How To Get Involved In Real Estate Investing

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Set Your Business Goals

Before you hit the ground running, take time to evaluate and prioritize your plans for the future. This means thinking through your personal, professional, and financial goalsas these will influence how you start and build your real estate investing business. Start by asking yourself where you plan to be in five, ten, and fifteen years. Then, strategize more immediate steps to help you get here. The importance of this process cannot be overstated. Goals not only help investors stay focused, but they also help them take action.

One framework I find particularly helpful is SMART goals. This stands for specific, measurable, attainable, relevant, and time-bound. Essentially, it helps investors balance ambition and action steps as they plan out the future. SMART goals operate in both short-term and long-term frameworks, making them perfect for any starting point. For more information on setting SMART goals, be sure to read our guide today.

Real Estate Mutual Funds

Real estate mutual funds invest primarily in REITs and real estate operating companies. They provide the ability to gain diversified exposure to real estate with a relatively small amount of capital. Depending on their strategy and diversification goals, they provide investors with much broader asset selection than can be achieved through buying individual REITs.

Like REITs, these funds are pretty liquid. Another significant advantage to retail investors is the analytical and research information provided by the fund. This can include details on acquired assets and managements perspective on the viability and performance of specific real estate investments and as an asset class. More speculative investors can invest in a family of real estate mutual funds, tactically overweighting certain property types or regions to maximize return.

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What Every Real Estate Investor Needs To Know About Cash Flow By Frank Gallinelli

This book, What Every Real Estate Investor Needs To Know About Cash Flowis all about crunching numbers. You’ll learn how to value a property using a wide variety of metrics, so you can make confident, data-driven decisions. Not sure what a “profitability index” or “capitalization rate” is? Time to find out using one of the best real estate books for beginners!

What Are The Potential Benefits Of Real Estate Investing

Although no type of investment can offer a guarantee of a profit or even protection of the principal, historically real estate has been one of the safest asset classes for investors, while at the same time offering potential for gains.

Real estate investing offers several possible benefits generally not associated with other types of investments. Here are just a few of those benefits.

Leverage

One of the most powerful opportunities real estate investing offers is the ability for investors to leverage their capital several times over. In other words, real estate investors can use borrowed funds to invest in a piece of real estate they could not afford to purchase outright, but then realize all of the potential profit from ownership of that property. It is also important to point out, however, that with increased leverage comes increased risks.

Tax Advantages

Real estate can also provide several types of tax benefits. For example, the government treats real estate profits as capital gains, which are taxed lower than employment income. Additionally, the tax basis of your investment properties can decrease with time, because the tax code allows you to depreciate your real estate every year. Also, if you are generating cash flow from a rental property, you can potentially enjoy those profits free of self-employment taxation.

Control

Real Estate Investing Risks

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Go Big And Rent Out An Entire Property

If youre a go big or go home kind of person, buying a second property to rent out could be an option. This option requires a large upfront money investment, and lenders dont always offer the same mortgage terms for a second home.

As the landlord, all the upkeep and property maintenance will be your responsibility. And the same thing goes for any evictions or other potential headaches if your tenants turn out to be a bad fit. Renting out an entire property can take a lot more day-to-day work than most people realize. Again, renting out a property is a lot of work. Be sure that youre up to it before you take the plunge.

If youre ready to be a landlord and youre connected to a skilled network of professionals and resources, you could end up with a steady stream of passive income.

Real Estate Investing Through Notes And Tax

I saved these real estate investment categories for last because theyre mainly for more sophisticated investors, who arent afraid of risk.

Both can be highly profitable, but the payback can take several years. You have to invest with money you dont need right away, and also be prepared to go through the foreclosure process in order to get paid.

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A Strategic Investment: Your Home

The average person is going to get their first real estate ownership experience the traditional way by purchasing a home. This isnt an investment in the same way as an apartment building. Its more of a strategic investment. Think of a home as a type of forced savings account that gives you a lot of personal use and joy while you reside in it.

Outright ownership of a home without any debt against it as you approach retirement is one of the best investments you can make. The equity can be tapped through certain transactions such as reverse mortgages, and the cash flow saved from not having to rent generally results in net savings.

Money saved from free-and-clear home ownership as opposed to making monthly rental payments prompted economists to try to figure out a way for the federal government to tax the cash savings, considering it a source of income even back in the 1920s.

No one can foreclose and evict you from your home as long as you can pay the property taxes in times of personal financial difficulty. Theres a level of personal safety and security here that matters. There are times when financial returns are secondary to other, more practical considerations.

Invest In Rental Properties

If youâre looking to make a major commitment to investing in real estate, consider purchasing rental properties. Rentals can offer steady cash flow as well as the possibility of appreciation over time, but they are one of the most labor-intensive methods of real estate investing.

There are two main ways to make money with rental properties:

• Long-term rentals. These properties are generally designed to be rented for at least a year and in theory provide a steady monthly cash flow, though this depends on your tenants being reliable. You might buy a multi-unit property or a single-family home that you rent to others.
• Short-term rentals. These properties cater to rotating tenants whose stays might be as short as one night, like Airbnb. You might list your entire home or apartment when youâre away, or you could invest in a separate property meant only for short-term rentals.

While investing in real estate with rental properties offers greater profit potential, it also requires a great deal of effort on your part. You need to find and vet tenants, pay for ongoing maintenance, take care of repairs and deal with any other problems that arise.

You can reduce some of these headaches by hiring a property management company, but this will cut into your returns. When it comes to financing rental properties, the resources and low interest rates available to primary residences may not be available. This can make buying rental property more expensive.

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Form A Real Estate Llc

A limited liability company refers to a business structure set up to protect business costs from interfering with an investors personal finances. The designation allows investors to purchase and own real estate, without involving personal liability. Each state has different fees and regulations associated with establishing an LLC, though the overall process is largely the same:

After you form your LLC, a few other permits may be required before you can officially open for business. Confirm with your state what these are, and youll be on your way to securing your first deal.

What Do You Think

These days you can invest in just about anything and you should do what feels right for you. Personally, I love real estate, but I know not everyone else does.

If you have been thinking about trying your hand at real estate investing, its good to know that theres more than one way to go about it. Nevertheless, its important to do your due diligence before beginning with any new investment.

Which of the ways to invest in real estate have you tried?

Alexa Mason is a freelance writer and wanna be internet entrepreneur. She is also a newly single mom to two beautiful little girls. She chronicles her journey as a single mom trying to make it big at www.singlemomsincome.com.

Editorial Disclaimer:

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Getting Started In Real Estate Investing

The first step in learning how to become a real estate investor is to gain knowledge about the real estate market. This involves practical experience, mentorship, and individual study. You need to understand the risks, analyze expenses, build your network, and determine your personal real estate investment strategy.

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Rent Out Space In Your Home Or On Your Property

This is probably the easiest way to make money in real estate through direct participation. If you already own a home, you can pick up some extra income by renting out space.

Im saying space for a reason. Most people think in terms of renting out a room to a border. Thats one way to do it.

You can also rent out part or all of any of the following:

• Your basement
• An outbuilding on your property
• Driveway
• A corner of your land

Any of these rental arrangements can provide an extra income source, in the same way as renting a room to a border. People and businesses have all kinds of space needs. In a lot of cases, they just need extra space to store their stuff or vehicles.

This is easier to do in some locations than in others.

If your home is located in a rural area, an older downtown area, or in a community that has lax property use restrictions, this can be a real alternative.

But if you live in a suburban area, with tight property use restrictions, youll run into legal obstacles. And if you live in a neighborhood with a homeowners association , dont even think about it.

But if your house is located in the right area, and you have extra space, this is a pretty easy way to make extra money in real estate. Knowing where to invest in real estate is key to success in your real estate ventures.

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How To Start Investing In Real Estate: The Basics

Real estate can be a valuable addition to an investment portfolio. Not only is each piece of real estate wholly unique, theyre not making any more of it. Real estate is a great way to enhance your investment, no matter what type of real estate investing you pursue.

There is a huge range of options for real estate investors, whether you want to be a very hands-on investor or a completely hands-off one.

What Are The Risks

Consider these risks before choosing to dive into a real estate partnership:

• Work styles or opinions may Inviting another person into the fold can create personality or management-style conflict.
• Partners may not contribute evenly to the When partners dont contribute to their share of the workload, it can cause complications. One partner may feel like they deserve more capital for the amount of work put in, which could lead to that partners early exit from the relationship. You can mitigate this risk by making sure the partnership agreement is clear from the beginning.
• Earnings will be divided. Splitting earnings could completely undermine cash flow earnings between partners, particularly in a bad real estate environment or lackluster investment.

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Why Would A Seller Choose One Over The Other

Lets look at a few circumstances and reasons that may persuade a seller to decide one way or another.

• With an Option, the seller can continue to live in the house. At the same time, he/she will continue to make the monthly payment and take care of all maintenance and repairs. The seller may not want to accept monthly payments, with the idea of someone else is living in their house. While they may be motivated to sell, the thought of someone else eating dinner and walking around naked where they raised their children may be too much for them to handle.
• They may not have the time required for a Lease Option. If a seller is ten months behind on their payments with foreclosure knocking on the door, and you dont want to make up those payments and there is still a TON of equity in the house, an Option may be your only choice, short of paying cash.
• With a straight Option the seller has nothing to lose. You have a set amount of time to buy their house, which you will only do if and when you find a buyer at a higher price than you have an Option for. In this type of transaction, your target audience is not the B/C credit buyer, but rather the individual with cash or the ability to go to a bank and get a loan.

Purchase A Rental Property

Source: Grand Warszawski/Shutterstock.com

The residential real estate investor with time to commit canbuy a property and become a landlord.

This means monthly income, as long as you can find tenants, and its one of the most common ways to make consistent money in real estate.

You can choose between single-family or multifamily properties. Michael Albaum, a Program Manager at Roofstock, an online real estate investment marketplace that frequently works with new investors, recommends single-family properties as a good starting point.

Youre going to make mistakes, and its better to make them on a smaller deal where theres less at risk.

Residential properties may technically be passive investments, butthey require pretty active involvement. So make sure youve got the time as well as the money. Many landlords outsource building maintenance to management companies others handle repairs themselves.

The good news is if youre on top of building upkeep, the property should increase in value over time.

• Your tenants are essentially paying your mortgage down for you.
• You could live on the property while renting other units out.

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Citi Double Cash Card

While the other credit cards on this list are some of the best business credit cards, the Citi Double Cash Card is a personal credit card. Cardholders receive up to 2% cash back on every purchase with no limits on the amount of cash back you can earn. You can also transfer balances to take advantage of the 0% APR offer for 18 months ). This card could be great for you if you have real estate project expenses on another credit card that are incurring interest charges.

Determine Your Investment Strategy

Real estate investment strategies fall into three general categories:

• Active: Hands-on real estate investing includes fixing-and-flipping, wholesaling to other investors, finding and managing rental properties yourself, and working as a licensed real estate agent to earn commissions while you build up your investment portfolio.
• Mostly passive: Investing for recurring cash-flow streams and long-term property appreciation includes partnering with other investors, or purchasing professionally managed rental properties from Roofstock. There is some work involved but the day-to-day management can be handled by a property manager.
• Passive: This includes buying shares through crowdfunding and REITs, of a property or property portfolio, that are fully managed.

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Real Estate Investment Marketplaces

Real estate investment marketplaces allow you to own rental properties much like your typical landlord. However, the companies running these marketplaces often do most of the heavy lifting for you.

For example, Roofstock lists rental properties for sale. On this platform, the properties are already occupied. In addition, theyll help you find a property manager, financing, and insurance.

The only thing needed from you is the money to purchase the property. As mentioned, financing is an option, but you will likely still have to put money down.

Overall, this is an attractive option if you want to own your own properties without all of the work typically involved.

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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