Getting Into Real Estate Investing

Do You Need A Real Estate License

You do not need a real estate license to begin investing in commercial real estate, though it can open doors professionally. Obtaining your real estate license and managing transactions on the side can help you build professional connections within the industry and earn money through commission in the meantime. For many investors, these funds can go directly towards purchasing commercial properties and building their portfolios.

That being said, there are training hours, exams, and more that are required to obtain a real estate license. It will be a time commitment to even start practicing as an agent, which can be tricky if you are already starting to build your investment portfolio. Some investors will opt to build a network with real estate agents rather than pursuing their own license.

Stop Being Scared You Already Get Real Estate

You have been a tenant in your life so unless youve been living in the deep woods your entire life, you already get the gist of investing in real estate.

You buy a place, and you rent it out for money. Ta-da! Thats basically the whole process. Sure theres a learning curve, but its kind of like riding a bike. It all feels like a big deal until it doesnt.

Yes, repairs can be annoying, but theres no problem that hasnt been solved before. Plus, if you do your due diligence before buying the place, you wont bump into any savings-draining surprises.

And yes, mortgages can feel intimidating, but its not rocket science. If anything, people make it look complicated on purpose but mortgages are the real reason why it is good to invest in real estate.

Choose A Specific Real Estate Investing Strategy

At this stage, you could create a 30-page business plan that even an MBA would be proud of. But remember, the goal is just to get started. So, lets begin with something quicker. You can create a big, detailed plan later if you want.

For now, just choose ONE real estate strategy that will help you move from your current financial stage to the next stage .

Starting with one specific strategy doesnt mean you wont have detours or even a complete change of direction later. Life happens, and you have to be flexible. But starting with just one will help you focus. And this will give you the confidence to get started.

I wrote an article with the 15 best real estate investing strategies. But below is an abbreviated menu of suggested real estate strategies that you can choose from depending upon your wealth stage:

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A Strong Inflation Hedge

With US inflation at the highest rate in 40 years, anyone paying attention is probably worried about the future value of their investment portfolio.

People always need places to live – which drives strong underlying demand for housing. Ã But what is it that sets real estate apart as such an effective hedge against inflation rate?

According to Zillow, the typical observed market rate for rent has increased 16.8% in the past year and 31.5% in the past 5 years.

Pros And Cons Of Investing In A Commercial Real Estate Market

There are always two sides to the coin. There are always cons with pros. As much as commercial real estate is beneficial, it can also pose a lot of disadvantages to the investor. The following table lists some of the important and commonest pros and cons of the investment in commercial market:

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Fractional Real Estate Vs Reits

Real estate investment trusts have long been the popular option for passive investors to gain exposure to real estate, but this type of real estate investment is still vulnerable to stock market volatility.

For example, the leading single-family rental REIT Invitation Homes Incs share price is down roughly 20% so far in 2022, while its real estate portfolio, rental revenue and funds from operations have increased and its net debt has decreased.

Fractional real estate, on the other hand, has very little correlation with the stock market. This means that overall investment returns are typically more predictable and stable.

The lower volatility does come with a trade-off, however. Since shares of fractional rental properties arent traded on a stock exchange, liquidity options are typically more limited. There arent many options yet for secondary trading, whereas shares of a publicly traded REIT can normally be sold instantly during trading hours.

If one of your investment goals has been to start investing in real estate, you can now find available properties and become a landlord in minutes without having to get pre-approved for a mortgage or get into bidding wars with other home buyers.

See more from Benzinga

Traditional Real Estate Investing

The first option is in traditional real estate investing, which involves buying rental properties and renting them out to tenants.

Traditional real estate investing is a popular way to grow your wealth, but it also comes with some cons that you should look at before you make the leap.

Traditional real estate investing requires searching dozens of listings and visiting several properties before you decide on the right property suitable for rental purposes.

Aside from that, you will also spend a considerable amount of time searching for tenants, showing the property to tenants, and staging the home when showing the properties to tenants. Maintenance and property management are often overlooked duties that are vital to successful rental real estate investments.

If you decide to purchase the home as an owner occupied home, there is an additional risk where you are responsible for a large mortgage loan on the property with a substantial risk in the event of a decline in the housing market.

While these risks are not enough to turn someone off entirely from traditional real estate investments, you have to know what you are getting yourself into before you make the decision.

A newer option to get started down the traditional real estate path is Roofstock. Roofstock allows you to buy cash-flowing single family homes across the United States. You can fully purchase your rental properties online, and they have tools to help you manage them as well.

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How You Take No Hype Real Estate Investing

The best part about this course is that it is self-paced, completely open, and evergreen. You can enroll at any time . You can take the entire course this week, or you can spread it out over a month or even a year. There are already over 27 hours of material in the course, and we’ll add to it from time to time going forward at no additional charge to previous purchasers. There is no ongoing cost, and as always, there is a money-back guarantee.

Yes, this information can all be learned somewhere else. I don’t pretend to have exclusive access to the one true way to invest in real estate or any particular real estate secrets. The value here is in having it all compiled in one place and explained clearly in a way that will allow you to get started right away.

What Is Your Risk Tolerance

Investing, in general, is pretty risky. But there are some forms of investment that are much riskier than others. At this point, it is important to determine how much risk you want to take.

For example, buying properties and selling them for a profit carries a big risk. This is because you are carrying the assumption that you will be able to pay back the initial investment and make a profit as well. If the market falls while the property is in your possession, your profit margin becomes very thin and might just disappear.

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Trade Or Flip Real Estate

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After youve been in the real estate investing game for a while, you get to know what youre doing. For investors ambitious enough to embark on construction projects, trading or flipping real estate can bring in big returns in just a few months.

Heres how it works: an investor buys an undervalued residential property, renovates it, then sells it at a higher price.

Its possible to be a pure property flipper who leaves their purchase unrenovated and waits for the market to improve. This strategy is also known as hold and resell. Properties should already be in good condition and located in markets that are on the upswing.

Selling isnt guaranteed, of course, and youre still on the hook for the mortgage if you cant get tenants or buyers.

House flipping is best for seasoned real estate investors who know how to hedge their bets with the local market. You should be able to:

• Assess a propertys current AND potential value.
• Estimate repair costs as accurately as you can .
• Tap into cash reserves if you need more than you thought.
• Land on a price that hits the sweet spot of being attractive to buyers while making you a profit.

Prepare A Conservative Cost Estimate

As a new investor, expect some expenses and expect them to easily add up. You may end up covering closing costs, as well as spending on renovations and general fixes. These kinds of operating costs dont mean youve made a bad investment. Rather, it just goes to show you can underestimate your expenses.

While you can predict essential costs such as property taxes and insurance, other expenses are a little more difficult to foresee. This is part and parcel of being a real estate investor. As such, experts recommend preparing a minimum fund of about one to two percent of the propertys purchase price to help you cover any additional costs.

Learn Common Real Estate Terms

Another thing you need to do in preparation for real estate investing is to familiarize yourself with industry jargon. Youll likely come across terms and acronyms like amortization, leverage, 1031s, REI, REITs, NOI, and LTV, among many others. Its important to learn about the language real estate professionals use and understand why they matter. It will help you feel more confident in your business and be in a better position to make informed choices.

Research on Different Locations

Have an Investors Mindset

Conversely, you can also purchase a property based on the kinds of tenants you want. For example, you may want to invest in properties that can be a home for a retiree, a family with kids, or a young professional.

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Identify Your Financial Stage

Real estate investing is simply a vehicle to improve your finances. So, before we get into the details of real estate, lets think about your overall financial picture.

Most new investors eventually want to reach financial independence. You can think of this like the peak of the mountain where your living expenses are all covered by income from investments.

The fundamentals of climbing this mountain are the same whether you invest in real estate or anything else. To reach the peak of the mountain faster, you simply have to increase your savings rate. You can then invest those savings into your chosen assets, like real estate.

Ill suggest a couple of specific real estate strategies that help with your saving rate in the next section. But for now, you need to identify where you are on the financial mountain. Are you at the very bottom ? Half-way up? Or near the top?

My article Real Estate Investing For Beginners explains these wealth stages in more detail.

You want to know your current stage because depending on where you are, certain real estate strategies will make more sense than others. Ill explain some of those strategies in the next step.

So, after thinking for a moment, decide which stage fits you best. Dont worry, it doesnt have to be perfect. Then lets move to Step #2.

Should You Invest In Real Estate

Over time, real estate investing has been proven to offer strong, long-term returns. Further, the performance of the real estate sector is not necessarily correlated with the stock market, and it can serve as a great way to diversify your portfolio.

Real estate is also a type of investment that is highly functional. For instance, you can live in your starter home while renovating it for profit. You could also invest in a great vacation rental that not only pays for itself but allows for your personal use on occasion.

If you decide to invest in real estate, know that you wont necessarily enjoy short-term returns. It is a big financial commitment, but can bring you tremendous rewards in the long-run.

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Solving The Hype Problem

This is where The White Coat Investor and No Hype Real Estate Investing comes in. As doctors seek financial freedom through real estate investing, they might move forward too quickly and fall into the hype machine that is the real estate investing world. This causes them to take on too much risk with too little knowledge and experience in an effort to grow their portfolio even faster. When the real estate market inevitably stumbles, I fear that too many of them will be the metaphorical naked swimmers caught by the outgoing tide.

We’ve decided to do something about it here at The White Coat Investor. We know that real estate investing works. But we also know that risk control is the most important aspect of investing. We want to provide white coat investors with a no-nonsense, no-hype, practical real estate investing education. We want it to be added on to an already well-thought-out financial plan. We want people to take on an appropriate amount of risk for their investing goals and, most importantly, to match their style of real estate investing to their interest, time, willingness to work, amount of wealth, goals, and experience level.

Decide Your Investment Property Criteria

Your investment property criteria tell you and others what it means to have a good investment. I actually recommend creating a written investment profile that you can share with potential partners, investors, and sources of leads like real estate agents.

Your written investment profile should include descriptions of two major categories:

Your target property will become clearer when you choose a niche within your overall market. A niche means you focus on one smaller segment of the entire market. I discussed that some in Step #3, but you can also explore your choice of a niche with my in-depth article The 35 Best Niches for Investing in Real Estate .

When youve chosen a niche , your basic target property description may look something like this:

Single family houses with 3 bedrooms and 2 baths in the 30263, 30265, & 30277 zip codes. Target full market price range is between $120,000 to $199,000. Ideal properties are on quiet, safe streets convenient to schools and shopping. Ideal properties also include a garage or other storage and a useable yard.

The second category on your investment profile is the ideal terms . I wrote a comprehensive guide called How to Run the Numbers For Rental Properties Back-of-the-Envelope Analysis. This will show you how to quickly determine the most important investment numbers for you.

The ideal terms you choose will depend on the choices youve made up to this point, but they could look something like this:

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Read About Real Estate For Beginners

If you truly want to start a real estate business, learning as much about the industry as possible is crucial. There are countless investing books, blogs, and magazines that are a great place to start. While there are a ton of options out there, try not to overwhelm yourself at first. Instead, try grabbing a few investing books or subscribing to a real estate newsletter and designate just 15 minutes a day to reading something new. One thing all successful real estate investors have in common is that they never stop learning. This continual education mindset will serve you well throughout your career as an investor. Check out this list of real estate investing books for a few recommendations to get you started.

Buying A Rental Property

Buying an investment property is the basic approach toward real estate investing, with renting being an obvious method to bring cash in. The landlord receives rent from the tenant to receive cash flow after covering the costs associated with owning a property. These costs include mortgage payment, taxes, and maintenance. The rent is often fixed to accommodate a premium over the costs to the owner of the property.

Pros of Buying and Managing Properties

Owning your own real estate where you can control rent could be more lucrative than simply investing in an REIT or crowdfunding platform. In this scenario you are in control of your own situation and can stand to make substantial money. Property owners also have numerous tax deductions they can work with to reduce their tax bill when tax season comes along.

Cons of Buying and Managing Properties

While this type of real estate investing can yield huge returns, it can also yield huge losses if you are not familiar with what you are doing. You will want to put a lot of effort into researching the property you want to buy, but also the neighborhood its in. You want to make sure you are buying a property that will appreciate in value and in a place people want to live.

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