How to Get Started with Real Estate Investing
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Investing in real estate is a great way of generating a consistent stream of income, growing your long-term wealth, and diversifying your investment portfolio. Many of the wealthiest people in the world have made their fortunes primarily from investing in property, so it makes sense that so many people are interested in starting up their own real estate empire, big or small.
With that being said, real estate investing can be intimidating. Often people are led to believe that they don’t possess the knowledge, time, or money to capitalize on these opportunities.
Listed below are some options that allow beginner investors with no prior experience to embark on their own real estate investment journey.
Ways to Start Investing in Real Estate
Real estate crowdfunding is a great way of starting out. Essentially, property crowdfunding is the process by which companies will use a platform to raise money from multiple investors. This money is then used to buy property, with each investor owning a share of the equity.
For the individual investors, it’s a great, simple way of investing in property, since the company will handle the management of the property and any maintenance (hands-free). It’s quick and easy and you can get started with a very small amount of money, reducing the risks and easing you into the world of property investments.
There are a few different platforms you could use to get into property crowdfunding. The two we recommend for beginners are Fundrise and Groundfloor. Both allow you to start you real estate investment journey with as little as $10.
With Fundrise, anyone can join and become an investor. The starting investment minimum is just $10 (recently lowered) and they have multiple account levels available to suit you. The website is extremely user-friendly and easy to navigate and they offer high levels of transparency when it comes to their fees and the risks and returns for any investment.
Fundrise is the easiest way to invest in a portfolio of income-generating properties. You'll get the benefits of owning real estate with a totally passive, hands-off investment.
- Excellent track record and historical returns
- Invest in a diverse portfolio of properties
- Earn quarterly dividends
- User-friendly platform
- Start with as little as $10
- $10 bonus with your first investment
Groundfloor provides a platform through which investors can fund short-term, high-yield property flips which can either be sold for a profit or refinanced as a rental property. The minimum investment with Groundfloor is also just $10. There are no investor fees and you don’t need any accreditation to get started.
Groundfloor makes it possible for anyone to start investing in real estate. Choose the projects you want to invest in and earn returns from 7-14%. For a limited time, get a $50 bonus when you invest at least $100.
- Invest in house flips
- Choose the projects you invest in
- Short-term loans (no long-term lockup)
- 10.5% actual returns to date
- Start with as little as $10
- $10 bonus for new investors
Both platforms offer the opportunity for anyone to get started with real estate investment without needing to be an expert in the field and with only a small starter fund. This is a great entryway into real estate investing for beginners.
2. Invest in REITs
A Real Estate Investment Trust (REIT) is a company that owns real estate and sells shares of the property’s ownership to investors. In some ways, REIT investments work in a similar way to stock investments. Investors receive dividends from the company’s profits and any shares of publicly-traded REITs can be sold for a profit when their value within the market increases.
High dividends combined with the potential for capital appreciation when the value of any underlying assets grow, means that REITs can prove to be a lucrative investment option.
There are numerous different types of REITs, with some specializing in retail properties, some in residential properties, and many others such as healthcare, corporate, and mortgage REITs.
With RealtyMogul, both accredited and non-accredited investors can access these high-yield investment opportunities. The company has financed more than $2 billion in commercial property value since its inception and has more than 200,000 registered investors. There are some investor fees to be aware of and there’s a minimum account value of $5,000 but it’s an excellent platform for anyone interested in non-traded REITs.
For anyone who is looking for a way into real estate investing and has at least $5,000 for the investment minimum, this is a great, low-maintenance, straightforward way of getting started.
3. House Hacking
House hacking is the common name for buying a multi-unit property and living in one of the units while renting out the others to paying tenants.
In some cases, you may be able to cover all of your housing costs with the rental income. For example, If you purchase a three-unit building, living in one unit, and rent out the other two units, the rental income may be enough to completely cover the costs of the property (mortgage, taxes, maintenance, and upkeep).
House hacking is so popular because it allows the investor to save money on housing costs and use this for future investments, enabling you to grow your investment portfolio and increase your wealth over time. It also effectively reduces the amount of money you need to make to cover your own living expenses.
Of course, this option will require a larger initial investment than those mentioned above. You’ll probably need to have a good credit score and the down payment for the property, although there are loans available specifically for this purpose, so do plenty of research to find out what’s available to you before discounting this option!
To learn more, please read this guide to house hacking. Here, you’ll find everything you need to know about getting started with your first house hack, from purchasing your first property to continually growing your portfolio.
4. Short-Term Rentals
Short-term rentals or vacation properties can be highly profitable, particularly if they’re in a good location because they’re consistently in high demand and are often able to generate more monthly income than a long-term rental property.
If you’re just starting out, you could rent out your own home or a room within your home, or you could invest in an entirely separate rental property. The many advantages of short-term rentals include not having to deal with long-term tenants, not having to chase rent payments since these types of rentals are typically paid for upfront, and low initial costs if you choose to use your own home.
Platforms like Airbnb or Vrbo make renting out your property super simple and straightforward.
While the income is not likely to be entirely passive to begin with (you’ll probably need to do a bit of work to get the property ready and to advertise the listing), once you start to generate a consistent income, you can outsource a large amount of the maintenance work such as cleaning and repairs to external contractors, making this a low-maintenance business.
5. Buy a Rental Property
Finally, buying a profitable rental property is an excellent way of investing in real estate and building a portfolio of income-generating assets. It’s important to note, however, that like any other real estate investment, this one does not come without its risks and you’ll need to carry out a lot of research before making your purchase.
Typically, you’ll need at least a 20% down payment to buy a new property, although this could vary depending on your own financial situation and any equity you have in other properties or investments.
When starting out as a landlord, you might not yet be in a position to outsource maintenance or management of the property to an external company or contractor. This means you’ll need to be prepared to receive middle-of-the-night phone calls about leaky roofs or lost keys, so definitely bear this in mind!
With that being said, rental properties are an excellent investment and can produce high profits if carried out wisely.
Other Tips and Advice
Each of these investment options provides real, tried-and-tested ways of getting started on a real estate investment journey, but there are lots of other things you will need to take into consideration before taking the plunge.
Here are just a few that we think are worth mentioning:
1. Reduce Personal Debts
This one might not necessarily apply, depending on the specific investment and your own financial situation. However, in general, it’s a good idea to minimize your own personal debts before taking out a large loan or making a sizable investment.
It’s critical that you don’t find yourself in a situation where you are unable to pay off existing debts due to your investment, so thoroughly assess your current finances before making any big decisions.
2. Choose the Right Location
When investing in any property in any capacity, location is a key factor and should be near the top of your list of considerations. Location can have significant impacts on the property’s profitability and the demand from renters.
Be sure to research the area and look at local market trends, nearby rental properties, and any future developments that might impact your investment.
3. Look at the Whole Picture
With any real estate investment opportunity, make sure you are aware of any and all additional costs and risks. Take note of any fees, projected returns, insurance costs, taxes, and operating expenses to allow you to fully assess the rewards in relation to the risks. It’s also a good idea to have a sum of contingency money put away in case of any emergencies or unexpected costs.
4. Be Aware of Your Legal Obligations
It’s vital that you have a good understanding of the landlord-tenant laws in your local area. By knowing your rights and the rights of your tenant, you can avoid any complex and potentially expensive legal issues from arising in the future.
Real estate investing is an excellent way of securing some additional income and growing your overall wealth.
Each of the options laid out in this article is suitable for complete novice investors and could provide the opportunity to get started on your real estate journey sooner and more easily than you had anticipated.
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