How to Invest in Real Estate as a Beginner
Real Estate has been a popular investment means among new investors. It is one of the best ways to get a return on your initial investments (ROIs). As a newbie investor, getting into the Real Estate market can quite seem way beyond a person’s limit too. A lot of people are looking for investment opportunities and looking for ways to invest in real estate as a beginner.
When people think about real estate, the first thing that comes to their mind is buying a home or property. But there’s more than just investing in-home, and most of them are not all physical properties either.
Also, people think that it’s tough to get into real estate with just a few amounts and as a beginner, however, there are various ways & means to invest in Real Estate outside of simply just buying a house.
Highlights
Some basic Real Estate methods:
- Buying a home or property, holding it for a few years while its valuation appreciates each year. (Long-term)
- Becoming a landlord of a rental property, and collecting rent monthly.
- Flipping undervalued real estate properties, fixing them up, and selling them for a profit. (Short-term)
- Investing in Real Estate investment trusts (REITs) as a passive investor.
How Does Real Estate Investing Make Money?
Real Estate investing is a tried and tested method of making money, and you can make that money in basically two ways: – value appreciation and rental income.
Value Appreciation: Throughout history, property values have increased over time mainly due to inflation. We call this increase in value appreciation.
Since the location of the property is the number one thing to base your investment upon, property values go up along with the perceived desirability of a neighborhood. The value of the property is a sure shot to appreciate over a period of time, which if you sell it get more value in profit.
Rental Income: One of the main methods of generating money through Real Estate is Rental Income from the rental property.
By renting out the property you own, not only is that property appreciating over time, you’re earning a monthly income. It’s like a monthly job salary you are getting for the hard & smart work you did, the only difference is, that it’s passive income.
In fact, if you had bought your house by financing, your renters would be paying for your mortgage and it’ll turn a pure profit once the mortgage is paid off.
How To Invest in Real Estate as a Beginner: 4 Strategies for Beginners
Here’s how some of the easy & feasible ways for individual investors to invest in real estate as a beginner.
#1. Invest in Rental Properties
Rental Properties can be anything from a single-family houses to multi-family houses to business properties or a warehouse. You can then rent it to tenants, and collect rent each month.
Buying rental real estate property is a great way to generate a monthly income stream, especially if you’re ready to be a landlord. If you don’t want to be a landlord, you can hire a property manager instead.
By choosing to invest in rental properties you can allow yourself to have a steady second income. Or you can choose to focus on growing your property empire by buying more of those rental properties.
Once you have initially purchased your first home you can use the rental value to cover your mortgage and other bills. This is a great way to offset any debts you may have and allow you to save to buy more.
#2. Flipping Houses
A “flip” is a short-term situation whose intention is to quickly sell and move on to the next.
Flipping houses refers to buying houses or properties that need fixes and renovations. Usually, houses that require renovations can be purchased at a considerably lower rate, making them a more money-savvy investment.
The fixes and renovations help to improve the value of the houses, which in turn helps them around putting them on the market at a higher price.
There are two primary approaches to flipping a property:
Repair, Update & Sell: With this approach, you buy a property that you think will increase in value with certain repairs and updates. Ideally, you complete the work as quickly as possible and then sell at a price that is greater than your total investment (including the renovations).
Hold and Resell: This type of flipping works differently. Instead of buying a property and fixing it up, you buy in a rapidly rising market, hold for a few months, and then sell at a profit.
Related: 8 Tips for Buying Your First Rental Property
#3. Renting Rooms
Another great way to earn money from your real estate investment could be to rent each room out separately. Once you have purchased a home, you could divide the house into separate rooms or flats and rent them out. This way your potential earnings could be much higher, especially in cities.
Services like Airbnb could help you rent rooms and provide you with income.
#4. Buy Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) are created when a corporation is formed to use investors’ money to purchase, operate, and sell income-generating properties. They are genuinely the companies that own, conduct, or finance income-generating real estate opportunities.
Those opportunities include investment in properties like shopping malls, office buildings, healthcare facilities, and mortgages.
In essence, the members of the company choose to pool their capital together.
This makes it much easier to get involved in bigger investments with better returns on their initial capital. This means the investors within the company can increase their property portfolio without having to buy or manage properties on their own.
Just like stocks and exchange-traded funds (ETFs), REITs are bought and sold on major exchanges.
Interesting Read: Real Estate Search Engine Software to find Real Estate listings near your area.
The Bottom Line
Real estate can be one of the best investments, that has the potential to provide a steady & guaranteed income and build wealth. That said, one should not just hurry and get into it without proper guidance and research.
One of the main drawbacks of investing in real estate is illiquidity: the relative difficulty in converting an asset into cash and cash into an asset.
Unlike a stock or bond transaction, which can be completed in seconds, a real estate transaction can take months or even years to close. Even with the help of a broker, simply finding the right counterparty can be a few weeks of work.
Better learn how to invest in real estate as a beginner. Always keep your expectations realistic, and be sure to do your homework and do thorough research before making any decisions.
