If your dream is to become a real estate investor, read this guide on how to get into real estate investing and learn how to turn that dream into reality!
For many years, real estate has been a safe, smart investment and has created more millionaires than any other type of investment. Today, the healthy labor market and steady economic growth are leaving a positive impact on the US housing market. Many market watchers have already projected 2019 to be yet another great year for buying real estate investment properties! But as a beginner, the main question on your mind right now is probably “how do I get started in real estate investing?”
Sadly, many beginner investors lose their money after investing in real estate. However, this only happens to those who do not understand the fundamentals of buying and selling real estate. So, this tells you that the best way to get started in this industry is by gaining the necessary knowledge regarding all aspects of real estate investing! To help you out in your journey to become a real estate investor, keep reading this guide which breaks down all the basic information beginners need to know.
Picking the Right Investment Location
Where you buy your first investment property affects what return on investment you can expect. This is why every first-time real estate investor must keep the location of his/her first property in mind before buying. For example, you may find a rental property for sale for an attractive price, but the neighborhood is not so great. Depending on certain factors, buying this rental may not be the smartest move for getting started in real estate investing. These factors include:
- Supply and demand trends
- Real estate appreciation trends
- Rental rates and monthly income
- Operating costs and expenses
- Job and unemployment trends
- Crime rates and safety
All of these factors affect how profitable a location is for starting in real estate investing and, therefore, how profitable investment properties in this location are. So, our advice for investors starting a rental property business is to always study the trends affecting the housing market before investing your money on a property. The best places to invest in real estate will bring a high rental income, positive cash flow, and good return on investment.
To give you a head start, we did the research for you and found that these are the 10 Best Cities to Invest in Real Estate for Beginners!
Deciding on the Rental Strategy
When people first think of rental properties, their minds go to houses or apartments that are rented out to long-term tenants. This is the traditional rental strategy and it’s been around for decades, which is why it’s the most popular way of investing in real estate. However, another rental strategy has emerged in the past few years and it’s slowly becoming the best way to get started in real estate investing. That is the short-term rental strategy.
This rental strategy basically means that real estate investors buy vacation homes to rent out to guests for a short time. It’s also known as Airbnb real estate investing because investors typically list their properties for rent on Airbnb and similar sites. Many are making money following this rental strategy thanks to the strong demand for short-term vacation home rentals. But is it the optimal strategy for you? Ask yourself:
- Does my city allow Airbnb and what are the regulations surrounding short-term rentals?
- Is there enough demand for vacation rental properties to assure a high Airbnb occupancy rate and rental income in my city?
- Can I afford to have my investment property vacant during the off-season?
Simply see how these rental properties are performing and compare them to traditional rentals in the city where you plan to buy a property. At the end of the day, your goal is to make money in real estate. Naturally, the optimal strategy for getting started with real estate investing is the one that makes you the most profits.
To start looking for and analyzing both traditional and Airbnb investment properties in your city and neighborhood of choice, click here.
Finding Your First Investment Property
There are many types of investment properties that you can choose from for getting started in investing in real estate. There are single-family homes, multi-family homes, townhomes, condos, small apartments (5-50 units), large apartments (complex buildings), and commercial properties (leased to businesses). Deciding which type of property you want as your first investment will help narrow down your search results until you land on the perfect one.
Of course, because you’re a beginner real estate investor, our advice is to start small. Single-family home rentals are often recommended to anyone getting started investing in real estate. They’re more affordable than other options, easy to manage on your own, and will give you an entry into the world of real estate. Once you feel that you’ve got the knowledge and experience, you can grow your portfolio by buying more single-family home rentals or switch to another type of property.
Tip: You can use Mashvisor to start analyzing the best investment properties in the city or neighborhood of your choice to find your first rental property in a matter of minutes!
Doing a Real Estate Market Analysis
After finding a house for sale, the next step of how to get started in real estate investing must be to buy it, right? Wrong. Not every house will bring profits as a rental property and, as an investor, you don’t want to put your money on a property that doesn’t give you a return. The only way to find the profitability of an investment property is by performing a real estate market analysis.
A real estate market analysis (or comparative market analysis) is the process of evaluating investment opportunities to explore expected profit and risks. It provides investors with a comprehensive picture of the location, how properties are performing there, and the profit you can expect to earn from investing. In essence, a real estate market analysis lets you assess the property and compare it to similar ones in the market to see if buying it makes financial sense and will bring you profits.
Here’s our complete guide on How to Perform a Real Estate Market Analysis.
Key metrics to use when analyzing real estate investment properties include the cap rate, cash on cash return, and positive cash flow. These numbers give you an estimate of your potential return on investment before buying and getting started in investing in real estate. It’s best to use a Real Estate Investment Calculator or Airbnb calculator (like the ones Mashvisor provides) to get more accurate numbers and make this process quicker. To start analyzing the best investment properties in your city and neighborhood of choice, click here.
Financing the Investment Property
After completing all of the above, now it’s time to actually acquire the investment property. One concern of real estate investing for beginners is regarding the financing. Some think that investors only buy rental properties with cash, but the truth is, not all do. One of the benefits of investing in real estate is that you can use other people’s money to make money! This is called leverage and it’s a great way of getting started in real estate investing with little money.
Basically, instead of investing your own money in real estate, you put a down payment and take out a loan to finance your first investment property. There are many loan options to choose from including mortgage loans, private money loans, hard money loans, and owner-occupied loans. Then, you can pay down your debt with the rental income and profits generated from your property. Once there’s enough equity built up in the rental property, you can refinance to access or release equity (cash) that you can use as a down payment to buy another property and so on.
4 Tips for a First-Time Real Estate Investor
#1 Have a Real Estate Team: Real estate is a people business. Meaning, your real estate business is only as strong as your network and relationship with others in the industry. So, it’s best to have a team of real estate professionals ready to help you throughout the process of getting started in real estate investing including an agent, home inspector, appraiser, accountant, and an attorney.
#2 Screen and Find Good Tenants: Finding good tenants is important for a successful rental property investment. You want your tenants to pay rent on time, follow the lease policies, and keep your property in good condition. To find good tenants, make sure to go through a tenant screening process before giving them the key to your property.
#3 Charge an Appropriate Rent Price: Positive cash flow is a must for real estate investors of rental properties. Your rental income should cover operating expenses and leave a profit margin. If you’re not getting positive cash flow, then you’re basically not making any money in real estate! Therefore, you need to determine the appropriate amount to charge for rent.
Related: How Much Should I Charge for Rent?
#4 Use Real Estate Investment Tools: How do you get started in real estate investing and still compete in the market? Use innovative investment tools! Mashvisor, for example, uses predictive analytics and data to help you make smart investment decisions. You can obtain this data when using our investment tools including the Investment Property Calculator, Property Finder, and the Heatmap.
To start your 7-day free trial with Mashvisor and subscribe to our services with a 15% discount after, click here.
The Bottom Line
Getting started in real estate is made easy with Mashvisor. After reading this comprehensive guide, you’re now ready to become a real estate investor – the sooner you start, the sooner you’ll start making money and enjoying success. If you still want to learn more before getting started, continue reading our real estate investment blog where we cover all aspects related to buying and investing in properties.