Investing in real estate is a goal for many people. Investing in real estate is also a very complicated and risky business. You can get yourself into a huge mess if you do not know what you are doing. I created this guide to help beginning investors learn about real estate. There many types of real estate, types of investing, and strategies. There is no one best way to invest in real estate, but there may be a best way for you to start investing in real estate and hopefully this guide helps you with that.
Real Estate Investing for Beginners Introduction – How to Invest in Real Estate
Real estate investing is a very broad term that encompasses renting out properties, flipping houses, wholesaling properties, and much more. You can also invest in either commercial real estate or residential real estate. There are a variety of investment properties available, including single-family homes, multi-family apartment buildings, condos, retail space, office buildings, college rentals, and so on. Whether you are an amateur or seasoned real estate investor, you may be wondering which type of property is best. Over the last four years, I have written over 450 articles on real estate investing and recorded close to 100 podcasts that cover just about every topic. I am a real estate agent and investor who both owns rentals and flips houses (my goal is to flip 30 houses in 2017). This guide will give a broad overview of the different ways to invest in real estate. In this post, I’ll cover what to watch out for and include links to detailed articles covering each subject.
What are the common ways to invest money in real estate?
There are many ways to make money in real estate, but I feel that rental properties best fit the term ‘real estate investing.’ Wholesaling properties and flipping houses can generate a lot of money, but those approaches feel more like a job. Rental properties keep producing income for years, while flips and wholesales are done producing once you sell them. Read on for more detailed descriptions and links to even more information.
How to invest in rental properties
The basic idea of a rental property is that it makes you money through cash flow and potential appreciation. Cash flow is the money you make from the rent that comes in after paying all expenses. The expenses may include taxes, insurance, allowances for maintenance and vacancies, HOA dues, and mortgage payments. If you buy rentals below market value (which is a huge advantage of real estate) you can make money as soon as you buy the property. You can also buy properties that need work or are poorly managed and improve them to make more money. I don’t like to count on appreciation to for income generation, but it is a nice bonus if market values go up. The tough thing with rentals is not every market is ideal for them. Usually the more expensive the housing market, the harder it is to find good rentals. Below you can find many more links on rentals:
- How much money can you make with rental properties?
- How much money do you need to buy a rental property?
- How to figure cash flow on a rental property.
- Why I do not depend on appreciation.
- Why investing in rentals is better than investing in the stock market.
- My plan to purchase 100 rental properties.
- How can you make one million dollars with rental properties?
- Rental property cash flow calculator.
- Podcast: what is the best way to invest in rentals?
How to invest in real estate by flipping houses
The idea behind flipping is simple. You buy a house, fix it up, and sell it for a profit. However, executing a successful flip is quite difficult. There are many expenses that must be accounted for, such as financing costs, carrying costs (utilities, insurance, taxes, HOA fees), buying costs, and selling costs. Repairs are only part of the cost of a flip. Finding houses that are cheap enough to flip is not easy either. There is a lot of competition for flips, but you can find deals through MLS, auctions, wholesalers, for-sale-by-owners, and through direct marketing. I love flipping houses, and in 2018 alone, I’ve had anywhere from 12 to 22 flips going at once. Here are some additional links that provide more information on flipping:
- How much money can you make flipping houses?
- What are the costs associated with flipping houses?
- How long does it take to flip a house?
- The ultimate guide to flipping houses in any market.
- Can you make one million dollars a year flipping houses?
- Podcast how to flip houses
You can see almost all of my flips before and after videos on my Youtube page as well.
How to invest in real estate by wholesaling properties
Wholesaling a property is when a real estate investor buys a house or gets it under contract, but instead of keeping or fixing it up, they sell it to another investor. It is possible to wholesale properties without using your own money to buy the property. One way is to get the house under contract and then assign that contract to another investor who will actually buy the house. Another way to wholesale houses is to use a double close. The first investor buys the house on the same day that they sell it to another investor. Some title companies will let the first investor use the money from the second sale to pay the original seller. Wholesaling is often taught as an easy way to make money in real estate without using your own money, but it is not easy and you will need some money up front. Following are links to more detailed articles:
- What is real estate wholesaling?
- How much money can you make from wholesaling?
- How can you find a real estate wholesaler?
- Podcast How to wholesale houses.
How to make money in real estate agent by being an agent
Earning income as a real estate agent is not considered real estate investing, but it is closely related. I have been an agent for over 15 years, and being an agent helps my investing tremendously. You can also make a lot of money as an agent, and it may be easier to get started as an agent than as a wholesaler. Below you will find more information that explains how to become an agent and covers the ins-and-outs of the job:
- How much money do real estate agents make?
- How hard is it to become a real estate agent?
- Why should you become a real estate agent if you want to invest in real estate?
- What are the licensing requirements for real estate agents in all 50 states?
- Can you make one million dollars a year as a real estate agent?
- How to become a HUD and REO agent.
- Podcast on real estate agents.
What are the different types of real estate property you can invest in?
There are many ways to invest in real estate and there are many types of real estate available. Residential, single-family homes are the easiest to understand, buy, and sell. Most beginners start with single-family homes and then move on to larger projects. Some investors love single-family homes and stick with them their entire career, and a few investors start off with the big projects first. Following is more detailed information about the property types available.
Single-family homes (SFRs) are meant for one family to and can be attached or detached. An example of an attached home is one side of a duplex, and an example of a detached home is a house on its own. Single-family homes are typically easier to obtain financing for, easier to buy due to greater inventory, and easier to sell because both investors and owner-occupants purchase them. I like single-family homes as rentals because tenants usually pay all the utilities and take care of the yard. The tenants are also higher quality and houses tend to appreciate more.
- Should you invest in single-family or multifamily homes?
- Why I invest in single-family properties.
- Podcast How to sell single family portfolios.
Condos or townhouses
Condos or townhouses are similar to single-family houses, but they are part of a complex. The complex will have a homeowners association that takes care of parts of the property and may pay some utilities as well. Condos and townhouses will have attached neighbors. The HOA will usually maintain the exterior of the building while the property owners maintain the interior. Condos and townhouses can be decent investments, but you have to watch out for the HOA fees, and they tend to appreciate more slowly than single-family homes. Patio homes are a cross between single-family houses and condos. Patio homes have an HOA that takes care of the yards and sometimes the exterior maintenance, but the house is usually detached.
Multifamily properties can be great rentals or can be flipped. A multifamily property is any property with more than one unit. It could be a duplex where the owner owns both sides of the property, or it could be a 300 unit apartment building. Many investors love multifamily properties because there are many units under one roof. This can cut down on maintenance costs, but multifamily properties often have higher maintenance, utility, and vacancy costs. Some multifamily properties offer a lot of opportunity for increased value through repairs and rent increases. The properties are valued based on the income they produce.
- How to invest in multifamily properties
- Podcast what is the best investment?
College rentals can be single-family properties, condos, or multifamily apartments, but they are primarily rented to college students. College rentals can produce higher rents but also come with more maintenance and tenant turnover.
Vacation rentals often look awesome on paper because they are rented for a lot of money each week or month. However, seasons can play a huge part in the amount of rental income realized. Management fees can also be much higher than a typical rental. A lot of people want a vacation rental because they will save money on vacations for themselves. But remember, you will be losing rent if you use the rental yourself, and you might feel obligated to go to the same place over and over.
Commercial real estate
I should not lump all commercial properties into one category, but I am going to do it anyway. Commercial investing can be very complicated and is probably not the best place to start for most beginners. There are many different types of commercial real estate, from retail space to office space to industrial space to raw land. Commercial leases can be very complicated and extremely different from residential leases. However, there is some opportunity to add value to commercial properties that are not utilized correctly or under rented. With that said, I am starting to move toward commercial properties more than residential for my rentals, but remember this is a much more complicated arena.
Many real estate investors make a lot of money buying and selling land. I bought and sold a large piece of land in 2016 that I thought about developing into a subdivision. There are many other ways to make money with land and I have interviewed many land investors on my podcast.
Mobile homes are not my area of expertise, but again, I have interviewed many people who are experts in that area. When you invest in mobile home parks, you own the land—and sometimes the mobile homes. People rent both the land from you as well as the mobile home. Also, mobile home parks are not built anymore, and there is an opportunity to make money on mismanaged or under-rented parks.
How much money you need to invest in real estate
One of the most common questions I get about investing in real estate is how much money do you need? The answer to that question all depends on what type of investing you are doing, where you are buying properties, and what kind of loans you are using.
If you are buying rentals as an investor, you will have to put at least 20 percent down. However, it is possible to buy properties as an owner occupant and then turn them into a rental property with much less money down.
When flipping houses, it is possible to start with less money if you have a partner or find an awesome lender. It will take some initial investment on your part if you are a beginner trying to flip houses, that is unless you have awesome skill with finding deals or fixing houses. There are a lot of lenders who will finance part of the purchase price repairs on flips.
When wholesaling houses, you won’t need much startup capital, but you will need some. Most wholesalers find deals through direct marketing, which means you have to spend money on mailings, driving, etc. You won’t have to put 20 percent down on a house, but you will need at least a couple hundred dollars and a lot of effort.
- How to buy a rental property with little money down.
- How much money do you need to flip houses?
- How to flip houses with no money.
- How to find off-market sellers with direct marketing.
- How to invest in real estate with no money.
- How to buy rentals with hard money.
- How much money do you need to save before becoming a real estate agent?
What are the different types of loans you can get for real estate investments?
One of the biggest advantages of real estate is that you can get loans to buy properties. There are loans available for flips and rentals, but they are very different. Rental-property loans can be very similar to owner occupant loans, which have terms as long as 30 years. The interest rates are usually a little higher than owner-occupant loans…but not by much.
When flipping houses, the loans are much different. Banks do not like to loan money that will be paid back right away. For flipping loans, the term is usually one year or less and the rates much higher. Hard-money lenders are an option for fix-and-flippers, which allow investors to finance part of the purchase price and repairs.
- How to get financing on fix and flips.
- How to finance more than four rentals.
- How to find a portfolio lender.
- How to find a hard money lender.
- How to find a private money lender.
- What is a mortgage?
Why does investing in real estate help reduce taxes?
When flipping houses or wholesaling real estate, you usually pay taxes just as you would with a normal job. If you set up a business with a corporation, your taxes could be much different, but I am not an accountant and cannot provide specific tax advice.
Rental properties provide awesome tax advantages. When you own rentals, you can deduct many expenses, including the interest you pay on the mortgage. You can also depreciate improvements and the value of the structure of the property. Because you can depreciate the value of the structure, you can actually make money with rentals yet realize a loss on your taxes. If you ever want to sell your properties, you usually only pay the long-term capital gains tax rate, which is much lower than ordinary income. You can also use a 1031 exchange to defer taxes.
- What are the tax advantages of rental properties?
- How much in taxes do you have to pay on fix and flips?
- What is a 1031 exchange?
- How to pay no taxes when investing in real estate?
What do all these real estate terms and abbreviations mean?
There are a lot of real estate investing terms that many people are not familiar with. I created a glossary to help everyone, and I cover everything from the more unknown terms to the more common.
How to protect yourself when investing in real estate
Many people get hung up on starting a corporation before they start to invest. Should you create an LLC? Should you start a corporation? Sometimes the best thing to do is start investing and then if you enjoy investing and want to continue, figure out the corporate structure later.
- Should you put rentals in an LLC?
- What are Land Trusts?
- What is the best entity for Flips?
- Podcast on protecting yourself from liability.
Why do so many people think real estate investing is risky?
When you begin to think about investing, you will be bombarded by people who swear it is the most dangerous thing you could ever do and will tell you-you’re sure to lose all your money. Real estate investing is risky, just like any investment, but if you do things right, it is not nearly as risky as many people think. Most of the people telling you how awful real estate is have most likely never invested themselves.
- How risky is real estate investing?
- Who should you listen to when investing in real estate?
- What are the biggest mistakes I have made?
- Podcast what are the biggest mistakes I have made?
What should you know about real estate investing courses and training?
There is a lot of great online information about real estate investing. There are also a lot of shady characters looking to make money off of unsuspecting beginners. You will find hundreds, if not thousands, of real estate courses. The courses range from a couple hundred dollars to over $50,000! When you hear those advertisements for free seminars and lunch, those are the $50,000 seminars.
I have my own real estate investing courses and books as well. I make my books affordable in order to reach as many people as possible. I encourage people to read my books before they pay for any courses that I offer to make sure real estate investing is really what they want to do. You can find my books below, which are all available as paperbacks or as eBooks on Amazon. A few are even in audiobook format.
- Build a Rental Property Empire: the no-nonsense book on finding deals, financing the right way, and managing wisely.
- How to Change Your Mindset to Achieve Huge Success: Why your attitude and daily habits have more to do with making more money and having more freedom than anything else.
- Fix and Flip Your Way to Financial Freedom: Finding, Financing, Repairing and Selling Investment Properties:
- How to Make it Big as a Real Estate Agent: The right systems and approaches to cut years off your learning curve and become successful in real estate.
- The Book on Negotiating Real Estate: Expert Strategies for Getting the Best Deals When Buying & Selling Investment Property
- How to Buy a House: What Everyone Should Know Before They Buy or Sell a Home.
You can find my coaching programs, which do include phone calls with me, on my resources page:
Who will you need help from if you invest in real estate?
Not only do you have to learn how to invest in real estate, but you will also have to find reputable people to work with. You may need a contractor, a property manager, a lender, and a real estate agent.
- How to find a contractor.
- How to find a lender.
- How to find a real estate agent.
- How to find a property manager.
What’s the deal with all the real estate reality television shows and how accurate are they?
If you think real estate investing is anything like what it is on television, you are in for a surprise. Most of the shows that portray real estate investors, house buyers, or real estate agents are made for entertainment. They are highly inaccurate and leave a lot to be desired.
What about me? Why should I be trusted and what do I invest in?
As I mentioned, there are a lot of real estate coaches and programs out there. I pride myself on being someone who teaches and is active in the business today. If you are curious about me, I have 14 rentals, have flipped over 120 houses, have 6 licensed agents on my real estate team, and have published numerous best-selling books. In 2017, I plan to flip 30 houses, which I think makes me very active in today’s market. Many of the people pushing programs online stopped investing years ago and only focus on teaching.
What are some other ways to invest in real estate?
I have covered a lot of information in this guide, but I really only scratched the surface. There are many more ways to invest in real estate, and I have included some of them below.
- How to invest in tax liens.
- How to invest in real estate notes.
- How to invest in real estate with private money.
- How to invest in real estate with crowdfunding.
Things that have nothing to do with real estate investing
I have a few other interests that I talk about on the blog that have nothing to do with real estate investing. I am a huge fan of personal improvement, and I believe our attitudes affect our success. I am also a huge car nut and have written about how real estate helped me buy a couple of pretty cool cars.
Thank you for checking out my guide to real estate investing. I covered a lot of information, and like I said, I barely scratched the surface. If you want to get a free eBook from me, all you have to do is leave your name and email address below. Not only will you get the free book, but you will also receive updates whenever I post a new article. You’ll also receive a few helpful emails from me that will help you invest better.