How to Invest In Real Estate: A Beginner’s Guide
Updated March 7, 2022
If you're thinking about starting the journey of investing in real estate, you may feel that you have a lot to learn. Though the world of real estate investments can be intimidating at first, once you understand what the different types of investments are and which are best for you, you can reap plenty of the benefits. Below you'll find an introduction to everything you need to know to get started in your real estate investment journey, from the different types of investments to the benefits.
What Exactly is Real Estate Investing?
Investing in real estate can come in a variety of different forms. At its core, investing in real estate is when you purchase a piece of land and any buildings or structures on it to eventually sell or rent out. Real estate investments come in all forms of real estate, including residential, commercial, and industrial. When you're learning about real estate investing for beginners, you will likely have to research what kind of real estate investing you're most interested in since each type comes with its advantages, disadvantages, and goals.
A few types that you may be most familiar with are buying a property to rent out or purchasing a home to flip it and sell it again—but there are many other ways to begin investing in real estate.
The Financial Benefits of Investing in Real Estate
No matter what kind of real estate investment you're interested in, the core of your desire to start investing in real estate is likely a financial benefit. Of course, like any other type of investment, there will be inevitable risks associated with the financial rewards of real estate investing, but it's been proven to be a great way to build long-term wealth.
Here are a few of the financial advantages you can benefit from when it comes to investing in real estate:
- Cash flow potential. If you're renting or leasing a property, investors enjoy a consistent source of cash flow coming in each month. This means you can pay off the property’s mortgage while also turning an additional profit. In addition, as you pay down your mortgage and gain equity on your investment, your cash flow from the property can increase.
- Tax benefits. Specific property taxes breaks and deductions apply to real estate investment properties, especially rentals.
- Property value increases. In general, the value of a well-maintained property will increase over time. This means that if you're interested in flipping or reselling your real estate investment property, you will make money on the sale, especially if you wait until real estate prices are trending toward a sellers' market.
- Different options. If you're interested in real estate investing but aren't sure you're ready to flip a property, act as a landlord, or get into the real estate wholesale market, you can opt for stock-based options such as Real Estate Investment Trusts (or REITs). This allows investors to have more freedom—since there is no hands-on property management associated with this type of investment. It’s also an excellent way to diversify your portfolio.
Deciding if real estate investing is right for you is a personal decision based on your financial status and your position to begin investing. If you're planning to buy a property, you should also keep in mind that you might need 20% of the cost of a property for your down payment to avoid paying additional interest on the mortgage.
The Different Types of Real Estate Investing
When you're getting started in real estate investing, you may not know where to begin or what type of property is best for you. Here are a few of the most common types of real estate investing and their main advantages.
Real Estate Investment Trusts
A Real Estate Investment Trust, or a REIT, is a type of investment that's traded in major stock exchanges and can be added to your existing investment portfolio. A REIT is created by a company that owns a range of income properties in different sectors. With a REIT, investors earn a certain amount of the produced income that the property generates without managing a real estate property!
Real Estate Funds
Real estate funds, or real estate stocks, are different from REITs in a few ways. A REIT invests directly in real properties, but a real estate fund will invest in real estate-related stocks as well as REITs. A REIT will pay out dividends to those that invest in it, but a real estate fund will appreciate over time. To receive a payout, investors must sell their stock.
When you think of real estate investing, one of the first things you might think of is buying a property with the plan to rent it out. You can opt for a long-term rental property like an apartment or decide to go for a short-term rental, such as an Airbnb. This is an excellent form of investing in real estate because the money rental property owners make from the income property will help pay for the mortgage and taxes. Investors also earn an additional profit with the right monthly rental price and property management.
If you've been researching real estate investing for beginners, you've likely navigated information about flipping a property for resale. This is usually done with a property that needs a significant amount of work before it’s truly ready for homeowners or other investors. The profit comes from reselling the property for more than the original sale price, as well as any of the renovations you completed. This can be a riskier real estate investment because investors have to trust that the market will stay stable enough during renovations to avoid losing money on the resale. Finding the right property is key to making a profit on your flip.
Wholesale Real Estate Investments
Wholesaling real estate is a specific process that includes buying a discounted property and then finding a buyer for it. This can be done in a few ways, one of which is using a purchase and sale agreement. As a wholesaler with this type of contract, you never actually own the property—you simply help find the right buyer for the property and profit from the sale. Real estate investors can also do a double closing in which they do actually buy the home and then quickly resell it without flipping the house or doing any upgrades or renovations.
Crowdfunding for real estate ventures is another way of investing in real estate without being the only backer. It's similar to real estate stock, but the return on investment isn't quite as immediate as a REIT or selling your stock in a real estate fund. Instead, you invest in a real estate project and likely wait a few years before seeing money come back from your investment. A real estate investor can often invest a small amount of money, though, so this is an excellent way to start investing in real estate on a smaller scale.
Let Privy Help You Find the Right Property Today
To find the best investment properties that fit your goals, Privy is here to help! The Privy Advantage helps investors find the perfect property, whether you're just getting started investing in real estate investing or if you're a seasoned pro. Get in touch with our experienced team today to learn more about how we can help you find the best properties and deals in markets throughout the country!
Learn more about investing in real estate with our free resource, “How to Invest In Real Estate: A Guide!”