There are numerous eBooks, guides, and blogs all around the internet on the topic of real estate investing for beginners, and they all provide great insight into the basics of real estate investing that every beginner investor needs to know about.
This blog, however, will not focus on the simple things on the surface, but it rather aims to provide insight into the more advanced concepts of real estate investing to give an idea to beginner investors as to what to expect once they’ve started investing.
Related: Real Estate Investing for Beginners: The Basics
So, here are some tips on the things that every beginner real estate investor should consider and keep in mind when trying to plan the future of his/her investment, tips that most beginner guides fail to mention and investors wish they knew from the get-go of their investment careers.
Real Estate Investing for Beginners: 1031 Exchange
One of the most useful tips to learn about in real estate investing for beginners is related to section 1031 of the IRC. This section states that a real estate investor is allowed to postpone paying taxes on capital gains (the profit an investor makes upon selling a property) if he/she uses the cash to invest in a similar property that qualifies under the like-kind exchange (it basically has to be a real estate property). This rule can be used by real estate investors for “snow-balling” their investments while avoiding to pay large portions of their capital gains in taxes.
Although you will most likely have to pay the taxes eventually, delaying the matter allows you to make better use of the profit earned through selling a property if you intend to expand your investment and invest in other bigger and better investment properties.
As a beginner real estate investor, it can be very useful to keep the 1031 exchange rule in mind when planning the future of your investment career, as it would allow you to consider different options related to the way you want to handle your money.
Real Estate Investing for Beginners: Airbnb Legal Issues
When reading about real estate investing for beginners, some of the most common strategies are related to investing in Airbnb short-term rental properties.
What a beginner investor wouldn’t know is that Airbnb, although very successful and capable of earning higher profits than traditional rental properties, is facing serious legal issues in several cities across the United States. This is due to Airbnb’s success in attracting a large portion of tenants who would have been otherwise hotel customers, leading the hotels and housing lobbies to put pressure on the authorities to limit Airbnb’s presence and place constraints on it in many states.
Related: What Are the Best Types of Real Estate Investments for Beginner Investors?
So, before you consider using this investment strategy, make sure to check with your state’s laws and regulations related to Airbnb in order to avoid legal issues that you wouldn’t have considered before.
Real Estate Investing for Beginners: The 1% Rule
One of the most common questions in real estate investing for beginners is related to the amount of rent that should be set on a rental property.
To make it easier, when setting your rent, always consider the 1% rule. This rule states that in order to have an effective rent rate, your rent should not be lower than 1% of the property’s value. Meaning, if you purchase an investment property for $150,000 for the purpose of renting it out, the rent on the property should not be lower than $1,500/month. This rule mostly applies to smaller investment properties and might change once you move up to bigger and more expensive properties in order to compete in the market.
You should also keep in mind that the rent you set on your property should not be fixed. This means that depending on the season, you might want to adjust your rent, lowering or raising it slightly to meet the standards of the season or the standards of the market.
Additionally, the 1% rule is not based on the value of the property when you bought it but on the current market value, so you should hire an appraiser to give you an estimate of your property’s market value every couple of years; as the value of your property increases, so should your rent. The property that you bought for $150,000 might be worth $200,000 after a couple of years, meaning your 1% rule rent should be increased to $2,000/month.
Use our free Airbnb calculator to find out whether your property meets the 1% rule if you rent it out on Airbnb.
Real Estate Investing for Beginners: LLCs
LLCs (Limited Liability Companies) is a great concept that should be learned in real estate investing for beginners.
And even though beginner investors should not start investing as an LLC right away, it is highly advised that you should at least learn all that you can about LLCs and how you can utilize them to protect yourself and your assets against any possible lawsuits that you might face in your real estate investing career.
The main purpose of an LLC is to protect your personal assets from any legal issues that your real estate investment property might face. LLCs, however, come at a cost and can be a bit overwhelming for beginner investors. As your investments grow, however, you should start considering forming an LLC, and it is best to have had considered the option by then in order to plan for the future of your investment with a clear picture of where your career might be heading and how you can protect yourself in the future.
Real Estate Investing for Beginners: Wholesaling
Another great tip in real estate investing for beginners is related to real estate wholesaling and the legal issues that might arise from it.
Wholesaling is a great strategy for making quick profits in real estate investing. If you’re an investor who is not looking to own an investment property but still wants to make money in real estate, then wholesaling might be the option for you.
Related: Is Real Estate Wholesaling a Good Idea for Beginner Investors?
You should keep in mind, however, that real estate wholesaling might be illegal in certain states if you do not have a brokerage license due to wholesaling being very similar to brokering, depending on the state’s definition of brokerage. So, before you start wholesaling properties, make sure to get legal counseling regarding your state’s laws and regulations in order to avoid stepping into the illegal side of the business without even realizing it.
Real Estate Investing for Beginners: Mashvisor
Last but not least, one of the best tips to give regarding real estate investing for beginners is: use Mashvisor. Mashvisor is one of the best tools that real estate investors can use to improve their real estate investments and reduce the amount of time and effort needed to make an investment. The platform provided by Mashvisor allows you as a beginner investor to further understand the ins and outs of the business, as well as providing you with a great amount of data and information about investment properties all around the US, comparing them, analyzing them, and providing you with the insights needed to make your investment decisions and plans on.
Real estate investing for beginners has never been easier than this. So, if you’re a new investor looking to pave your way through towards the top of the real estate investment pyramid, give Mashvisor a try and you won’t regret it.