Real estate investing is known to be a profitable and ever growing business. In our world today, one can make loads of money by venturing into the real estate market as a real estate investor or an agent, either of which is a good career option with benefits and challenges not withstanding.
The real estate market is one with plenty of good players making it a competitive market. Nevertheless, one need not be discouraged instead one should concentrate on establishing a brand that is noteworthy.
WHAT IS REAL ESTATE INVESTING?
The term real estate also referred to as real property which can include land, buildings. It can also be air/underground rights above and below the land respectively with anything tangible and immovable resting on it. Examples are our houses, skyscrapers or even septic tanks under the ground, it can also be just a land that lacks all of this structures which we refer to as unimproved land.
Real estate investing is the purchasing, managing, rental or sale of these properties in order to generate profits.
TYPES OF REAL ESTATE INVESTING
When you hear the phrase real estate investing, the first thing that pop into people’s mind is buying a property and renting or probably reselling it at a higher price but the truth of the matter is real estate investment is more than this, although it is one of the many options.
There are different types of real estate investing which is categorically divided into two.
We have the physical real estate investment which includes Land, Residential and Commercial properties.
Investing in physical properties brings about high profit and requires more money upfront. While the non-physical real estate investment which are the other types of real estate investing that does not require one owning physical properties, it includes crowdfunding platforms and REITs(Real Estate investment Trusts). They can also be grouped into passive and active income. It is financially friendly, allowing you to invest in plenty of real estate for less than the usual amount it would cost to invest in one physical real property. Below are the five types of real estate investment to consider if you plan on venturing into the business:
COMMERCIAL REAL ESTATE INVESTING
This type of real estate involves investing in properties that are not for residential purposes, the investor owns and rents out a place to a person or business that will use it. Commercial investing is a very lucrative business and yields more income compared to residential investing and has lesser risk of maintenance although your property is dealing with the general public and not just few people, investors tend to be worried about someone getting injured in the premises. Examples of commercial real estate investing can include, hotels, warehouses, offices, retail stores and so on. Commercial real estate can further be grouped into industrial and retail real estate investment, where industrial real estate includes car wash, warehouse and so on, made available for the public in order to generate income while the latter consist of shopping malls or retail stores in which the owner of the property gets a little percentage of the sales made by tenants in addition to the normal base rent in order to encourage them to maintain the property properly.
RESIDENTIAL REAL ESTATE INVESTING
Residential real estate investing is the most popular amongst all the various kind of real estate investing. That being said there are many kind of residential investing that are unknown to most people. Examples includes;
Rental properties: buying or building a house with the intention of placing it on rent.
Vacation Rental: This is similar to rental property but the investor concentrates mostly on tourist by buying a property in a popular and beautiful place known to tourists and rents it out to vistors.
Flipping/ Microflipping: In this kind of investment, the investor purchase a house being sold below its value especially one that needs repairs and sells after fixing it. This type of residential real estate investing is quite risky as the investor tends to put more of their money and there’s no assurance that they might get all their money back. On the other hand Microflipping does not require such risk as the investor quickly resells property purchased without much fixing.
Accessories Dwelling Units (ADU): This is where you rent out the extra space on your property either by turning it into a home for the tenant in order to generate passive income. It is usually less costly compared to other types of investing.
From the term Raw Land, the first thing that come to one’s mind is a land with nothing on it(i.e no building or infrastructure). Unimproved land is considerably cheaper to invest in than an improved land and it tends to appreciate in value with time. Buying a land and building it yourself will save you cost but most land investors place their land on lease for few years either to farmers for agricultural use or they purchase lands that has a high potential of appreciating in value to resell later. This type of investment is cost-intensive as it requires huge capital but easy to maintain.
REAL ESTATE TRUST INVESTMENT (REITs)
REITs are companies that owns commercial real estate properties like hotels, shopping malls, hospitals or even offices). They allow you invest in the properties managed by the company in form of shares on stock exchange saving you the cost of owning a property. REITs is regarded as a means to generate passive income and some are publicly traded on stock exhange which offers more liquidity than the other forms on real estate investment. Investors get dividends and if they happen to be short of cash, they can trade their share on the stock exchange.
CROWDFUNDING REAL ESTATE INVESTMENT PLATFORM
In this method, investors come together forming a band in order to invest in opportunities that they can’t individually fund on their own. Some of the crowdfunding investment are open to general investors while others require investors with certain net worth to invest. Unlike the other investment that requires physical appearance, crowdfunding is done online and is less cost intensive compared to the likes of residential and commercial real estate that requires huge amount of capital and maintenance cost.
Unlike REITs, crowdfunding real estate investment are not publicly trade which means they are highly illiquid, which means the investor’s funds are invested for a couple of years and can’t be pulled out when you need it. Although they are known to have a short track record and are yet to experience an economic decline.
WHY INVEST IN REAL ESTATE?
Several benefits comes with real estate investing, most of which are known to you already. Some of this benefits includes tax advantages, appreciation, cash flow, rental income and so on.
- As we all know that real estate tend to increase in value over time, buying and hoarding seems like the only route but it isn’t as investors has the ability of making their properties appreciate in value. For instance renovating your home can make the value increase whether it is a kitchen or bathroom upgrade, the price of the home will increase. But not all renovations will yield positive results so doing your research to know the type of renovations that will bring about an increment is also necessary.
- Real estate grant investors the ability to generate cash flow which serves as a benefit to real estate investors. Cash Flow is the gross profit made from real estate investment after your mortgage payments and expenses have been made. Numerous cases has shown that cash flow only increases as you build up your equity and pay down your mortgage.
- Investors can take advantage of tax deductions. As the owner of the home, renting out your property means you are running a business(landlord) and being a business owner you can deduct few expenses like maintenance expense, mortgage interest paid on loan, house owner’s insurance and depreciation which spreads to a period of 27.5 and 39 years for residential and commercial properties respectively.
- Investing in real estate secure you financially. Unlike investing in stock market or saving your money in the bank, when you invest in real estate on a long term you know your asset is appreciating in value. Most investors invest in real estate as a means of supporting their income or you have a property that you’ve owned for a long time and want to sell because you’re retired to make profit as a means of increasing your retirement income.
- Many people tend to shy away from investing because when they hear the term “investment ” all they think of is how large a capital they will need in order to benefit which is the norms for most kind of investment but real estate is different in the sense that it has made provisions for potential investors to leverage their investment as you can own a fraction of a property and with the profits you get in return, you can decide to invest more.
- With real estate investing you have something to pass down to your heir. Many people feel leaving behind cash for their children and family is more important, although the fact that it is a good idea can’t be disputed but with real estate it is even better.
HOW DO BEGINNERS INVEST IN REAL ESTATE AND MAKE MONEY?
Thinking of kickstarting your career as a real estate investor is a really good thing but as interesting and mouthwatering as it sounds it is not an easy task. It is a sure way to be financially buoyant and successful but it doesn’t change the fact that it is a challenging business as it requires skill, research, effort and lots of planning if you don’t want to be running at a loss.
The good thing about it is once you know how to get started then you have less to worry about. Here are few steps to place you in the right track and get you ready for the race to riches
Getting the right education on real estate. Before buying your first property or venturing into any investment, make findings in order to know the risks involved in the business.
Build a real estate network. As a beginner going about things on your own opens you to a high probability of doing things wrongly and running a loss. A good network expose you a chance at having a strong foundation. For example having a mentor to put you through, an agent to help you find the right investment properties, a Lawyer to guide and update you on the laws and regulations guiding your chosen line of business and an accountant to help you with real estate taxes.
Creating a financial and rental market analysis plan. This has saved many first timers as you will be needing to analyze how long you want to invest in a property, whether or not if placing your the said property will be of benefit, what are the cost of maintenance, will you generate positive cash flow or not and so on, before purchasing the property and it also helps you find the best possible way to finance your property.
Choosing a good investment strategy and a good location. A good location will definitely affect your level of income likewise your strategy. For example if you want to place your property on rent whether it is for vocational or residential purposes, you will be looking at the location and asking questions like “are they places people wants to visit?, is the area conducive?” And for land reselling ” is this place open to development?” Factors like that are things you definitely want to consider.
Find the perfect investment property. After considering all the factors listed above then you can go ahead and make a choice of property that fits best and will yield positive income.
Managing your property. This is one tasking step as it requires you finding and screening tenants, collecting rents, maintaining and getting neccessary repairs done. You can get a manager to handle this part if you’re buoyant or do it yourself as most investors turn out to be professional investment managers.
After following all the steps listed above with your finances then you can decide whether you want to go into wholesaling, holding, flipping or Microflipping, residential or commercial real estate investing which will now depend on your capital and fortunately for investors real estate has many options to accommodate the capital you might have be it big or small.
HOW MUCH DOES A BEGINNER REAL ESTATE INVESTOR MAKE?
Annually a professional real estate investor earns an average of $140,000 to $200,000 and in good seasons it can go higher than that but for beginners they earn an average of around $80,000 to $ 120,000 depending on the type of investment they ventured into.
HOW TO INVEST IN REAL ESTATE WITH LITTLE MONEY?
A lot of people struggle with questions like “where do I get money to invest in real estate or how do I buy a property when I have no money?” If you are thinking of ways to invest in real estate with little money, then you should know how to take advantage of people’s money, have the ability to understand and recognize opportunities. Here is a list of 4 best ways to go about it
Seller Financing: getting money from the seller is the one way to achieve your goal, this is when buyers supply the seller with money to purchase the said property.
Leasing: the buyer is charged a monthly or yearly fee and the excess rental fee is then channeled to the property purchase cost.
Forming partnerships: when the investment price is too high, investors come together to invest or purchase the property then the profit are shared according to the percentage each investor contributed.
Investing in REITs
Trading Houses: here you can use an old property to acquire a new one. In addition to getting a new property it will also help you avoid capital gains that are usually associated with selling a property and so on.
15 TOP STRATEGIES OF REAL ESTATE INVESTING FOR BEGINNERS
Real estate investing can be seen as climbing to the top of a mountain which is where the goals are and a good mountain climber is never scared of height. On your way up the mountain of success and financial stability, one is likely to encounter some milestones which are the sub-goals. The strategies that I will be providing you with are like the plans needed to climb and get to the top of that mountain of financial stability and life goals. Here are the 15 strategies to consider to complete the task ahead:
Fix and Flip: This type of strategy involves getting properties that requires some repairs at a cheap price, fixing it and reselling at a much higher price.
Wholesaling: This strategy involves you finding properties at good deals and reselling at prices a bit higher than the price of purchase. It requires one to be good at advertising and negotiating.
House Hacking: This is when someone else pays for your own house espenses. It involves renting out a small space from your home in order to cut down on your own housing expenses. The benefits of this strategy is that you get to learn how to run the landlord business.
Live-In-Then-Rent: This is simply living in a house then renting it out later. Unlike House hacker you don’t rent out the house while you live in it.
Live-In-Flip: In this case you buy a house, live in it for two or more years, fix it then resell at a higher price to generate profit.
BRRRR Investing: The Buy-Remodel-Rent-Refinance-Repeat (BRRRR) method. Practically you fix-up houses bought at a cheaper price and then refinance with a long term mortgage.
Short Term-Buy and Hold Rentals: This strategies involves buying and holding a property for a short period of time usually between 1-5years. It is of more benefit to multi-unit apartment projects. The main purpose of this strategy is to force appreciation either by renovating/remodeling, decreasing expenses or raising the rents.
Long Term-Buy and Hold Rentals: This strategy can also be called Slow and Steady. This is because the owner has the intention of holding the property for a very long time either because they appreciate the most. Landlord earn from this strategy in form of depreciation expenses, tax deductions and so on.
The TradeUp Plan: This strategy is when a homeowner sells their house in order to get a better house or a house in a much nicer environment using the equity from the current house.
Rental Debt Snowball plan: This plan strategy is best to predict wealth building, reduce risks and at the same time generates income from rental properties. It involves taking the cash flow from all the current rentals and channel it to pay off the mortgage debts.
All Cash Rental Plan: this strategy is similar to the rental debt snowball plan but in this case the investor saves up to purchase a property, thereby avoiding debts.
Hard Money Lending: This strategy is used in providing short term loans to investors that fix and flip or buy properties for rents.
Discounted Note Investing: This strategy involves buying or creating notes which are real estate debts for at a reduced value and reselling. For instance mr Jones invest $50,000 in a property and then sells it to his tenants for $80,000, instead of the tenants going to the bank for a loan he pays mr Jones $20,000 and mr jones in turn financed the payment (i.e he recieves the monthly interest and principal payments).
Syndications and Crowdfunding: This is a means of forming a band with other imvestorsbin order to purchase the other type of investment, thereby preventing any form of debt while crowdfunding is like a modernized form of syndication investment where everything is done on online platforms though most of this platform requires you to be an accredited real estate investor.
REITs: Real Estates Investment Trust allows investors to own a share of many commercial income producing properties. Unlike other forms of real estate investment, REITs is a passive means of income.
FREQUENTLY ASKED QUESTIONS (FAQs)
What is the best crowdfunding platform for accredited investors?
The best crowdfunding platform sites includes
Peer Street Inc
Real Crowd Inc
Do well to make research on them before investing.
What is Homeowner Insurance?
Homeowner insurance is also referred to home insurance. It is a type of property insurance covering a private house to help build or repair after incidents like fire outbreak or damages caused by natural cost.
What is Title Insurance?
This type of insurance prevents the buyers and the lenders from running at a financial loss due to defects in property titles.
What is the difference between passive and active income?
Passive income is when you earn money from an investment, continuously without extra effort. While Active income on the other hand means the continuous involvement in task relating to your work in order to get paid.
When can I buy and sell my land properties?
You should consider buying a land when the value is low and sell when it has appreciated greatly but before then you can place it on lease while you wait for the great appreciation.
Real estate is a brilliant way to build your investment portfolios. Most investors combine different strategies so don’t feel disappointed or sad if you try a strategy and it doesn’t work. At the same time do well to make your findings and choose carefully before venturing into any investment plan and avoid procrastination as the best possible way to be successful in real estate investing depends on your readiness to learn, your life goals and also your ability to take risk. Finally, don’t invest with money you will be needing almost immediately.