercial activities.
The best way to invest in real estate when you have no experience is via REITs (real estate investment trusts). A REIT owns and manages commercial properties; investing with one can result in high dividends. Even though there might be a risk involved, if you work with an experienced brokerage firm, you can get a good return on your money.
Great companies that work with real estate investments typically know what projects to invest their investors’ money in to ensure a high return. If you buy shares through REIT, you can profit since it usually trades publicly and is transparent.
|NOTE: 74.4% of rental properties in the US are owned by individual real estate investors.|
How to Start Investing in Real Estate
There are different ways to invest in real estate properties, including flipping, owning, renting out a property or investing with a trust. Investing in any one of these real estate property examples can have the following benefits.
- Lucrative investing capital
- Revenue from lease or rent
- Diversification of investment portfolio
- Being highly liquid
- Appreciation of real estate valuation
So how do I invest in real estate? Where do I start? Note the following seven ways you can begin your property investment.
A REIT is an indirect property investment and one of the most popular ways to grow your money without getting your hands dirty. REITs hold property portfolios and are responsible for maintenance costs and obtaining landlords for these properties.
Investors purchase shares that are either publicly traded, public non-traded, or private REITs. Shareholders can partake in such trading and exchanges, resulting in affordable and lucrative investments.
REIGs (Real Estate Investment Groups)
What is real estate investing? One astute definition of this investing is through a REIG group, which focuses on real estate capitalization. This group invests in purchasing apartment blocks or condos. Investors then can buy such properties via a joint venture with the group, resulting in pooled capital available for more investment.
A REIG shouldn’t be confused with a REIT—a trust through which you invest lawfully and fairly as stipulated by the Securities and Exchange Commission. A REIG has almost no disclosures or limitations.
Renting Out a Room
How does real estate investing work when you have only a few extra rooms? First, renting out rooms will help you qualify for low-interest fixed financing and lower down payment. You can purchase units with multiple bedrooms and rent out rooms within the unit while occupying only one.
And when you increase the rental price of room vacancies over a couple of years, your monthly mortgage payment will be considerably lower.
The basics of real estate include property steals at auctions. Unfortunately, some real estate owners need to file for bankruptcy and, therefore, may lose their homes. And so, real estate investors can buy undervalued homes in auctions to flip or renovate.
Flipping a property is an excellent option for those who enjoy renovation and sprucing up tattered properties. For example, you can purchase an underpriced home and renovate it as inexpensively as possible, then resell it at a profit.
Property flippers make it look easy on TV, but strict budgeting happens behind the scenes. For example, you need to calculate maintenance costs and time spent to smarten up the space before flipping and reselling. And keep in mind marketing costs and the estimated time the property will be vacant.
To successfully invest in real estate, you need money to make money. Multiple online platforms connect borrowers to investors. You can learn about real estate investing on these platforms and get in contact with lenders who can help fund your property investment dreams. So even though you don’t have the capital, there are ways you can borrow money from an investor to develop properties.
A simple investment plan includes buying a property and renting it out. While renting out an investment property to tenants, property investors can choose to pay rent for (other) cheaper property or occupy only a part of the home while renting out the rest.
|NOTE: 45% of investment property buyers bought their properties to generate income through renting.|
|Beginner investors should consider investing in residential properties first.|
|House flipping can result in quick returns and high profits.|
|There are five types of real estate investment: Commercial, Residential, Industrial, REITs, and raw land.|
|Buying shares via a REIT is highly lucrative.|
|Investing in real estate will generate more income.|
Investing in property is one of the best options to grow your money. Getting into real estate isn’t as complicated as many might think, and following our guide will get you started. Purchasing a property to resell or rent out can be highly lucrative. There’s always a demand for housing and space, and owning property puts you in a position to meet that demand.
You can invest $500 in REITs (real estate investment trusts) via a brokerage account, allowing you to grow your money and receive high dividends.
The main reason for investing in real estate is to obtain more income. You can make revenue from leasing or renting, diversify your investment portfolio and receive an optimal real estate valuation.
If you want to know how to start investing in real estate, you first need to decide if you wish to invest in commercial, residential, industrial, or raw land. Then, once you’ve calculated the risk involved and conducted market research, you can begin the process.