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Today it seems as though everyone is investing in real estate. There seems to be an endless multitude of shows on HGTV and other networks depicting ordinary individuals or couples purchasing multiple properties. And chances are you know at least one person who owns a rental property of their own. Perhaps you’ve also wondered how to start investing in real estate but weren’t sure where to begin.
Maybe it’s a question of where to get the money, or where to start looking. Maybe you aren’t sure if this type of investment is really something for you. After all, when you own a rental property, you take on a lot of additional responsibility. But while it can certainly be stressful and difficult at times, it can also be very rewarding and profitable.
Consider this step-by-step guide to learn how to start investing in real estate.
While many of the shows you see on television primarily focus on residential properties, there are other types. You could consider investing in industrial or commercial real estate. These are the differences:
Investing in a house or vacation property is the easiest way to start. Residential real estate also includes apartment buildings, which require a lot more upkeep, maintenance, and management.
This includes any building that is used for a business, including both retail stores and office space. Managing a commercial property can be a bit more difficult than residential property depending on the size of the property.
This is somewhat similar to a commercial property but the buildings include warehouses, manufacturing plants, and other special purpose spaces such as car washes and storage unit facilities.
If you have at least $50,000 ready to invest, great! You can get started purchasing a home or building. But unless you have more to invest, you could be left with a big mortgage or loan to pay off. If you don’t have the capital or want an easier way to invest than spending your own money, consider these options.
REITs operate in a similar fashion to mutual funds. They allow you to invest in a company that already owns real estate, usually commercial buildings. They are commonly part of a retirement portfolio since they typically pay high dividends. However, they can also be tricky, since they aren’t all traded the same way, and some are riskier than others. Be sure to speak to someone with experience in REITs before making your own investment.
Using a lending platform, real estate investors will grant you a loan that you can use to finance your own real estate investment. You can also use your own capital to lend a borrower some money for their own needs. The online platforms work similarly to other online lending companies, but are specifically geared toward real estate developers and investors.
This is another option that allows you to invest in residential real estate without the headache of being an active landlord. You’ll add your resources to those of other investors and purchase a property through a larger company. You’ll gain income, and the company handles all landlord-related tasks for a share of the profits.
The next step should be familiarizing yourself with the particular laws and regulations related to owning a rental property. If you aren’t planning on just purchasing a home to renovate and flip, you’ll need to know your responsibilities as a landlord.
Many who seek how to invest in real estate rarely take the time to learn these important details. As a result, they often find themselves in difficult situations with tenants and even potential legal troubles.
An attorney can provide you with everything you need to know. You can also consider using a management company to handle the rental property for you. Then you can relax a bit more while maintenance, repairs, and other obligations of owning a rental property are taken care of.
Don’t just rush out and buy a property just because it looks good and the price seems right. Treat this process as though you were buying a home or building for yourself. You’ll want to research the local market, who’s moving in or out of the area, what the average rental rates are, and more. Many real estate websites can provide you with a wealth of information about an area simply by entering the address of a property you are interested in.
And, as with your own home, you’ll want to get an inspection. Even if you don’t plan to live in the home yourself, you don’t want to purchase one that requires a lot of expensive repairs. Some properties also need to be brought up to code in order to be a legal rental property.
If you’ve got a good background in home construction, flipping properties rather than renting them out might be more your style. Flipping can be very profitable, but you’ve really got to have a good understanding of both the market and home renovation.
Flipping also means a larger initial investment and a mortgage to pay until the property is sold. And there isn’t always a guarantee the property will sell quickly or for what you are asking. That means a bit more risk involved, especially if market conditions change unexpectedly.
Now that you know how to start investing in real estate, you can weigh the risks and see if it is a worthwhile endeavor. Remember, research is a critical factor, as is being aware of building codes, rental laws, and other regulations you must follow as a landlord. Even after researching a wealth of information, your first real estate investment may come with a learning curve. But once you gain better traction as a real estate investor you’ll find it can be a great way to accumulate wealth.