How to Start Investing in Real Estate: 12 Tips for BeginnersJul 17, 2023
More people are investing in rental properties in the United States than you probably realize. In fact, there are approximately 19.95 million rental properties, and 70% of these rental properties are owned by individual investors.
Whether you plan to fix and flip properties or buy rental units, you can make a profit. However, when you're first starting out, learning how to start investing in real estate can be very overwhelming. The trick is to learn what to focus on first to build a solid foundation.
In this guide, you'll learn 12 tips for beginner real estate investors so you can start growing your wealth today.
1. Know the State of Your Finances
One of the biggest mistakes people make when investing in real estate is not looking at the state of their finances enough. The last thing you want to do is invest too much.
To do this, you'll need to look closely at your income, assets, and spending to understand how much you can comfortably invest. You should also look for ways to strengthen your financial situation. You can do this by taking steps like:
- Consolidating debts
- Paying off debts
- Saving money for a down payment
- Working to improve your credit score
Remember, the more you do to pay down your debts and improve your credit score, the better type of loan you'll qualify for. Additionally, saving more money for a down payment can reduce your insurance and monthly payments.
2. Set Realistic Goals
It's essential to spend time thinking about your investment goals. First, why do you want to invest in property? Are you looking to supplement your income, or do you want to support your family and set yourself up for retirement?
Understanding your motivation matters. If you're looking to supplement your income, buying a property with a higher cash flow can bring in a considerable monthly income. Many people accomplish this with passive real estate investing.
Passive real estate investing can still yield substantial returns once you have more experience.
If you're thinking of more long-term active investing, buying multiple properties with solid capital growth potential may be the solution.
It's also essential to look at the time you plan to spend on your investments. If you want to move your focus to investing full-time, you need a plan to make that happen. A slow transition is necessary if you're working a full-time job.
All in all, make sure your goals are realistic and attainable. You can always adjust them along the way.
3. Know the Risks
As with any investment, investing in property comes with risks. Getting a good understanding of the common risks will help you protect yourself.
For example, the real estate market isn't always predictable. Therefore, you can't always assume that the property you buy today will sell for more tomorrow. Various factors like supply and demand, new policies, interest rates, and the economy can cause property to depreciate.
You can lower your overall risk by doing careful market research and getting professional help to understand current trends thoroughly.
Another risk is negative cash flows. Cash flows are the money you have left after paying expenses like mortgage payments, insurance, and taxes. Negative cash flows occur when you don't have enough money to pay for expenses, leaving you without a profit.
Negative cash flows are usually due to high maintenance costs, high-interest rates, and poor rental strategy. Having high vacancy rates can also cause issues.
If you do your research before you buy and realistically calculate your expected expenses and income, you'll reduce your risk of this happening.
4. Do Your Research
Now is the time to learn everything possible about rental property management and real estate investing.
One of the first things you should do is learn about the basics of being a landlord. Being a landlord is much more involved than people realize. As a landlord, you must handle property maintenance, tenant problems, vacancy issues, marketing, and more.
It's also wise to familiarize yourself with the laws tenants, and landlords must follow. You'll need to understand the laws around lease requirements, eviction notices, and security deposits. Learn more about professional property management services and how they can help you manage these issues.
You'll also want to look for books and guides that provide solid investment advice. You can find free online resources that teach you how to build wealth with real estate investments.
5. Start Out Small
While it may seem like you need to "go big" when making real estate investments, this isn't the case.
When you're making your first investment, starting small is the best route to take. In fact, many successful investors started small at the beginning of their careers.
Starting small also gives you a chance to take things slowly and gain a good understanding of how investing works. You also won't be as overwhelmed as you would be with a larger investment.
Once you're comfortable with a small investment, you can apply your knowledge to larger investments.
6. Think Like a Business Owner
Even if you're starting with real estate investing as a passive income, you still need to think like a business owner. Remember, investing is a business, and you must treat it like one.
Having a solid business plan is necessary, along with action plans and key milestones you want to reach. Your ultimate goal is generating a profit, so you have to lay the groundwork.
This prevents you from investing in the first property you come across that catches your attention. Although the property may look good on the surface, you need to dig deeper to be sure it makes good business sense.
The more you treat your investments like a business, the more successful you'll be.
7. Set a Firm Budget
Investing in real estate isn't simply a one-term transaction. Once you purchase a property, you have to think of other expenses like:
- Property maintenance
- Property management
- Emergency funds
Setting a firm budget will help you to maintain a positive cash flow. It also makes it easier to see where you're getting off track if you go over budget.
It's best to keep a spending diary after you set up a budget. This will help you to see your spending more clearly. Set up a spreadsheet and be honest with yourself about the spending.
You should continue to adjust and update your budget to account for changes. Changes frequently occur due to the property market or the condition of your property.
Don't hesitate to hire an accountant if you need help budgeting. You can also get help with taxes and other aspects of your finances you're not familiar with. The cost of hiring an accountant will seem minimal compared to what you'll save by having a professional manage your finances.
8. Find Your Niche
A huge part of learning how to invest in real estate is about finding the specific types of properties you'd like to focus on. Taking your time to build an understanding of a certain area of real estate is key to long-term success.
This is because it establishes you as an expert in a particular niche, which helps you stand out more.
It's well worth your time to learn more about the most profitable real estate niches to see what piques your interest.
One of the most common niches involves focusing on properties in one specific county or neighborhood. Doing this allows you to market yourself as an expert in a certain region.
Additionally, rental properties have profitable niches that are well worth your investment. These niches include:
- Renting rooms instead of an entire unit
- Renting off-campus student housing
- Single-family homes to rent
- Full-service or luxury apartments with amenities
- Multi-family apartments with an entire building of rentals
You can even focus on rural farm rehabs or low-income multi-unit housing.
Once you master a particular niche, you can move on to another niche which will help you maximize your investments even more.
9. Build Long-Lasting Relationships
Make sure you invest in relationships at the same time you're making real estate investments. You can begin by building relationships with other investors and real estate agents you come across.
You never know when you'll be able to help each other find a great deal. Remember, this help goes both ways, and it can lead to finding lucrative investments.
Building these relationships also involves other professionals in the industry. If you're working on flipping homes and renovating, you'll definitely want a team you can trust.
This could include home inspectors, general contractors, property managers, and insurance representatives. Having an attorney and an accountant, you can count on is also wise.
Ultimately this will make buying properties much easier, and you'll get a better return on your investment.
10. Understand the Local Market
It's essential to get a thorough understanding of the Oklahoma housing market. Knowing the current market trends will help you to make the best investment possible.
First, you'll need to look at average home prices and how they're trending. In Oklahoma City, average home prices are expected to grow by 2.6% in 2023, and the median home price is around $230,200.
Be sure to look at different-sized homes from one bedroom to five bedrooms to understand the breakdown of this median price.
You also need to look at average sale times to see how long homes are on the market before selling. Be sure to dig deep into your target area neighborhood to learn everything you can, like:
- Population and job growth
- Market overview
- Major employers
- Neighborhood housing market activity
- Current rental property market trends
- Past and future rental property market trends
- Quality of life rankings
Take your time to research and ensure you feel comfortable with the market before doing anything else.
11. Be Patient With Yourself
Don't forget that real estate investing is time-consuming, and most people don't make money overnight.
The best thing to do is focus on building your investment skills and knowledge. Doing this will help you slowly build a solid investment portfolio.
You must also be patient with yourself when you make mistakes. You can then easily learn from past mistakes and change your strategy for the future.
If you find yourself feeling impatient about where you are in the process, take that as a sign to re-evaluate things. Determine where your frustrations lie and consider if your goals have changed.
Continue to check in with yourself each week to see how you're feeling and keep moving forward.
12. Get Professional Advice
Finally, getting help from the pros will set you on the right course. Partnering with the right team can lead you to financial wellness.
Professionals like The Virtual Real Estate Team can move you in the right direction. You'll get a step-by-step guide to help you buy property and a solid plan to help you reach your investment goals.
You'll also learn key metrics to maximize your return on investment as soon as possible.
Once you have multiple properties, having a property management company to help manage your properties is critical. The Virtual Real Estate Team will help you find a property management company that will work for you.
In addition, you'll get help with local market research, so you understand exactly what you need to look for.
Learning from the pros will help you with local investments and give you the confidence to grow and move forward. For example, you may want to invest in real estate online once you're more comfortable.
Remember, getting the right guidance when you're starting out can make all the difference, so it's a wise investment.
Learning How to Start Investing in Real Estate
Learning how to start investing in real estate takes time, but following these tips will help you establish your investments.
Your next step is to get enrolled in our Real Estate Investment School Beginner Class. This class will teach you all of the information you need to make your first investment. Upon completion of the course, you will even get a 1-1 meeting with your own investment coach.