How to Start Investing in Real Estate

Are you ready to start making money? Real estate investing can be an incredibly profitable space for both seasoned investors and beginners. You don’t have to be a multimillionaire with an impressive investment portfolio to break into the space – even average investors can make money getting started in real estate investing.

Getting started investing in real estate doesn’t mean you have to buy an apartment building or purchase a house to flip. There are a number of ways to get started with little experience and a smaller investment. Being new and inexperienced gives you the freedom to learn and try new things before you decide what kind of investment best suits your lifestyle and financial expectations. Use your inexperience to your advantage as a way to learn from experts and seasoned investors.

With so much happening in real estate, where is the best place for a complete beginner to start? It all depends on how much time you are willing to spend on your investment and how much money you would like to invest up front. Here are a few suggestions to get you started investing in real estate…

Start With a Self Assessment

Before spending money or committing yourself to an investment take some time to ask yourself a few questions about what you are expecting. Jumping in head first is rarely a good strategy when it comes to investing, or anything. Getting started with a mistake can put you off an avenue of investment that could actually be beneficial to your life and portfolio. You want to get yourself started by heading in the right direction.

Establish a starting point by asking yourself…

How much money am I willing to invest right now?
How much involvement am I comfortable with?
What are my strengths and weaknesses?
What are my financial goals?
How much time am I willing to commit?
How much of a risk am I comfortable with?
Am I okay being passive or do I need active involvement?

Once you have done a little self-exploration you have a better idea of what kind of investment you should gravitate toward. For example if you don’t want to invest a lot of money up-front and don’t have a lot of extra time then flipping a house probably isn’t the avenue to explore right off the bat. There is an option available for any kind of investor at every experience level.

PRO TIP: Ready to start making money in real estate? Finding an investment property can be the fastest and safest way to get started. Check out our investment property guide.

Purchase REITs

A great starting point for beginner investors is getting involved with real estate investment trusts (REITs). Real estate investment trusts are very similar to stocks in that you are buying into a company or project and are making money through appreciating prices and dividend distribution. You even purchase REITs the same way you would purchase stocks through your brokerage account.

You can choose to invest in one of 225 public REITs that include residential property, commercial property or both with many specializing in specific sectors like office spaces, residential, healthcare, retail and more. There are also plenty of private REITs, but those are a little more risky because you cannot engage in the same kind of analysis as you can with a public REIT.

How they work is essentially you invest your money in an organization that is purchasing, managing or updating a property and then you earn based off of your investment when that property appreciates. You don’t have to know a whole lot about real estate investing to get started with REITs and you aren’t stuck if it doesn’t suit you or pay off in the way you expected.

Pros

A great place to start for beginners because it doesn’t require a huge investment or any know-how in the real estate industry.
A great way to diversify an existing stock portfolio.
Investments are liquid so you can easily get out if you want.
Can produce a high yield.
Many options to invest in and generally lower volatility than other investment spaces.

Cons

Investments will be long term commitments to see the kind of payout you expect.
REITs are generally taxed at a higher rate and are subject to the fluctuations of interest rates.
Growth is limited because most of the profit is seen as dividends.

Rent Out a Room

If you are interested in rental properties a great way to dip your toe in is to rent out a room of your home or your whole home using a platform like AirBnB. While this might not seem like traditional real estate investing it certainly is. This is a great way to start slowly and learn about what it takes to maintain a rental property but at a much smaller scale and without a lot of the risks.

If you’ve never used AirBnB before just download the app and see what others are doing. Chances are you probably know someone who has listed a home or room using the platform – talk to them and see what they suggest for getting started and being successful.

Pros

A great first step to gain experience and learn about the day-to-day issues of managing a rental property.
Easy to stop and start for any skill level.
Get paid after each stay without tons of extra cost.
Working with a platform like AirBnB is inherently less risky for you.

Cons

Not going to make you a lot of money listing one room or one property sporadically.
May disrupt your day-to-day life if you rent out a room in your home.
Can be time consuming managing bookings and keeping up with cleaning and staging.

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Use a Crowdfunding Platform

One of the newest ways to get involved in real estate investing is through a real estate crowdfunding platform. Platforms like CrowdStreet and LendingClub pair real estate developers with investors they may not be able to connect with otherwise. These platforms function like many other crowdfunding platforms except these are specifically for the real estate industry.

Since this is a relatively new idea in the industry it is still growing and evolving. Crowdfunding platforms allow investors to get involved in projects with small amounts of money with a lot of choices. As of right now only accredited investors can take part in this kind of investing per the SEC. But even with the restrictions it can be a great opportunity if you qualify.

If you are an accredited investor getting started is easy and just requires a little bit of research into both the crowdfunding platform itself and the developers you are investing in. You want to make sure that the platform itself is solid and stable and the project you are investing in is worthwhile. You are sure to find a worthy project if you do your due-diligence.

Pros

You don’t have to put down a lot of money. Investments as small as $500 are common in this investment space.
You can choose from a wide variety of residential and commercial projects.
You can work directly with those who are actively developing the project.
Returns can be high if you are patient.

Cons

You have to be an accredited investor to invest right now.
Your investment is not liquid.
It can be risky if the deal deteriorates.

Invest in a Small Rental Property

If you learn better by being hands-on and if you have the capital on hand you can start small with a small rental property like a single home or a home with only a couple of units. You can also purchase a larger property in which you also live and rent out the rest.

This is a good option for someone who would rather hedge their bets on themselves rather than invest in a project they don’t have a lot of control over. Starting small at first is a great way to gain knowledge and experience without overloading yourself. Through this process you will learn about what it takes to maintain a rental property and whether or not this is something you would like to do yourself or delegate to a property manager in the future.

Even with a smaller property this is no small undertaking and should be approached with that understanding. You won’t just be dealing with a building, you will also be dealing with other people.

Pros

You have control over your success and can choose exactly how you want to run your investment.
Can make it easier to jump in and purchase more properties down the road.
This physical investment can gain value the longer you own it.

Cons

Requires a larger up front investment.
Can be time consuming making sure the building meets local requirements, is well maintained and is always fully occupied by tenants.
There is always a risk of legal issues and damage when dealing with tenants.

Try Invelo for Real Estate Investing

If you are currently buying investment property, whether flipping or renting, or if you are thinking of becoming a real estate investor, you're going to need a tool to manage prospects, market to leads and convert deals. There are many tools available for this, but very few address the four key aspects of real estate investing:

Finding Prospects - Use our built-in list builder with over 150 million property records to find target prospects that meet your specific criteria. Select from dozens of data points to optimize your list.
Marketing to Leads - Use built-in marketing campaigns to send direct mail, ringless voicemail, email, sms and more. Setup filter criteria to automatically find new prospects and add them to campaigns as they get added to your database.
Manage and Convert Opportunities - Track every step of the deal lifecycle including skip tracing to find better contact information, adding notes and setting tasks so you never miss an opportunity to close a deal.

On top of that, Invelo is unique because it has intelligent automation and built-in education. There is no reason to reinvent the wheel. Tons of investors have already figured out the best practices for finding, marketing, contacting, negotiating and closing real estate deals. Invelo has integrated all of this learning in to educational training and automation so you can "set it and forget it".

Invelo has a forever free account -- try it instantly and see what Invelo can do for you.

Flip a Property With a Partner

If you don’t have a lot of experience in real estate investing but do have experience in construction and design it might be a more natural choice for you to buy and flip a house. If this is your avenue of choice it might make more sense to partner with someone who has more investing experience and work together.

This is an avenue to explore if you have the money on hand to make it happen. Flipping houses is a time consuming effort but often a shorter term investment.

Pros

A great way to learn.
Often a short term investment that can pay off in a matter of months.
Returns can be high if you make the right choices.
Very hands-on if you like having control over your investments.

Cons

Requires a big financial commitment.
Includes many moving parts that require outside expertise.
Can get held up easily.
Will require a lot of your time.

Final Thoughts

Real estate is a great place to start investing whether you are an expert or a novice investor, all you need to get started is some money and a willingness to learn. Regardless of the route you take, making sure you are knowledgeable of whatever part of the industry you are engaging with is the smartest way to start.

Before you quit your day job make sure that you know what you are getting yourself into and know that it is something you can genuinely be successful in. Only you know what method of investing fits your lifestyle the best. There is nothing wrong with trying and failing if you learn something in the end.