Real estate investing is one of the most popular investments in the world, and for good reason. Millionaires still agree that it's the best investment around today, and that's for many reasons. No matter what investments are on the news, real estate has withstood the test of time!

However, you still need to know how to get the most out of your investment. Luckily, we can help with that! Let's talk about how to invest in real estate for beginners.

Types of Real Estate Investments

Real estate investments are not all the same. Before we discuss how to get your foot in the door, let's go over the different types of real estate investments, their pros and cons, and see which is right for you!

Investing in Rental Homes

Rental homes are two, three, or four-unit houses that you can rent out to tenants. In terms of getting the most out of your investment, this is hard to beat. Not only do you receive rental income every month, but you will always have the option to resell the home, potentially for a profit.

However, it's important that you know how to buy investment homes to maximize profits. One of the best-known methods for investing and growing a rental business is called the BRRRR method, which stands for buy, rehab, rent, refinance, repeat.

Essentially, you buy a fixer-upper, put the work in, rent it out, cash out, refinance, and use that money to buy the next property and do it all over again. If you fix up a property, you're increasing its value, which means you can flip it for a back-end profit if you choose to, or you can continue earning rental income.

Alternatively, you can invest in a turnkey rental home, where all you have to do is "turn the key". If you have the money to invest in such a property, this carries a much lower risk of needing major, unexpected repairs early on in your investment, and eliminates the need to find tenants. Either way, you can use a rental property calculator to see your potential earnings.

You can choose to live in the property and allow your rental income to cover a lot of your expenses, or you can live away from the building and rent out all of the units. You can even hire a property manager to do all of the work for you and earn passive income from the property!

Invest in Condos and Town Homes

There are some unique differences and variables with investing in condo buildings or townhomes when compared with other real estate investments. Of course, the first is that people will buy these units, not rent them. Think of this investment as buying an item wholesale and selling individual units at retail prices.

However, condos and townhomes aren't like selling candy bars. There are other ways you can earn money from them beyond just resale, especially if you're responsible for the homeowner's association. If so, you can try:

  • Monthly maintenance fees
  • Repair fees
  • Coin-op laundry services
  • Specialized fees
  • Security services and fees

There are other ways, so get creative! One of the advantages of this type of investment is that you aren't as liable as you would be when renting out each unit. The owner of each unit is responsible for the maintenance and costs of their units once they make the purchase.

Real Estate Investment Trust (REIT)

REITs are popular investments that are similar to trading stocks, and they are the easiest real estate investment to start. An REIT is a company that buys rental properties and takes public investments. They have to give at least 90% of those profits to investors in the form of dividends to be considered an REIT.

Whether you have $1,000 or $100,000 to invest, this is a great way to get your foot in the door with real estate investing, and earn some passive income along the way.

These dividends could be anywhere from 1.5% to 10%, depending on the company and the housing market. They may pay annually, quarterly, or monthly. Always do your research before jumping in!

Flipping Homes

Flipping homes can come with a huge profit margin on the backend if you know what you're doing. In many cases, investors can receive over a $100,000 profit in under a year for their work, especially if they can handle some repairs on their own, and if the market is helping them.

Some investors consider this too risky due to housing market fluctuations. However, if you're not holding the property for too long and you can resell it within the year, the chance of a substantial dip in the market is low. As long as you know how to save when buying homes, you're likely to make a profit.

If you're handy, you can save a small fortune by doing some of the work yourself. This is especially beneficial for simple work that doesn't involve major structural repairs. For example, replacing doors, flooring, and drywall may cost less than $10,000 on your end if you do it yourself, but it could add that in value several times over!

Regardless of what needs work, always hire a thorough inspector to tell you exactly what needs repair, and plan for the unexpected. If you calculate an $80,000 profit margin, replacing the roof could cut into that substantially.

Investing in Your Own Home

If you're a homeowner or you'd like to be one, why not make some money off of your current home? If you want peace and privacy, buy a single unit to live in and get some work done. There are countless ways to earn money off of your home.

For starters, you can rent out an extra space you have on Airbnb or build an accessory dwelling unit (ADU) on the property to do so! Short-term rentals in the right area could go for anywhere from $100 to $300 a night!

You can also do some basic home renovations and landscaping to increase the value of your home, as long as you aren't overspending. When you go to sell it or rent it out later on, years of increasing your home value by small amounts will add up significantly, and you'll have a lot of fun along the way!

Also, you could consider adding an addition to your home for a second unit to rent out. This would be the most expensive option on this list, but it's something to consider!

Self-Directed IRA Real Estate Investing

A lot of people choose to invest in real estate to enjoy a secure retirement, so what if we told you there was a better way to do it? Using your existing IRA retirement fund, you can invest in real estate using that fund for all property-related expenses, and all of the profits will go to your IRA.

This way, it will be a self-managed investment, but you'll rest assured that all of the money will be taken out of and replenished in your IRA. If you have 10, 20, or 40 years until retirement, imagine how much that could add up to?

Funding Your Real Estate Investment

Very few of us have the money lying around to purchase our first property with cash, so we often need to look for alternative funding sources. You may want to consider using an agent to help you lower the price, but there's still going to be a large bill at closing. Unless you're investing in an REIT or crowdfunding your real estate investment, then you will likely require loans or private investments.

The benefit of investments is that you can find them online, they won't impact your credit, and you may not have to jump through as many hoops. However, the investor will be owed a proportionate amount once you start generating profit on the property.

For loans, you will only owe back what you took out plus interest. However, if you don't have great credit or income, it may be difficult to take out a loan. Also, you may be hit with fees for flipping a property and paying off the mortgage too early.

You can use bridge loans for these, but they typically come with higher interest rates. Also, if something goes wrong, you're the one who is liable, not the lender. This puts your credit at risk in the event the investment goes sour.

Start Your Real Estate Investing Business Today

Real estate investing is one of the most common investments for a reason. The potential is enormous, you're in total control, and you can get started for such a limited amount. However, you're also liable for everything.

Do your diligence, get thorough inspections, and shop around for the right markets, loans, and tenants. The only way to protect these investments is preemptively, so never make an impulsive decision when investing in real estate.

Stay up to date with our latest real estate investment tips and feel free to shop with us to find the right property for your needs!


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