How To Start Investing in Real Estate: A Beginner’s Guide

The real estate market is booming like never before, and now is the best time to invest in real estate. Real estate is and has been a major market for a long time and the pandemic only expedited real estate trends. 

There are a lot of different ways to start buying investment property, and it might be confusing. The key is to figure out the best plan property for a good return on investment (ROI). 

We'll walk you through the simple steps on how to start investing in real estate in this in-depth beginner's guide.

Table of Contents:

What Is Real Estate Investing

Real estate investing refers to the purchase, ownership, management, rental, and sale of real estate for profit. Buying investment property might be as simple as purchasing a publicly-traded real estate investment trust (REIT) or funding a more complex NNN property

Over the last 50 years, the real estate market has grown in popularity and has evolved into a widespread investment vehicle that provides a variety of real estate investment opportunities. The National Association of Realtors estimates that American families own $22 trillion in real estate assets.

How To Get Started in Real Estate Investment

Buying investment properties can be tricky especially if you are unfamiliar with the real estate industry. While real estate investing has been around a long time, it is not necessarily an easy area to enter. The best way to invest in real estate is to first have a good strategy. A good strategy starts with a strong real estate market. 

The best real estate markets for 2022 according to PWC's Emerging Trends in Real Estate 2022 list are:

  • Nashville
  • Raleigh/Durham
  • Phoenix
  • Austin
  • Tampa/St. Petersburg
  • Charlotte
  • Dallas/Fort Worth
  • Atlanta
  • Seattle
  • Boston

Below is a step by step guide on how to get into real estate investing:

  1. Choose your investment strategy
  2. Calculate your ROI
  3. Prepare a business plan
  4. Find a lender
  5. Analyze profits and losses

1. Choose an Investment Strategy

As a real estate investor, choosing a strategy will determine what real estate investments to make. For example, do you want to make money from renting property, build a portfolio of rental properties, or start investing in a REIT?

Your goals will determine how you approach each project and how much time and money you devote to it.

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In this first step, we’ll look at the 5 best real estate investments. 

Fix and Flip

For years, the fix and flip model has been a staple in the real estate investment world. This concept entails owning rental houses or other properties in need of repairs, renovating them, and then reselling them for a profit.

One of the most significant advantages is that you don’t need to manage tenants or make long-term obligations on a property.

Fix and flip is one of the easiest models if you want to make money from renting property. You can fund your fix and flip projects without using your own money by using investor loans or hard money financing methods.

Best for: New and experienced investors with or without their own capital.

Term Rental

This is the most common buy-and-hold real estate investment strategy. A term rental is a single-family home or condo that's rented out on an annual lease basis. Term rentals are properties that are rented for long periods (typically 6 months or more). Keep in mind that term rental investments often require a large amount of capital upfront, which may not be feasible for beginners.

Best for: Experienced investors with capital who are looking for a passive rental income and can take care of the day-to-day operations.

Small Balance Commercial

These commercial real estate properties are usually leased to tenants and cost between $250,000 and $5 million to purchase. They can range in size from two – 50 units and include office buildings, retail establishments, and industrial operations. Small balance commercial provides monthly cash flow and the possibility for tax advantages such as depreciation and interest rates deductions.

Best for: Investors who are looking to diversify their portfolio and enjoy different real estate investment opportunities.

Build to Suit

Build to suit is an agreement between the tenant and the landowner whereby the real estate property is built as per the tenant’s specifications. You’ll need to design the property to meet the tenant’s expectations and once the development is completed, the tenant becomes the property manager. 

Best for: Experienced investors who have the capital to build custom-designed properties.

Ground Up Construction

One of the most profitable ways to invest in real estate is through ground up construction. It costs money to construct a building from scratch (more than fixing up an existing building). However, if you have the right capital and expertise, it can generate incredible returns and thousands of dollars.

Best for: Experienced investors who know have a thorough understanding of construction and zoning regulations.

2. Calculate Your Returns

The return on investment (ROI) is the cash flow from your rental property minus the operating expenses divided by your original investment. For example, if you have a cash flow of $200 per month, your operating expenses are $100, and you spent $20,000 buying and repairing the property, your ROI would be:

ROI = (cash flow - expenses)/original investment
ROI = ($200 - $100) / $20,000 = 0.06%

The higher the ROI is above zero, the better you did in making the best real estate investments. You can also express this as an annual percentage rate (APR). In this case, it would be approximately 6%.

There are 5 metrics to calculate ROI:

  • Cash flow
  • Cash on cash return 
  • Net operating income
  • Cap rate
  • Appreciation bonus

It’s important to note that different investment strategies have different expenses. If we take the case of term rental properties, the expenses are as follows:

  • Maintenance: including ongoing repairs such as plumbing, painting, or pest control
  • Capital Expenses: including improvements on the rental property such as replacing the roof 
  • Utilities: including internet, water, sewage, and electricity (10% – 20%) 
  • Vacancy: including advertising and marketing costs (7% – 8%)
  • Property Management: including repairs, managing vendors, assisting tenants’ requests, and making sure the tenants are adhering to the housing laws and rules (8% – 12%)

3. Build a Business Plan

A real estate business plan is a document that lays down the foundations for the company’s activities. It's also the yardstick by which a business owner measures success in meeting stated targets.  

Your business plan should include these essentials elements:

  • Your Business profile 
  • Market analysis 
  • Value proposition 
  • Long term goals 
  • Financials + forecasted revenue 
  • Funding request

How To Learn About Real Estate

Real estate investment opportunities are everywhere and the more you are well versed in the market, the easier it will be to integrate and navigate. You can learn more about how to start investing in real estate and the best way to invest in real estate through the resources below:

4. Find a Lender

When looking for a lender for investing in real estate, you want someone who has experience with the real estate market and knows how to navigate its complexities. You'll obtain the best results if you work with a lender who is familiar with the following topics:  

  • How to get into real estate investing 
  • How to make money from renting property 
  • How to gain access to a variety of real estate opportunities

Revolution Realty Capital is a partner who will assist you on how to get started in real estate investment. 

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5. Analyze Profits and Losses

Like any other investment, it's important to review the profits and losses that you’ve made to check if you are being profitable or not.

Let's say you buy a house for $100,000. You put $10,000 down and take out a loan for the remaining $90,000. You then spend another $20,000 on repairs before selling it for $130,000. How much did you earn?

Add your costs to find:

  • The original purchase price ($100,000)
  • Repair costs ($20,000)
  • Closing expenses (2% of sale price = $2,600)
  • Interest on the loan ($90,000 X 5% = $4,500)
  • A loan origination charge of $900 (1 percent of the loan amount)

That gives us a total cost of about $128K. Now subtract that from your sale price ($130K). You end up with about $2K in profit from the sale.

If you’re ready for the real estate market, we hope that our guide has served as a valuable introduction to how to start investing in real estate. Finding the best way to invest in real estate shouldn't be difficult, but rather a rewarding experience, as long as you have the right real estate partner on your side.

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Key Takeaways

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Daniel William

Co-Foundet Acme Corp

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