Are you an investor looking to diversify your portfolio? Or maybe a 9-5er who wants to create additional income by learning how to get started in real estate? Or someone who wants to start a new real estate career, either as a realtor or as an investor? Here’s the thing you should know if you are thinking about getting started in real estate. It’s definitely not a passive income opportunity. As much as it sounds like it is, if you see a lot of “build wealth through real estate while you travel the world” ads, it takes a lot of work (at least when you’re starting out). And that’s why you have to approach it with the right mindset.
Why do I want to get into real estate?
If your goal is to make easy money, you might get disappointed pretty fast. There are many things that could go wrong with a real estate deal or transaction. For example, a buyer backing out at the last minute; mortgages taking months to get approved; a seller taking too long with renovations; problem tenants, etc. If you buy a negative cash flow property, you may even have to spend out of pocket on renovations. But when you analyze deals the right way and are patient, payday definitely comes in real estate investments. If you’re willing to figure out how to invest your money in a profitable income property for sale, you’ll find Mashvisor’s real estate investment tools very helpful for finding and analyzing deals.
Here’s the first thing you need to do when learning how to start investing: be clear on your goal for getting started in real estate. Having a clear goal would keep you going when the tough tests come.
Your goal would also help you niche down on your investment strategy when getting started in real estate. For example, do you want to make commissions by connecting home sellers with buyers? Then get certified as a real estate agent and affiliate with a real estate brokerage. Can you handle renovations or have a network of handymen who might be able to help reduce costs on home fixes? Then fix and flips might be a great option for you. Do you travel a lot and want to make money off your property while you’re away? Then listing on Airbnb would be one of the smart investments for you. There are more than 100 ways to break into real estate. Make sure you select the one that best suits your needs.
The rest of this article is written especially for those looking to learn how to invest in real estate to make money both in the short run and in the long term. Let’s figure out some of the less-known facts about real estate investing for beginners:
You have to learn to run the numbers
You need to learn the numbers when getting started in real estate
One of the most important pieces of knowledge if you’re learning how to invest in real estate is understanding how to analyze deals. For example, how to determine whether a property cash flows positively or negatively, how to determine Airbnb cash on cash return, how to assess cap rate, and more. There are well tested formulas and calculators (you’ll find some of the tools on the Mashvisor real estate investment software) that allow you to assess the profitability of your property investment within minutes.
Yet, as someone learning how to become a real estate investor, it’s easy to get caught up in the thrill of getting started in real estate that you ignore the role of due diligence. That is why some experts advice that you work with a mentor – or someone who successfully does the kind of real estate deals you wish to do – for 3-6 months before getting started in real estate on your own, in order to learn how to spot good deals. You could also check out information on deal analysis and real estate investing 101 on real estate blogs and real estate podcasts.
You need a large bankroll to start investing. Wrong!
One of the major reasons people hoping to start investing in real estate keep wishing instead of taking action is that they think they need to have a million dollars in cash. Here’s the truth: some of the most successful people in real estate investing have built their businesses by using other people’s money. Here’s how to invest in real estate with no money.
For example, if you plan to invest in Airbnb and are on a low budget, Airbnb rental arbitrage might be a smart idea, if your landlord allows it. What that means is: you rent a property from a landlord and then sublet it out on a short term basis via Airbnb. In this case, you haven’t spent money buying rental property, getting a mortgage, or doing fixes, you only spend on home accessories that’d make your home or income property more desirable.
Another way of getting started in real estate investing with little to no money is via seller financing. In this case, the seller offers the mortgage instead of a financial institution, based on certain terms and conditions. You could also form partnerships to buy investment property for sale with less money.
Learn more about real estate partnerships here.
You learn on the job
Many real estate agents believe that once they passed the pre-licensing exam, they are set to kick ass as a real estate agent. The truth is that your pre-licensing class would teach you the theoretical aspects of real estate law and closings, but not how to actually close homes, how to deal with buyer remorse, or how to prospect leads. This is also true for real estate investors: there isn’t a magical course you’d take that’ll guarantee your success as a real estate investor. Successful real estate investors learn from their failures in the real world and from other people’s experience.
You do need money to start investing
While you don’t need millions of dollars in the bank when getting started in real estate, you do need money to break into real estate either as an investor, an agent, or a property manager. You need to spend money when getting started in real estate: on advertising; getting licensed (if you plan to show homes either as a realtor or an investor); improving your property’s appeal; and you do need a buffer for unexpected expenses. You can add up expenses with Mashvisor’s investment property calculator to determine the expected cash flow from traditional and Airbnb rental properties.
However, you might need less or more money depending on the level of real estate investment you plan to do. You spend less money with house wholesaling, Airbnb arbitrage, fix and flips, the BRRRR strategy, Airbnb tiny homes, house hacking, and others. Expect to spend relatively more money with these real estate investments: turnkey rentals, vacation rental properties, private equity, and opportunity zone funds.
You should know the neighborhood and the neighbors
If you buy rental property in a neighborhood with tough HOA rules and high fees, your return on investment might bear the brunt. Therefore, in addition to learning how to invest your money and assessing real estate comps, you need to know the neighborhood and the neighbors. Check out crime rates, schools, attractions, HOA rules, and more to assess the desirability of the neighborhood. Check the local laws as they relate to your type of real estate investment. Otherwise, they’ll cost you significant money and headaches.
To get started on the right foot, see the best places to invest in real estate in 2021.
To be fully prepared for your rental property investing endeavor, check out our video on the rookie mistakes which you should avoid at all costs:
Real estate investing for beginners offers a lot of profit potential, but different niches of real estate also come with peculiar risks. Yet, you should assess your risk level and understand how to spot smart investments before making the leap. If you think that investing in a traditional or Airbnb rental property is the right strategy for you, sign up for Mashvisor to get the best real estate investment tools. Our software will help you search for and analyze profitable deals with a few clicks of a button.