The real estate investing business is growing by leaps and bounds. In the best and worst of times, people always need a place to live. As real estate is a limited resource, and the demand for real estate continues to grow at a rapid pace, its value continues to rise accordingly. That’s one of the many reasons why real estate investing for beginners has acquires so much importance. Here you will come to know how you can invest in real estate as a beginner.
Why invest in real estate?
Some of the main ways to generate passive income include buying dividend-paying stocks and bonds, owning a business, and investing in the housing market with rental real estate. Of these top three investment choices, real estate provides unique benefits that other assets simply do not have. There are options for real estate investing for beginners as well which make it possible for the novice to step onto the real estate ladder.
Cash flow
Net cash flow is the number one reason why real estate investors buy rental property. When you buy a single-family home in the best market rented to a quality tenant, the rental income paid by the tenant will pay for all of your operating expenses, property management, and mortgage, with profit left over at the end of each month.
While both commercial real estate and residential property generate rental income, single-family homes can be the best choice for real estate investing for beginners. That’s because everyone knows how a house ‘works’, houses are easy to finance, you can find homes for sale with or without a real estate agent, and the demand for single-family rental property is surging.
Value add income
You can also create additional income streams with investment property for extra cash flow. For example, many tenants don’t have their own appliances, so you can provide them and charge a little bit more each month in rent.
If you own the home where you live, you can ‘house hack’ by renting out an extra room or convert the attic or basement into an apartment to generate rental income. Real estate investing for beginners could also start by buying a 2-unit duplex property, then live in one unit while renting the other unit out to a tenant.
Property appreciation
Another reason for investing in real estate is property appreciation. Over the long-term, home values appreciate well above the rate of inflation. This is a good reason why real estate investing for beginners is a popular option.
How to make money investing in real estate?
Those are the top three reasons why people invest in real estate. However, real estate investing for beginners should start by investing on a smaller scale, and then widen the portfolio over time. Now look at some of the different strategies you can use to make money investing in real estate:
Wholesaling
Real estate wholesalers are experts at finding undervalued property, getting the seller to accept a low offer, then assigning the purchase contract to another investor in exchange for a wholesale fee.
One of the benefits of wholesaling real estate is that you don’t have to have a lot of money, only a small down payment because you don’t actually close on the deal.
However, real estate wholesaling takes a lot of time, requires in-depth market knowledge, and is high risk because if you can’t assign the contract you will have to buy the property or risk losing your earnest money down payment. This strategy may not be a choice for real estate investing for beginners.
Fix-and-flip
Fixing and flipping is another high-risk way to invest in real estate, in exchange for hopefully a high reward. There is plenty of news that glamorise the fix-and-flip real estate investing strategy, but it isn’t always as profitable or easy as the professionals make it seem.
For example, you could actually lose money if you underestimate the cost of repairs, or overestimate the resale value of the home, or both. Fixing and flipping real estate also is dependent on finding an extremely motivated seller, oftentimes a homeowner who is facing foreclosure.
With the way home prices are rising, finding a seller who has negative equity is becoming more and more difficult.
Rental property
Owning a single-family rental property can be one of the least risky ways real estate investing for beginners. But, you have to make sure to buy the right home in a market where the economy is strong and the demand for rental property is high.
Buying rental property is also a perfect option for remote real estate investing.
Many people live in urban areas where real estate prices are high and yields are hard to find. By using online platforms, you can find good single-family houses to rent in smaller markets where property prices are low and returns are high. After you purchase the house, you can hire a preferred property manager in the local market to take care of the tenant and your rental property.
Buy-and-hold
Real estate investing is best for people who plan on holding the house for at least five years or more. Although home values historically increase over time, housing prices can also fluctuate downward over the short term. In the case of real estate investing for beginners, the last thing an investor wants to do is buy high and sell low.
Buying and holding rental property over the long term can provide a winning combination of monthly cash flow plus an increase in equity.
REITs
Real estate investment trusts (REITs) are publicly traded on the major stock exchanges. You can buy and sell shares of a REIT the same way you would any other stock. REITs can be an easy way to invest in different types of real estate asset classes. It could be a relatively safer option in the case of real estate investing for beginners.
There are real estate investment trusts that focus on assets such as cell site towers, industrial storage space, shopping centres, and even single-family rental property. Unlike owning real estate directly, shares of a REIT are highly liquid, meaning that you can buy or sell them quickly and easily.