Louis Glickman, real estate investor and philanthropist, famously said, “The best investment on earth is land.” Real estate is one of the only investments that provide substantial income, as it also increases in value.
But how exactly do you start investing in real estate? How do you make the leap to real estate investor?
That’s what we’re going to discuss in this post. we will cover:
- 5 key benefits to becoming a real estate investor
- 8 different ways to invest in real estate, including the pros and cons of each investment method, and how to get started investing in real estate real estate preferred investment
- how you can save a fortune on your real estate deals by investing a little time and money to get your real estate license
This is your ultimate guide to becoming a real estate investor!
why you should consider investing in real estate
Before we look at the different ways you can become a real estate investor, let’s look at the top five benefits of investing in real estate.
1. earning potential
Investments in real estate provide relatively stable income. And who doesn’t want that?
a steady income gives you freedom! You don’t have to stay tied to a job you hate if you have stable investment income. you are free to pursue a career or projects that you are passionate about.
This is especially important during the inevitable slow economic times. If your day job is susceptible to a down market, it’s a great comfort to know that you’ll still have income every month from your real estate investments.
2. appreciation potential
Then there is the fact that real estate always increases in value over time. real estate is a finite resource; there is only one part, so it will naturally grow in value. as mark twain once said, “buy land; they don’t do it anymore.”
This appreciation means you will always have options in the future if you buy real estate now. If you hold onto the investment long enough, you can sell the real estate for much more than you paid for it. And with that profit, you can invest in bigger businesses, support a more expensive lifestyle, or finance a passion project.
3. tax benefits
Real estate is also one of the most tax-advantaged investments available. The US government wants people to buy real estate because it’s good for the economy as a whole. so they will give you tax exemptions (such as mortgage interest and maintenance deductions) to become a real estate investor.
4. economic debt leverage
Debt leverage is where real estate investing gets really exciting! You don’t have to have $200,000 in cash to invest in a $200,000 property. you can use smart debt to finance 80% of your investment (even more if you and your mortgage lender get creative!).
And you don’t have to pay a fortune to borrow that money. With good credit, you can still get a home loan at around 5% interest. This means that real estate investing is not just for the rich. you can afford to become a real estate investor with this low cost loan.
5. an integrated retirement plan
If you decide to buy and hold some long-term properties, you’ll never have to worry about retirement. Over time, your tenants will pay off their real estate debt at low interest, so your only expenses will be taxes, insurance, and maintenance. and the rest of your ongoing rent checks go directly to fund your retirement in perpetuity.
Even without your salary, you will never run out of income.
8 different ways to invest in real estate
Let’s look at eight different ways you can become a real estate investor.
buy and keep
“Buy and hold” is the classic way of investing in real estate. you buy a property and hold it for the foreseeable future, renting or leasing it to generate income.
This buy-and-hold model represents six of our eight ways to invest in real estate. but each of these six has a unique twist, as you’ll see…
1. single family homes
Investing in a single-family rental property (home or condo) is a great starting point for anyone who wants to be a real estate investor. you just buy a property and find a good tenant. none of that!
The benefits of buying and keeping single-family homes The initial investment may require a small amount of savings, but it is manageable. income is relatively passive once your tenants move out. you can potentially renew a lease for years if you have good tenants. the only real work required is handling a couple of routine maintenance calls per year.
The Challenges of Buying and Maintaining Single Family Homes If you only own one property and your tenants move out, you don’t have any income to cover the monthly costs of ownership until you get new tenants moved out. There is always the risk of your tenants not making payments, breaking the lease, or damaging the property. the security deposit offers some protection and (worst case scenario) you always have the option to sue the tenant for money and property damages if necessary.
How to start investing in single-family homes 1. Talk to a lender about your financing options to find out how much money you’ll need to invest out of pocket. 1. When you have the money, go back to your lender to get pre-approved for a loan. this will show sellers that you are a serious buyer and will give your offer more weight. 1. Start looking for properties that can generate enough rental income to more than cover your mortgage, insurance, taxes, and maintenance. 1. Buy your investment property and find good tenants.
2. vacation rentals
If your investment property is in a prime travel location, you may want to consider turning it into a short-term vacation rental. it’s like being a mini-hotel.
think airbnb. you provide the property, right down to the utensils, the bedding, and even the toiletries. you rent the space for as little as one night at a time (but often for weeks or even a couple of months). and you, or your property manager, give your guests a unique place to stay while they travel.
The Benefits of Buying and Holding Vacation Rentals You may charge a higher nightly rate on vacation rentals than on long-term rentals. you will be able to use the property yourself as a vacation home when it is not rented.
The Challenges of Buying and Maintaining Vacation Rentals You must be actively involved in booking and check-in/check-out management or hire a property manager to handle it. you’ll typically see more attrition from short-term guests than long-term renters.
How to get started investing in vacation rentals 1. Start the same way you would a single-family home. 1. Once you have purchased the property, furnish and decorate it to match the expectations of your target market. 1. List your rental on sites like airbnb, which can handle bookings, payments, and reviews for you for a small fee.
3. multi-family residential
A multi-family development can be a 2-unit duplex, a 400-unit luxury apartment complex, or anything in between.
It’s not much different than owning a single-family rental property. it just has more units to manage.
The benefits of buying and keeping multi-family homes You could live in one of the units yourself. this is an amazing opportunity for the rent from the other units to cover the cost of your unit. Basically, you can live rent-free for as long as you want. You will also be able to keep an eye on the building you live in. multiple tenants mean instant diversification. if a tenant moves out, he still has the other units offsetting their costs until he can get a new tenant to move in.
the challenges of buying and maintaining multi-family residences the initial investment is usually higher because the cost of a multi-family property is usually higher than that of a single-family property. more tenants means more time spent managing them. or you can hire a property manager to manage them for you.
how to start investing in multifamily housing the process to start is the same as with a single family home, but instead of finding a good tenant, you will find a good tenant for each unit.
We are now venturing into real estate investments that most people don’t even consider. but you should!
Commercial real estate is a broad category that covers properties such as: retail stores, shopping malls, restaurants, and office buildings
Instead of renting to individuals (as is often the case with residential property), it typically rents commercial properties to businesses, large and small. trading investing is a slightly more sophisticated method of buy-and-hold investing.
the benefits of buying and holding commercial property are often long. often a minimum of 3 years and up to 30 years in some cases. If your commercial property has multiple units, you benefit from that instant income diversification.
The challenges of buying and maintaining commercial property can require a substantial initial investment. commercial spaces can sit empty for months, waiting for the right tenant.
how to start investing commercially the details vary greatly depending on the type of commercial property you wish to purchase. but the basic initial structure is the same: get the loan approved, close the deal, find tenants.
Like commercial property investing, industrial property investing covers various types of property. types of industrial property you might consider investing in are: warehouses, industrial office space, manufacturing space, or self-storage
Industrial investments are generally low maintenance. there is more emphasis on functionality and less emphasis on high maintenance aesthetics.
The benefits of buying and holding industrial property leases are generally long and the income is constant. industrial properties typically require little maintenance.
The challenges of buying and maintaining industrial property can require a substantial initial investment. Most industrial spaces are single tenant, so having the tenant vacate could leave you with no investment income while you find the next tenant. and it can be even more difficult to find tenants for industrial spaces than for commercial spaces.
how to start investing in the industry again, the details vary depending on the type of property you buy. but the basic initial structure remains: get the loan approved, close the deal, find tenants.
6. vacant lot
wasteland is only as valuable as what can be done with it. Buying acres and acres in the middle of nowhere, Wyoming won’t do you much good. But buying land outside of rapidly expanding metropolitan areas like Austin, TX could pay off in the long run.
The tried and true method of making money on vacant land is to buy where you expect people to expand and sell to developers once the expansion hits your land.
You can potentially earn money during the waiting period by putting up billboards and selling advertising space if the land is located along a busy road.
if the land is fertile, you can lease the land to local farmers.
The benefits of buying and holding land The initial investment can be small and the potential return on investment is incredible when you can buy acres for pennies and sell them for thousands. in many cases, no maintenance is required.
The Challenges of Buying and Holding Land If there is nothing on the land, there is nothing to produce ongoing cash flow. the land is not as interesting as some of the other real estate investment opportunities.
how to start investing in land find a vacant lot with potential and buy it. you are now a real estate investor!
buy and flip
All of the property classes just covered as call and hold options can also be purchased with the intention of investing them. you buy the property, improve it and sell it in a matter of weeks or months.
7. buy and exchange any type of property
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You should think a bit before you jump in. Upgrading the property with a two-month renovation will naturally increase the resale value, but will it increase the resale value enough for you to recoup all of your material and labor costs? your closing costs and your mortgage, tax and insurance costs for the few months you own the property? and still make a big enough profit to make the project worth the effort?
and are you sure you can sell immediately? having a flip sit on the market for months while you make mortgage payments is not a position any flipper wants to be in.
The trick to turning around is timing the market. this is best done in a super hot market where property values are rising day by day. You want the property to appreciate in value during the short period you own the property, even without your improvements. this is how you can be sure that you will be able to sell for more than the purchase price plus expenses.
The Benefits of Buying and Trading There is something inherently satisfying about taking a property from nothing to something special. flipping has the potential to generate a substantial profit in a short period of time.
buy and flip challenges will do all the work yourself or rely on contractors to complete the job on time and within budget. Investing is riskier than buying and holding, because if you get the market wrong, you could lose money on the trade.
how to start shopping and freak out 1. do your market research. Short-term market trends are crucial to investment success and failure. Make sure you know exactly what your market is doing and trust that values will continue to rise for as long as it takes you to buy, renovate and sell a property. 1. Do your construction research. know where you can get supplies, how much the investment will cost, and how long it will take. 1. Consider closing costs (both on the purchase and sale of the property) in your calculations of potential earnings. 1. See if an experienced flipper would be willing to partner with you on a deal. in exchange for teaching you how it works, they get a cut of the profits.
A common excuse for not investing in real estate is the down payment required to purchase a property. That down payment is a good investment, but it’s also a lot of money for most people.
well, you can’t use that as an excuse anymore. because we live in the era of crowdfunding!
Crowdfunding allows you to pool your initial investment with other investors. everyone puts their money into the deal and becomes a co-owner of the real estate project. this could be a buy and hold property, an investment or even a fancy development project.
This is not a new idea. “Real estate investment groups” have always existed as a way to help investors with little capital get started in real estate investing. but today’s crowdfunding systems make the process easier than ever.
Current systems allow people from all over the world to pool small amounts of money to invest in a property together. And you don’t have to be an accredited investor to participate as you did in traditional real estate investment groups. crowdfunding is ordinary people, like you, sharing the risk and reward of investing in real estate.
the benefits of crowdfunding you can become a real estate investor today, with only $500. you don’t have to deal with any maintenance or tenant issues.
the challenges of crowdfunding you do not have as much control as when you are the sole owner of the property. whether the project is a change or a build, you really need to trust the project management team, as individual investors are likely to have no say in how the project is managed.
how to start crowdfunding 1. check out real estate crowdfunding sites like realtymogul, ifunding or fundrise. 1. Familiarize yourself with the types of offers available to investors and read the fine print to make sure you understand the terms of your investment. 1. create your account, choose your project and send your money. 1. Congratulate yourself on becoming a real estate investor and look forward to your payday!
I need my real estate license to become a real estate investor
Having your real estate license is not a legal requirement for real estate investors. but it will save you a lot of time and a lot of hassle! here’s why:
you will have the knowledge of a licensed real estate professional
As a licensed real estate agent, you’ll know what you’re doing. The education you receive in your pre-licensing courses will be invaluable as you navigate through your real estate investment transactions. You’ll understand all the legal jargon and know exactly what to look for in contracts to ensure you get the best deal possible.
as armstrong williams said, “one thing i tell everyone is to learn about real estate. repeat after me: real estate provides the highest returns, highest values, and lowest risk.”
You’ll save a small fortune in commissions
With your real estate license, you will be able to manage your own investments, acquisitions, sales and leases. so you won’t have to pay another licensed real estate agent to facilitate your transactions. think about this for a moment.
let’s say you’re remodeling a house in austin, tx. You can buy the house for $300,000, renovate it, and sell it for $400,000 (to use some nice, round numbers). You will be your own agent for the purchase, so the seller will pay you 3% of the $300,000 purchase price as the buyers’ agent. That’s basically $9,000 that you can add to your renovation budget or put toward closing costs (minus any broker fee splits you have). Then, when you sell at $400,000, you’re your own qualified agent again, so you don’t have to pay anyone the 3% listing agent commission. that’s $12,000 saved on this side of the deal.
So, in one fell swoop, you can earn $21,000 if you have your real estate license. That makes the $500 license classes (plus small license application and processing fees) seem like nothing!
you will have access to all the resources of the professionals
You’ll also get world-class service in your self-service real estate deals because you’ll have access to all the resources of licensed real estate professionals. access to tenant screening programs so you can find the best possible tenants, all the forms you need to put together a strong lease, and all the market data you can find to make sure you’re making smart investments. your real estate license gives you access to everything.
you will be part of a network that will drive your success
but possibly the biggest benefit of getting your real estate license as a real estate investor is the network you will have access to. Your real estate license will allow you to join professional organizations where you can network with other industry experts. And your new network of connections can alert you to potential deals even before they hit the market!
plus, as you complete more of your own investment deals, you’ll gain a reputation as the local investor/realtor. this reputation could bring you, like-minded investors, who are willing to pay you to help them navigate an investment deal, or who are looking to partner with you on a deal
Even if you decide that crowdfunding is the best option to become a real estate investor, you can still use your license. the crowdfunding project will need someone to facilitate the transaction. why not get hired to do it?
If you really want to make money as a real estate investor, seriously consider getting your real estate license. It’s a relatively small investment that will pay off for decades to come!
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