Real Estate Investing for Beginners: The Ultimate Guide to Getting Started in 2020

Historically, it has been proven that investing in real estate is one of the most effective strategies for becoming financially independent. Many of today’s millionaires attribute their success to real estate investing. Although not everyone will become a millionaire, real estate investing for beginners does come with a wide range of benefits. Here are some reasons why you should start investing in real estate in 2020:

• Steady cash flow – If you buy an investment property and rent it out, you can enjoy an ongoing, passive income for a long time. This cash flow can come in handy, especially in retirement.
• Hedge against inflation – Typically, real estate property appreciates in value over time. So as other businesses may be negatively affected by inflation, a real estate business typically benefits. And if you decide to sell later, you can make a good return on investment.
• Tax advantages – Real estate investors can deduct a wide range of expenses from their taxes including depreciation, mortgage interest, property tax, and homeowners insurance.
• Tangible asset – Unlike bonds, stocks, and mutual funds, real estate property is a tangible asset that one can see, visit, and improve.

Ready to take advantage of all real estate investing has to offer? Here are the steps along with some great tips for getting started as a new real estate investor in 2020:

Choose Your Real Estate Investment Strategy

The first step of getting started in real estate is to select your investment strategy. Here are the most common real estate investment strategies:

• Buy and hold – This is a passive strategy where the investor buys a property, holds on to it for a long period, and then sells it for a profit. The buy and hold strategy capitalizes on the appreciation of the investment property over time.
• Fix and flip – This short-term investment strategy is suitable for investors that are looking for (relatively) quick cash. Fix and flip involves buying a distressed property, renovating it, and then selling it for a profit.
• Real estate wholesaling – If you don’t want to buy an investment property, wholesaling could be an ideal strategy for you. All you need to do is get a contract from a seller, market the property, and then assign the contract to a buyer. When payment is made, you will earn a commission.
• Traditional (long-term) rentals – This strategy involves buying residential property and then renting it out for several months or years.
• Short-term rentals – Unlike traditional rentals, a short-term rental property such as an Airbnb is designed for guests who are visiting an area for a few days. Rent is paid on a nightly basis.
• BRRRR (Buy-Rehab-Rent-Refinance-Repeat) – A real estate investor buys a run-down property below market value, renovates it, and then rents it out for several months. Once enough equity has been built in the rental property, the owner can then refinance and buy the next property. This process is then repeated over and over. The BRRRR strategy is perfect for investing in real estate with little money.

Related: 5 Top Real Estate Strategies for 2020 

Figure Out the Financing: How Much Money Do You Need to Get Started in Real Estate?

It will depend on your real estate investment strategy. For example, if you want to invest in rental properties, start thinking about your financing method. Paying in cash could mean having to save up a lot of money depending on where you wish to invest. The median property price for the Seattle real estate market is as high as $736,39, for example, whereas it is much lower in the Indianapolis real estate market ($260,939). If you can get approval for a mortgage, then you’d need 20% of the purchase price along with cash reserves. Review your investment and financial strategy and set the appropriate budget. Create a plan for where and how you will get the money needed.

Find Investment Properties for Sale

There are different strategies you can use for finding investment properties for sale:

• Driving for dollars – As the name suggests, this method involves driving around neighborhoods looking for signs that property is available for sale. An obvious sign to look for is a ‘For Sale’ sign in the front yard of a home. You should also keep an eye out for properties that appear vacant or grossly neglected. Signs of this could be overgrown grass, uncollected mail, and broken windows. A homeowner that is unable to maintain a property would typically be open to an offer.

Related: What Is Driving for Dollars in Real Estate?

• Networking – Start by informing your friends, relatives, or colleagues at work that you are looking for an investment property. You can expand your network by attending real estate trade shows, conferences, open houses, and webinars. These are the best places to meet real estate agents, property managers, homeowners, and fellow investors. Connecting with such like-minded individuals could open up great opportunities for real estate investing for beginners.
• Real estate sites – One of the best places to find a property online is the multiple listing service (MLS). However, you will need to work with a licensed real estate agent to access the listings on the MLS. You can also use Mashvisor’s Property Finder to find profitable Airbnb or traditional investment properties for sale. This real estate investment software allows you to find properties with a high return on investment that match your expectations in terms of the listing price, property type, and optimal rental strategy. You can search in multiple cities at once (an unlimited number of cities if you sign up for an Expert Plan) and find the best performing homes in all these locations.

Mashvisor’s Property Finder

Do you have a free Mashvisor account? Use our Property Finder to find lucrative investment properties that match your criteria in a matter of minutes!

Conduct Real Estate Investment Analysis

An important part of real estate investing for beginners is real estate investment analysis. This step will look different depending on what real estate investment strategy you choose. For example, if you’re fixing and flipping houses, a big part of your analysis will be to figure out the after repair value, ARV. If you’re looking to buy a rental property, you will need to conduct 3 types of real estate analysis:

• Real estate market analysis – The housing market where your investment property is located will determine the property prices, rental rates, the tenants you attract, rental expenses, and the appreciation of your property. A real estate market analysis involves looking at factors such as population growth, the job market, economic growth, price-to-rent ratio, average return on investment, and property taxes.
• Neighborhood analysis – Once you ascertain that the investment property is located in a good real estate market, go into more detail, and conduct a neighborhood analysis. A good neighborhood should have low crime rates, access to public transportation, proximity to amenities, favorable local laws, as well as a high return on investment. You can assess the return on investment of a neighborhood using a real estate heatmap.
• Investment property analysis – Use Mashvisor’s real estate investment calculator to analyze properties based on cash on cash return, cap rate, and cash flow:

Mashvisor’s Investment Property Calculator

Get Funding

You set your plan in the initial stages but now it’s time to put that financial plan into action. When it comes to investment property financing, here are some of the options you can choose from:

• Conventional loans
• Federal Housing Authority (FHA) loans
• 203 (k) loan
• Veteran Affairs (VA) loan
• Adjustable-rate mortgage
• Home Equity Line of Credit (HELOC)
• Private lenders

Shop around and find a lender that will offer you the lowest interest rates and closing costs. Don’t forget to check online reviews to see what former clients are saying.

Related: 7 Types of Investment Loans for Real Estate Property

Conclusion

With proper preparation, real estate investing for beginners should not be too difficult. As a beginner real estate investor, it would be advisable to work with an experienced real estate agent and get your hands on some helpful tools.

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