Do you want to invest in Real Estate? Do you have an investment plan? Are you a beginner investor? Next, do you want to create a dynamic plan to invest in Real Estate, but you are unsure how to do it? Are you confused about all the investment options? That’s why today, I want to talk about Real Estate investing for beginners. Here is my way of understanding how a beginner can start investing in Real Estate. To hear more, check out my short video.
The Real Estate investing business is the place to be. Humans will always need a place to live in the best and worst times. Therefore, It is one of the many reasons why so many beginning investors are searching the internet to educate themselves on investing in Real Estate.
Keep reading to learn about why you should consider investing in Real Estate. But, of course, it is best to seek advice from a professional before taking the plunge into the unknown.
Why Should You Invest in Real Estate?
One of the main reasons is to generate passive income.
Real Estate investing for beginners can be an excellent way to make money for the short and long term. It can be, in some instances, a low-risk investment with a high return on investment (ROI). However, starting for beginners can be very stressful.
Therefore, I’d like to help you by showing you 145 real estate investment ideas, strategies, advice, and tips for beginners. You will learn about each investment strategy and find the best fit for you and your risk tolerance level.
Real Estate Investment Ideas
- Vacant Land-Small lots in most Urban Cities will cost you under $20k, and for some up-and-coming areas, you will fare well under $10k. In addition, you can take advantage of several opportunities, such as renting the land for parking, storage, or outdoor events.
- Tiny Homes– Another great idea is to build a small home on vacant land. It can be inexpensive, and It could cost you between $10-$30k for a house under 500 sq ft.
- Co-op Apartment– Purchasing a co-op apartment requires the purchase of shares in a cooperative building or complex. Then, you can invest in a unit and rent out for the income. First, however, you have to check the rules and make sure your idea is acceptable to the board of directors.
- Condo Apartment-If you prefer to be hands-off when it comes to lawn mowing and snow removal, a condo is an investment that requires light lifting. However, keep in mind you still will need to do maintenance and repairs in the unit. You will also need to budget for Home Owners Association (HOA). These fees typically go up yearly along with annual assessments for extensive repairs such as new roofs, new windows, balcony repairs, and structural damages. The last thing to verify is the financials of the condo association and the management structure. All condo boards are not the same, and some have mismanaged the funds. However, if the financials check out and there is a solid experience condo association, then investing in a condo is an excellent start for a beginner.
- Single Family-A single-family home is the most popular real estate investment for flipping homes. But for the inexperience, it is the most likely to end your investment career before you begin if you do not calculate your numbers correctly. Above all, it is essential to know how much it will cost you to flip, especially with the current high inflation rates. If done correctly, you can earn a minimum of $10k-$250k plus on your first deal.
- Duplex– A duplex is two apartments in one building, side by side or back. I encourage you to live in one and rent the other. Living in one and renting the other is called House Hacking. Therefore, the rental income must be high enough to pay off your mortgage and taxes for the entire unit. Essentially you would be living rent-free. It is a perfect strategy for single couples with no children or someone with small children.
- Triplex– The same as above, except three units instead of two.
- Quadplex– It is four units instead of two or three. A quadplex is the last level for qualifying for an FHA loan. An FHA loan is a mortgage with a lower down payment.
- Apartment Building– This would be a building with five-plus units. An apartment building is the fastest way to increase your unit numbers in less time.
- Small Commercial-A daycare, auto shop, one unit retail store would be considered small commercial. Renting this space to business owners has its plusses and minuses. However, it is essential to vet the business for long-term longevity and to avoid start-ups.
- New Construction– New construction would be an excellent project if you want to go big or go home. New Construction, however, is time-consuming and highly stressful. It requires a legal team, construction team, design team, and more. There are so many moving parts that the entire project can see delays by years if one piece is out of order. If you have excellent project management skills and nerves of steel, then this would be the way to go.
- Garages-Every major city and even some smaller ones are short of parking spaces. Buying garages and equipping them with electric pumps, cameras, and plenty of lighting will generate a high income. It is also a very low-maintenance investment.
- Air BnB– This investment requires no ownership. You can rent a home in the center of any significant city and air BnB every one of the rooms. These are considered short-term rentals, and it is in high demand. It is also very profitable. Keep in mind that you need to have permission from the owner first.
- Wholesaling or Assignments-This real estate investment idea requires no money and no ownership. Instead, you spot low-cost, high-profit purchasing opportunities by searching online, networking, driving around communities, the MLS, and other home-buying apps. Once discovered, you put it under contract and then find a buyer. Once you find a buyer, you will transfer the agreement to the new buyer at a higher amount than your contract price. The difference is your profit. In conclusion, keep in mind that some areas require you to obtain a Wholesalers License, like in Philadelphia, Pa.
- Timeshare-This is an’ 70-’80s throwback investment opportunity; There is earning potential if you buy low and rent every year to travelers.
Real Estate Investment Trust
- REIT-Real Estate Investment Trusts are similar to mutual funds in that you own a percentage of an extensive portfolio of real estate investments that are professionally managed. Moreover, it would be best if you analyzed the risk before investing. There are also fees to purchase the shares.
- CrowdSource Funding-If you have several thousand dollars and want to be hands-off on the acquisition side of real Estate, crowdsource Funding is an option. Here you can become a banker and invest in someone else with the expertise.
- Senior Housing- is the most overlooked investment idea for beginners, but it is worthy of further research. Senior Housing involves building a small community of 55+ homeowners. Lastly, it is prevalent in Florida, but it is becoming increasingly popular in the Northern States, such as Pennsylvania, particularly the Poconos.
- Green Housing
- Multi-Purpose or Mixed-Use
- Large Commercial-Industrial Space, Large Retail, Large Office Buildings.
- Lease Options- Lease with the option to buy.
- Sweat Equity Partnership-You can do all of the work and heavy lifting while another person or group provides the financing. In the end, you share the profits at an agreed-upon split. This is an ideal for Real Estate Investing for beginners.
- Real Estate Syndication
- Small Farms
- Mobile Homes
- Manufactured Homes
- Online Real Estate Platform
- Vacation Rental
- Real Estate Tax Lien-You can purchase real estate at a tax auction at discounted prices. However, you must pay cash. Lastly, you should contact a professional in regards to title insurance for tax lien properties.
- Discounted Note lending-Although, this is an advanced concept, it doesn’t hurt to know its available in the future.
- Real Estate Investment Groups
- Be a Lender
- House Hack
- Invest in Real Estate in Mutual Funds
Advantages Of Investing in Real Estate
Critical advantages of investing in Real Estate include:
- Cash Flow
- Increase in property value over the long term.
- A significant benefit is to reduce taxable net income, and tax deductions include property operating expenses and taxes, mortgage interest, and depreciation expenses.
- Less volatile than the stock market
Disadvantages To Real Estate Investing
Real Estate Investing for beginners requires nerves of steel. It’s not the best decision for everyone. The disadvantages of investing in Real Estate include:
- Cash is King, and in Real Estate, you need lots of it. (Unless you choose wholesaling/assignment deals)
- Real Estate is not liquid. If you have an emergency and require immediate cash, it can take a long time to sell the property.
- Howevever, It can be challenging to vet tenants, maintain the property, hire contractors, and collect rent. As a result, most experienced investors hire Property Managers.
- Therefore, it would be best to constantly educate yourself on the latest trends in construction, real estate law, taxation, property management, and more.
Real Estate Terms
Below are some standard Terms to know for Real Estate Investing for beginners:
The listing is active and on the market in the MLS. Related terms are active contingent, which means the seller has accepted an offer and is awaiting the contingencies to clear, such as a mortgage, inspection, and appraisal.
The ARV means the average repair value of the home after renovation.
- Adjustable-Rate Mortgage
An adjustable-rate mortgage fluctuates based on the index rate.
The amortization schedule is a breakdown of the borrower’s mortgage payments over the lifetime of the mortgage-5, 10, 15, 20, 25, or 30 years.
It’s a report of the home’s estimated current market value. It is a requirement by the lender for any home loan.
- “As Is”
The seller is not willing to do any repairs.
- Blind Offer
When a buyer submits an offer to purchase without physically seeing the property, it is a sight-unseen offer.
- Cash flow
Cash flow is the revenue from a rental property. Net cash flow or NOI is the income after paying all taxes, repairs, professional services, and supplies.
- Cap rate
Capitalization rate (Cap Rate) is a formula to divide the NOI by the property value.
- Comparative Market Analysis (CMA)
CMA is a tool used by Real Estate Agents to compare similar properties to decide on a listing price or a purchase price for their clients.
Contingencies are clauses in the Real Estate Contract that specify actions that need to occur, such as a home inspection, mortgage approval, and appraisal.
- Counter Offer
A counteroffer is when a seller rejects the buyer’s offer and proposes one with different prices, terms, or contingencies.
A deed is a legal document that transfers ownership of property.
A seller in certain states may have to disclose the property’s condition and the existence or status of lead paint.
- Down Payment
A down payment is a percentage ( between 3.5% and 20%) to purchase the property. FHA loans require a lower down payment and most conventional loans require a 20% down payment.
- Earnest Money Deposit (EMD)
The EMD is an amount of money the buyer and seller agree to deposit in escrow until the purchase is complete. If the buyer defaults on the sale, the buyer may lose the EMD funds. A buyer can use contingencies in the deal to back out and receive the EMD back. An example of this is a 10-day inspection contingency.
An easement is the right to use someone’s property. For example, an easement is for a landlocked home, and the homeowner needs to walk a trail of the neighbor’s property to get to a road.
Equity is the home’s value after mortgages and liens that may exist.
- Escalation Clause
An escalation clause supplements the purchase price when there is a similar offer. For example, if the buyer’s offer is $100,000 and there is a similar offer for $100,000, the escalation clause will state the buyer’s offer increases by $5,000 with a maximum bid of $110,000. Real Estate Agents do not like this clause in general, but it is a great way to win a competitive offer.
Foreclosure is a legal process the bank initiates to obtain property ownership if the homeowner stops paying the mortgage for at least three consecutive months.
Interest is the cost of borrowing money.
A leaseback gives the seller more time to move by renting the house back from the new owner.
A lien on a home means the home is collateral. For example, a common lien is a mortgage.
- Multiple Listing Service (MLS)
The MLS is a detailed online listing of homes for sale in a particular market.
- Planned Unit Development (PUD)
A “PUD” is a subdivision that a homeowners association operates, and there will be required association dues for homeowners in the community.
- Real Estate Owned (REO)
An “REO” is a bank-owned property that went into foreclosure.
Refinancing means acquiring a new loan under a different term and paying off an existing loan.
Return on investment (ROI) is a performance measure used to evaluate the efficiency or profitability of an asset or compare the efficiency of several different investments. ROI tries to directly measure the amount of return on a particular investment relative to the https://www.investopedia.com/terms/r/returnoninvestment.aspinvestment’s cost.
- Seller Assistance
Seller assistance occurs when the seller gives the buyer a percentage of the purchase price towards closing cost. For an FHA loan, the maximum seller assist allowed by law is 6%. It is best to consult with the lender for the requirements for other loan products.
Settlement is the closing of the sales contract. It is the final step in the Real Estate Transaction.
- Short Sale
A short sale is when the property’s market value is less than what the homeowner owes on the property. The lender agrees to accept less upon an appraisal and lengthy approval process. Despite the name, a short sale is a long process and can take months to years for final approval.
- Title Insurance
A title insurance policy will assure that you are acquiring a property with free and clear title (no liens or judgments).
A walkthrough is when the Real Estate Agent takes the client on a walk through the home to confirm that any repairs requested are done and make sure the house was in the same condition when the client submitted the offer. A walkthrough should be done two times, with the final walkthrough an hour before settlement or closing.
Real Estate Investment Strategies
Once you decide on an investment idea, the next step is to identify your investment strategy. Here are the effective methods below for Real Estate Investing for beginners:
Buy and Hold
This concept is to purchase property and then hold it long-term. Often this term relates to rental properties, but it’s not the complete picture. I’ve worked with several investors that buy properties in distressed areas and hold them until the neighborhood turns around. Similarly, these buyers do not fix up the property or rent them out. They do this with land, residential, or commercial properties. For instance, a few years ago, I was door-knocking, and I came across an investor who gave me eleven properties that he had purchased fifteen years prior as a buy and held. Some of it was land and commercial property that had appreciated by over 100%.
Most new investors get this part wrong all the time, so I highly recommend you avoid this as a beginner. There are so many areas that can go wrong, and you could lose a lot of the money you saved. I can’t stress enough that it is best to stick with something low maintenance and simple in the beginning. Many new investors watch television flip and fix shows and get the false impression that they can make a lot of money and that it is easy to do. For example, most flippers only make about $10k per deal after 6-9 months of work. In the end, their hourly rate is way below minimum wage.
In conclusion, the idea is to buy below market price and sell at a higher price. The best place to search for these deals is in the distressed marketplace, including auctions, tax sales, foreclosures, and short sales.
It is ideal to select a property that needs minimal work, such as new flooring and fresh paint. However, when you get into doing more significant projects like total renovations, which require all new systems and roofing, you are looking at a lot of cash upfront and meager profit and the end.
Some terms to learn are after-repair value (ARV) which is the home’s value once renovated. Unfortunately, new flippers lie to themselves about this number and often get stuck with renovated properties above the house’s value. So again, I can’t stress enough to be cautious when entering this investment strategy. I have seen way too many new time flippers come and go, frequently falling into deep poverty because of bad decision-making on their part.
Buy, Rehab, Rent, Refinance, Repeat (BRRRR)
This method is a rental property strategy. The concept is to purchase a rental property below market value and then repair the unit up to at least a level D (minimal viable product). My top clients purchase the properties under market value, often from estate sales or divorce situations. For example, if the average home in the area is worth $300,000, they would purchase something between $100,000 and $200,000 to see the value right away. Their next steps are to renovate as a rental grade unit. The Rental grade unit uses inexpensive materials, used supplies, and restored materials and supplies purchased from thrift stores or Habitat for Humanity.
After the repairs, they market the home for rent. Finally, they thoroughly vet the tenant to minimize future evictions, holdover tenants, and other tenant/landlord filings.
Once the tenant is in place, the investor refinances the home based on the after repair value (ARV) and retrieves the cash to purchase another property to repeat the process.
Using this method, you can earn income from renting the property, you gain value from the property appreciating, and lastly, you can remove the equity to purchase other properties.
Short Sale Investing
Buy Property Tax Lien Investments
As a disclaimer, to earn income from renting properties, the rent has to be more than the expenses. Some expenses are the mortgage, taxes, repairs, maintenance, and professional services.
Most Real Estate appreciates, but not all of it, and in some neighborhoods, the value of Real Estate can decline.
The ability to refinance and property depends on banking rules, credit, and the borrower’s capacity. Everyone’s financial situation is different, and the above is a general statement that may not apply to everyone. It is best to seek the help of a professional before attempting this method as an investment strategy.
How To Get Started Investing In Real Estate For Beginners
It’s time to move forward and create an action plan. Get in gear and follow the following eight steps to get started investing in Real Estate:
- Save your money, remember, you need lots of cash.
- Decide on your long-term goals.
- Identify your Real Estate investing strategy, such as flipping vs. buying and hold.
- Choose your market. Are you interested in Major Cities, Rural, Small Towns, or farmland areas?
- Do your due diligence-meaning check and double-check every aspect of the deal.
- Select your lender and financing options
- Shop for investment properties.
- Hire a Professional Real Estate Brokerage and Property Management Firm
Popular Financing Options for beginners
Cash from Personal Savings
- Cash is King. It is an ideal way to purchase Real Estate, especially Real Estate Investing for beginners. You have a more significant advantage and more flexibility with price negotiations if you have cash instead of a loan. In addition, if you save as much money as possible from your employment income, tax refunds, commissions, and bonuses, you can grow your savings quickly.
- Credit Cards
- Home Equity/Line of Credit
- Personal Loan
Seller financing is when the owner agrees to hold the mortgage.
- Retirement Savings (401K Plan)
A 401k plan is a retirement account that some of us in the United States can save our employment income.
A Federal Housing Administration Loan (FHA) is a loan backed by the Federal Government. It requires 3.5% as a down payment and a credit score of at least 580. For more information, check with your lender or other requirements.
- Conventional Loan
A conventional loan is the Mercedes Benz of lending. It is an ideal loan product for borrowers with good credit, steady and consistent income, and savings.
Hard Money Loan (HML)
Hard Money Loans or HML are private loans with high-interest rates.
- Private Lender
A private lender is an investor or family member who lends you money to purchase an investment property.
- CrowdSource Funding
CrowdSource Funding is a private loan from one to serval individuals or groups that come together to invest in your investment idea.
Prepare Yourself Financially
The other housekeeping issues that you must address for Real Estate Investing for beginners are the following:
- Check your credit score. Lenders base your ability to get a mortgage on different criteria. It includes the amount of money you make and how much you are worth after calculating what you own after debt repayment. It is called your net worth. You will be surprised to learn that expensive furniture, cars, clothing, and electronics have no value once used, even if it’s only one day old. Your debt-to-income ratio ( how much you owe compared to how much you make), your savings, and lastly, how long you have maintained consistent employment at the same or similar job.
- Stop spending. It is essential to save as much as you can regularly. Automatic savings plans are the best options because they can be done without you even thinking about them. Sometimes employers will even match what you save by a certain percentage.
- Whatever you decide to do, please do it. Do not wait for the perfect opportunity. There is never an ideal opportunity to begin a savings plan. However, if you can only save $5 a month, that is a great start.
Do Not Do:
- Don’t apply for new credit of any kind. Do not be fooled by credit card companies luring you in to apply for new credit cards or the sales clerk insisting that you apply for a store card for a 20% discount. These attempts to reel you in will only benefit the credit card company and not help you achieve financial independence.
- Don’t close credit card accounts. Do not close any credit card accounts while applying for a mortgage. It can have a significant impact on your credit score.
- Don’t max out existing credit cards. Keep your credit card balances below the 30% mark because anything higher will lower your credit score.
- Avoid consolidating debt.
- Refuse to cosign on another person’s loan.
- Do not change your address or change your name.
- Don’t change your employer-Stay at your job, even if you hate it while applying for a mortgage. Any change in your employment status will create a red flag. Probationary periods, career, or even status changes from salaried to a commissioned job or a leave of absence will harm your credit score.
- Never pay late. -late payments will destroy your credit score and increase the balances you owe.
- Do not deposit large sums of cash into your account unless you provide documentation and a complete paper trail.
- Locate the last two years of your Federal Tax Returns with the W2
- Have on hand one month of the most recent pay stubs.
- Keep all bank statements on file and ready.
- Locate divorce decree’s and settlement agreements
- Pay your child support and locate child support orders.
- Locate bankruptcy documents and discharge of debts notices called a 1099-C
- Locate your DD214 if a veteran
- Keep your driver’s license active and keep your social security card on file.
Prepare Yourself Emotionally
You may ask, what do emotions have to do with becoming financially confident or independent? That’s a great question. The answer is simple because it’s tough to do. If it were easy to become rich, more people would be rich. To travel down the road to success, you must take the path of the most significant resistance.
The Cost of Success
You will lose your current friends and some family members. They will call you crazy and other nasty names. Many will become jealous of you and begin to sabotage your efforts. Dream destroyers will try to force you to give up your dream. They may subject you to nuisance lawsuits to distract you and change your focus.
You will suffer extreme hardship trying to climb the mountain. Some days will be more difficult than others. Your life will be boring and mundane. You will miss some holidays, birthdays, and anniversaries, but not all.
However, if you put together a strong armor around your soul, root yourself in your faith-whatever that may be, and maintain tunnel vision, you will succeed. There is light at the end of the tunnel. You will accomplish more than any of your peers; you will be celebrated and congratulated when you make it. So stay encouraged, and do not give up no matter what. Below are some of the things that help me stay emotionally intense, and I am sure it will help you as well.
- Create a Vision Board for Real Estate Investing for beginners with your dream life pictures pinned to it, along with all your accomplishments, no matter how small.
- Write about your fears, dreams, accomplishment, and failures in a journal every day.
- Pray for strength.
- Please read about the struggles of others and how they had to overcome them.
- Block out time once a month on your calendar for events with your family and friends so that you can still stay connected
- Learn how to say NO! There are things that you will not be able to do. Do not stretch yourself beyond your limits. Climbing the mountain of success requires time and a lot of energy. You cannot give away that time and energy to other people or things.
- Take a break. It is okay to take a break and get away for a few days every other month to replenish your commitment and energy. I like to go on weekend get-a-ways by myself or with a friend to different cities. I want to take a class to learn a new skill or brush up on an existing skill. Sometimes I just relax at home for a few days. Once I went out of the country to an island. I read and got some sun on the beach. When I returned, I felt recharged. You will feel refreshed as well. You will have the energy to work even more challenging.
- Be Patient. Patience is a virtue and an absolute requirement in Real Estate Investing. You will need time to absorb all the information about Real Estate. It will take time for you to begin the process, and it will take time for you to generate enough income to live the lifestyle you envisioned.
- Be Flexible. You will meet different personalities as you swim in the real estate world. Some will be sharks. The chances of these people changing are slim to none. Therefore, you must change and adapt to get what you need from them.
- Learn how to negotiate. “A closed mouth doesn’t get fed,” some elders may say. Skilled negotiators are like chameleons; they change to blend in and be accepted. Negotiation is a process in which you will improve only through experience. It can and will be frustrating, but eventually, you will get the hang of it, just like everything else. This is important for Real Estate Investing for beginners.
- Practice self-care. Find out what makes you relax. Spend time learning about the activities that make you feel calm. For me, I enjoy having a massage once a month, reading, dinner and a movie, and taking long walks.
- Whatever it is that helps you decompress, schedule it and be protective of that time slot, treating it with the same importance as any other appointment on your calendar.
- Find a Support system. Identify the people you can depend on for emotional support in your life. Establish that they relate to your goals and plans and tap into them immediately. Several groups and forums on social media for Real Estate Investing will highly support you. Join them now.
- Be kind to yourself. Don’t dwell on your mistake. Instead, learn the lesson and keep on moving. Stay positive most of the time. Always look at the bright side. Think about what is going right instead of focusing on what is going wrong.
Prepare Yourself Educationally
- Educate yourself on Real Estate investing for beginners.
- The best thing will be to read articles and books about Real Estate Investing for beginners thoroughly, not once but several times.
- Read everything you can
At the end of this guide, you will find a list of must-read books that you need to purchase or borrow from the library.
It is great to read autobiographies and biographies of men and women who have accomplished greatness in their time.
Also, read poetry for inspiration.
And lastly, read novels to help understand human nature.
Practice your grammar.
If necessary, take an English, grammar, and business writing class so that when you communicate in writing in your real estate investment business
you are speaking correctly and intelligently.
- Read and study at least four hours a day.
Intelligence rules the world, and ignorance carries the burden. Read wherever you go, while waiting online, traveling, in the morning, at night, and while waiting on others. If you read one book a week, you would have read 52 books for the year, mostly about Real Estate Investing for beginners.
The Best Real Estate Investing Books
Real Estate Investing for beginners can be a daunting task for beginners. But, now that you know the basics of the Real Estate Investing business, you may wonder why you didn’t start much sooner. With cash flow, growth, some tax benefits, it’s easy to understand why many beginners learn to become experts and never look back.
The wide variety of options is most exciting about Real Estate Investing for beginners. It also has a low barrier to entry. If you have been thinking about investing in Real Estate, now is the time to do something. The best thing that can happen is you become financially confident. Before you start, hire a professional so you can minimize your risk. Now you have 17 real estate investment ideas to kick off your plunge into the beautiful world of Real Estate, and there is nothing that can prevent you from building wealth and having an exciting future. Look out for more ideas on creative financing and some pitfalls that can trip you up. Best of luck and email me about your success.