Four Tips For Getting Started In Real Estate
By Space Coast Daily // July 2, 2020
The real estate industry has long been a great wealth-builder, and investing in it is a fantastic way to build up a portfolio and earn a good income.
On the flip side, as a new investor, it can be difficult to get started as the barrier to entry feels high. That’s why we’ve put together this guide, to systematically walk you through the steps needed to successfully start investing in real estate.
Tip 1: Understand The Different Types of Real Estate
One of the first steps to getting started in real estate is knowing what the different types of properties are, and the potential they hold for you as an investor.
Real estate investments can typically be broken down into four distinct categories – residential, commercial, industrial, and land.
The most common selections for newer investors are residential and commercial properties, with residential being the most popular option.
This involves buying a single or multi-family home and either renovating it for resale or holding for the long-term and renting it out to tenants.
Commercial real estate is another option, where investors put their funds into businesses or apartments that have more than four units. Commercial real estate investments can also include putting funds into a restaurant, hotel, or other business types.
Tip 2: Identify The Most Profitable Strategies
The next step is to know more about how these investments can make you money. Some investors make their money from real estate by looking for property deals and selling them to another buyer at a higher price.
This option usually includes renovations being done on the property to increase its value. More commonly known as house flipping, this is an investment choice that can bring high returns over the short-term. This method is more hands-on and requires a lot of oversight from the investor.
If you do choose this route, be sure to use an ARV calculator to estimate the value of the property after the renovations have been completed.
With commercial properties, the investor makes income the same way that landlords do – by renting their property out to multiple tenants for monthly rental income. Compared to flipping, this method of investing is much more passive and can often be handled by property managers.
Tip 3: Weigh Up The Options And Make The Right Decision
With a clearer idea of some of the investment opportunities new investors can take on, it’s time to decide which approach is most in line with your goals. Some investors prefer to take a more active approach, while others prefer to take a more passive approach.
In short, do you want to be involved in the day-to-day handling of your property or do you want to supply the funds and not worry about anything else? Your answer to this question will guide you in choosing the right investment method.
Real estate is usually a continuous process – even with a passive investment, there are times when the investor will need to be more active, such as selecting tenants, and other handling processes like repairs or property management.
Tip 4: Raise Capital To Secure Your Investment
Finally, the investor needs to figure out how to pay for their property investment. Very few investors enter the market with enough cash in hand to purchase a house outright.
More often than not, investors get the funds needed to buy property by taking out a loan from a bank or other type of lender.
There are multiple financing options available to investors. The most familiar is a bank loan or traditional mortgage, although this option is not suitable for every type of real estate investing.
Flipping, for example, is considered to be a “riskier” investment by banks, who prefer to deal with more straightforward investments like primary residences.
Another financing option is working with a hard money lender, also referred to as asset-based lending.
Hard money loans differ from bank loans, as the loan funds are sourced from a group of private investors who are able to offer faster approvals and underwriting processes than banks due to less strict requirements. Hard Money Loans California
Lastly, there is the option of teaming up with other investors and pooling your funds together to purchase a property. When choosing this option, it’s important to structure your investment legally to ensure that you are all protected from liability should the investment not go according to plan.
Investing in real estate is a great way to build up a portfolio and earn more stable returns than options like the stock market can offer.
Real estate has consistently been a strong wealth-builder over the years, but many investors hesitate to get involved merely because they do not feel familiar with the market. The tips outlined in this article should give you a better idea of where to get started.
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