How To Start Investing In Real Estate
This is a guest post from moneydoneright.com, a blog focused on helping everyday people navigate their financial lives.
Real estate can be an incredibly lucrative form of passive income, but people often have trouble getting started in such a complicated field. Simply learning more about it will help you understand the investment you’re making and feel more comfortable putting your money into real estate.
This article will cover everything you need to know to take the first steps toward becoming a real estate investor. Keep in mind that it takes time to expand your investment and start turning a profit through real estate. Don’t be discouraged if you don’t generate returns in your first year investing in real estate.
Start Saving Today
You might think that real estate requires a large initial investment, but the most important thing is just to make consistent progress. If you’re not currently saving any of your paycheck, for example, you’ll never put away enough money to purchase your own property.
With that in mind, you should start contributing as much as you can to a savings or investment account each month, even if that’s just $50 or $100. Saving money gets easier once you develop the habit, and you’ll be surprised by how simple it is to cut costs.
Most people avoid looking at their finances out of nothing more than fear. Creating your own budget is the first step toward becoming a real estate investor. Go through your transactions each month to identify new ways to save, and continue to adjust your savings goals based on changes in your financial and personal life.
Consider A Real Estate Investment Fund
Many potential investors assume that they’d need to purchase an entire property to begin investing in real estate, but you can earn money on a real estate investment without buying any property at all. Real estate investment funds allow you to invest in a variety of properties including hotels, apartments, retail spaces, and more.
Unlike buying a specific property, putting money a real estate investment fund doesn’t tie your results to the success or failure of a single piece of real estate. As in more traditional investments, spreading your cash across numerous properties mitigates risk and helps you earn more consistent returns.
Real estate investment funds are managed by experts with experience in real estate, so you can trust that your money is going to a worthwhile investment. Investing in properties on your own can be much more confusing, especially for new investors. Many funds trade on exchanges similar to stocks, making them easy to buy and sell as needed.
Begin With Rental Properties
If you’re not interested in a real estate investment fund, you should still think about investing in a rental property rather than buying a home for resale. Renting a property out gives you immediate cash flow and offers substantially more liquidity.
The easiest way to start out with rental properties is to buy a home for yourself and rent out any extra space. Rather than purchasing a two-bedroom, for example, buy a four-bedroom and start renting out the other two. This strategy allows you to invest in your own future while adding cash flow.
While your mortgage may negate some of your rental earnings at first, you’ll eventually begin to generate a significant income on the property you own. You can later use this money to fund a down payment on additional properties to live in, rent out, or sell.
New investors have access to more tools than ever to learn about real estate opportunities and make sure they’re making the right investment. There has never been a better time to invest in your first rental property and start out as a real estate investor. Just be sure to invest in the right location!
Fix Up Properties
Flipping houses doesn’t offer the liquidity or consistent cash flow of the two options above, but it can potentially provide an even better return on investment if you’re able to identify the best properties. Rundown homes are often available at very low prices, giving you the opportunity to make low-cost repairs and resell them for a much higher price.
The main challenge involved in this investment strategy is determining how much it will cost to fix up the property. It takes time to learn enough about home repairs to make an accurate estimate before buying the property. Consider reaching out to an experienced reseller if you’re serious about this type of investment.
You won’t earn any money on these properties until you find a buyer, so you shouldn’t buy a new home if you can’t afford to pay the down payment and mortgage throughout the renovation process. Of course, you can also live in the home as you repair it if it’s your first real estate investment.
Diversify Your Portfolio
While real estate can be a great investment, it’s important to keep your portfolio diverse in order to minimize the risk of loss from any one type of investment. You shouldn’t put your entire portfolio in real estate unless you’re incredibly confident in your odds of success.
Stocks, bonds, mutual funds, and other options can balance out your real estate investments and offer you a cushion against fluctuations in the market. That said, you should always keep at least some money in liquid form in case of an emergency or other unexpected circumstances. Try to put at least three months’ worth of expenses in a high-yield savings account, or more if you have relatively little job security.
Owning rental properties, flipping houses, and other kinds of real estate investments require a significant amount of work, so you should begin with small steps before committing more time and money to real estate. Many real estate investors start by renting out a room in their current house or apartment before moving on to larger investments.
Getting into real estate can be overwhelming, but it’s a worthwhile investment if you’re willing to spend time learning about the field. These tips will help you begin to make progress as a real estate investor and move closer to purchasing your first property.