Did you choose real estate investing as a career? Are you ready to invest? Real estate investing is a great career choice whether you’re just starting out or you have experience. And real estate investing for beginners? Who says it’s not possible? Starting a career in any industry may feel hectic and difficult at first. We’ve put together this ‘real estate investing for beginners’ mini guide to help you out when you’re first starting to invest in real estate.
Real estate investing for beginners: Where will your money come from in real estate?
Short term: Cash flow
One way you will achieve profits from real estate is through cash flow. That’s a pretty obvious one. Rental properties provide you with (often steady) monthly payments, that you could use as dispensable income, save, use to pay a mortgage, or further invest.
Long term: Appreciation
One of the perks of investing in real estate over any other types of investment is appreciation. Appreciation occurs when the value of a house increases over time. Appreciation is usually determined through home appraisals. Appraisals tell the value of a home at the time of a sale or purchase, and are helpful in knowing how much a home has appreciated.
You may also come across some debate going on whether one should invest for cash flow or appreciation. And the great thing about real estate is that you can do both! You have cash flow in the short run if you’re renting out your investment property, and appreciation if you sell it in future years.
Real estate investing for beginners: Some real estate terminology you need to know
This is where the bulk of it is. It may all seem overwhelming at first, we know. But don’t worry, we’ve got you covered. Below is a real estate investing for beginners list for you to acquaint yourself with the most common and basic terms you need to know when you’re getting into the industry.
Cap rate is the rate of return on an investment property based on the rental income the investment property is expected to generatety.
The formula for cap rate is:
Cap Rate = Net Operating Income/Purchase Price
Cash on cash return
Cash on cash return, or CoC, is the net operating income from a property in relation to the total cash investment.
The formula for CoC return is:
Cash on Cash Return = Net Operating Income/Total Cash Investment
Net operating income, or NOI, is the difference between the rental income and the rental expenses.
The formula for NOI is:
NOI = Revenue Generated from the Property Operating Expenses
Return on investment, or ROI, is a way to measure how well a real estate investment is doing. It’s basically how much money you’re making in relation to how much money you spent or have invested in a property.
The formula for ROI is:
ROI = Net Profit of Investment/Money Invested
Real estate indicators
CoC return, cap rate, ROI, and NOI are all very important real estate indicators. They can tell you which real estate investments are worth it, and which ones are not. To find out more information on these indicators, make sure to use Mashvisor’s investment analytical tools to optimize your property research and to make more informed investment decisions in real estate.
Investment property calculator
Using Mashvisor is great for real estate investing for beginners. An investment property calculator is a Mashvisor tool that allows you to plug in investment cost assumptions and generate data calculations and predictive analysis of investment opportunities in rental properties. An investment property calculator comes in very handy, especially with real estate investing for beginners. Mashvisor can also help in the analysis of the different real estate indicators mentioned above such as CoC return, cap rate, NOI, and ROI, among others. This means you get to say bye bye to spreadsheets!
Income property is a real estate property that is bought with the purpose of generating profit. It’s essentially what you’re investing in. It’s the property that will generate cash for you in the short run and appreciation in the long run.
Airbnb rentals/Short-term rentals
One option to invest in real estate is through Airbnb rentals, or short-term rentals. You can list your investment property on a service like Airbnb to advertise and promote your property. Airbnb guests, or tenants, stay at the property for short periods of time, usually a few days. This means that the tenant turnover rate for short-term rentals is higher. This may mean that you will have to go through more rental renovations, it requires more upkeep, but it could also generate more money than traditional rentals.
As opposed to Airbnb or short-term rentals, traditional rentals are properties which you rent out to long-term tenants. These can be single family-homes or multi-family homes. Traditional rentals have lower tenant turnover rate. Generally speaking, as a landlord, you should try to choose long-term tenants more carefully since you will be dealing with them for a longer period of time. So, you need someone who is easy to tend to.
A realtor is basically a real estate agent who is a registered member of the National Association of Realtors (NAR). A realtor will advise you on the best locations to invest, and may connect you to other real estate investors in the area.
Real estate broker
A real estate broker is also a real estate agent who’s passed a broker’s license exam. A real estate broker acts as a link between a home seller and a home buyer when they are making a deal.
Real estate investing for beginners: What should you take from all of this?
The above are just some of the many real estate investing for beginners terms that you need to know when starting out in the industry. Make sure to read more of our blogs, and try out Mashvisor’s features to learn more about investing in real estate!