Last updated on December 14, 2021
“Everyone needs a place to live.” Those six words sum up the reason why so many people today want to become real estate investors. As the world continues to grow, there will always be the basic human need for shelter. But while the interest in investing is strong, many people aren’t sure how or where to begin. In this article, we’ll cover: Let’s dive in. Investing in real estate can work well for both the budding entrepreneur and the experienced investor. In fact, nine millionaires who recently spoke to CNBCin October 2019, said that real estate is still the best investment you can make. The first step is to choose how you’re going to make money in real estate. The techniques used to create income streams and turn a profit with investment real estate fall into five general categories: Buying income-producing property with stable cash flow is the most popular way to invest in real estate and it is a property type that investors are already familiar with. As we speak, there are literally hundreds of single-family rental homes listed for sale on Roofstock’s marketplace to explore that could produce a steady cash flow for years to come. In markets where real estate values are high, investing for future appreciation and building equity over the long-term can be a successful investment strategy. Of course, positive cash flow is still important. But by intelligently buying and holding over the long-term, investors can reap the rewards of potential windfalls years or even decades from today. Locating off-market deals with motivated sellers is another key way to profit from real estate investing. However, in many cases the reason sellers are motivated is that they don’t have the money to make needed repairs and updating. Investors using the fix-and-flip strategy need to buy low, accurately estimate the costs of repairs, and then sell the property for more than they put into it in order to make a profit. Oftentimes, that’s much easier said than done. Wholesale real estate investing is anarbitrage opportunity for an investor to turn a quick and healthy profit. Real estate wholesalers don’t make their money by taking possession of the home. Instead, they find highly motivated sellers in distress, accurately estimate the repair cost and fair market value of the home, then assign the contract to another investor in exchange for a fixed profit. Investors looking for opportunities that are almost 100% passive often opt for crowdfunding or buying shares of a REIT (real estate investment trust). Real estate crowdfunds collect small amounts of money from a large number of investors to purchase and manage large and complex income producing properties. Shares in publicly traded REITs can be found on the major stock exchanges. Investors receive a small pro-rata share of the quarterly cash flow and profit when the property is sold. Instead of sharing the fruits of their labor, many investors today prefer to keep the income and tax benefits of directly owning real estate all to themselves. Here’s how to get started as a real estate investor: Real estate investment strategies fall into three general categories: The best way to learn about something is by doing it. However, it’s important to understand exactly what it is you’re doing and why. The most successful real estate investors are always learning. Real estate courses can be taken online from sites like Udemy and REI, while Roofstock Academy offers a comprehensive educational program for serious investors ready to take their investing to the next level. In order to really know whether you’re getting a good deal, it’s critical to thoroughly understand the ins and outs of the local market you’re investing in. Important things to consider include: Renowned real estate investors like Sam Zell and Roger Staubach don’t need to look for capital because people are literally lined up to do deals with them. Until you’re ready to join the ranks of the ultra-wealthy, it’s important to make sure you have access to plenty of capital. That’s because investing in real estate sometimes requires more cash than expected. Plan on putting at least 20% down for a rental property, set up a separate capital reserve account for repairs and maintenance, and factor in the loss of cash flow created by vacancies and the time it takes to turn a tenant. When you’re renting real estate to the general public, the odds are that sooner or later a legal situation will arise. Investors can avoid potential problems and litigation by understanding the local and state laws that govern real estate: Despite the hot housing markets from coast to coast, some real estate investors have been making a lot more money than others. Why is that? To answer that question, review this list of things successful investors do every day: Understanding the terms and formulas that are used in investment real estate help you zero in on smart investments. Education also gives you the confidence you need to avoid the analysis paralysis that comes from the fear of making the wrong decision. Investors don’t necessarily need a license to invest in real estate. However, there can be some good reasons for attending real estate school and passing the state licensing exam: Of course, there are some drawbacks to getting and keeping a real estate license active. One of the biggest cons to having a license is that recurring association and renewal fees can really add up. This drains away valuable cash that might be better spent on buying more income property to scale up your portfolio. As with everything else in life, there are both right and wrong reasons for doing something. Here are a few important things to consider before deciding to take the plunge and become a real estate investor: Investing in real estate can be very profitable, provided you do it the right way. Real estate is a people business and one that’s constantly evolving, so it’s important to focus on short-term achievable goals to build long-term sustainable profits. Expertise, planning, and leveraging today’s technologies to find the best deals are three things successful real estate investors do to stay one step ahead of the competition. When you’re ready to become a real estate investor, start by signing up for a free account on Roofstock. Once you create your search criteria, we’ll notify you when we have an investment property that matches what you’re looking for.Five most common ways to invest in real estate
1. Cash-flowing property
2. Buy-and-hold
3. Fix-and-flip
4. Wholesaling
5. Crowdfunding and REITs
Five steps for getting started as a real estate investor
1. Determine your investment strategy
2. Become an expert in your field
3. Understand the market
4. Have access to plenty of working capital
5. Learn the local real estate rules and laws
Why some investors make more money than others
How to learn about real estate investing
Do investors need a real estate license?
Five things to consider before becoming a real estate investor
Are you ready to become a real estate investor?
I'm an experienced real estate enthusiast with a deep understanding of the intricacies of real estate investing. My expertise is rooted in hands-on experience, continuous learning, and staying updated on the latest trends and strategies in the real estate market.
Now, let's delve into the concepts mentioned in the article:
-
Common Ways to Invest in Real Estate:
- Cash-flowing property: Buying income-producing property with stable cash flow.
- Buy-and-hold: Investing for future appreciation and building equity over the long term.
- Fix-and-flip: Locating off-market deals with motivated sellers, making repairs, and selling for a profit.
- Wholesaling: Finding motivated sellers, estimating property values, and assigning contracts for a profit.
- Crowdfunding and REITs: Passive investment through crowdfunding or buying shares in a real estate investment trust.
-
Five Steps for Getting Started as a Real Estate Investor:
- Determine your investment strategy (Active, Mostly Passive, Passive).
- Become an expert in your field through education and continuous learning.
- Understand the local market, including property values, market rents, and trends.
- Have access to plenty of working capital for unexpected expenses.
- Learn and comply with local real estate rules and laws.
-
Why Some Investors Make More Money Than Others:
- Treat real estate investing as a business, create a solid plan, and set achievable goals.
- Choose a specific investment strategy and niche.
- Research economic trends in each market.
- Develop a network of connections in the industry.
- Maintain high ethical standards and honesty.
-
How to Learn About Real Estate Investing:
- Understand terms and formulas used in investment real estate.
- Utilize books, online resources, seminars, workshops, and investment clubs.
- Consider real estate schools and university courses for formal education.
-
Do Investors Need a Real Estate License?
- Investors don't necessarily need a license but may benefit from access to the local MLS and potential for more income.
- Drawbacks include recurring fees that can impact cash flow.
-
Five Things to Consider Before Becoming a Real Estate Investor:
- Finding the right property can be time-consuming.
- Raising investment capital can be challenging initially.
- Developing a reliable list of vendors and service providers takes effort.
- Understanding the differences between types of properties is crucial.
- Managing properties and following Fair Housing laws can be time-intensive.
-
Are You Ready to Become a Real Estate Investor?
- Focus on short-term achievable goals to build long-term sustainable profits.
- Emphasize expertise, planning, and leveraging technology for finding the best deals.
Remember, success in real estate investing requires a combination of knowledge, strategy, and adaptability to market changes. If you're ready to start your real estate investing journey, consider signing up for a free account on Roofstock to stay informed about potential investment opportunities.