Real estate investing is an attractive and lucrative avenue for diversifying your portfolio and building wealth. The allure of real estate lies in its potential for passive income, capital appreciation, and the tangible nature of the asset.
However, navigating the billion-dollar real estate market can be scary for beginners. The good thing is, you don’t need experience to get started. If you ask the right questions, learn the ropes, and surround yourself with a formidable network, you can achieve success.
This guide provides an overview of the best real estate investment strategies as curated by experts, and their pros and cons, to help you get started on your investment journey.
Key Takeaways:
- Real estate investing for beginners is achievable and with the right entry strategy and determination, success is possible.
- Taking time to go through the get-started checklist provides a clear vision of what you want to achieve in your investment journey.
- Buying a rental property, joining a real estate investment group, trust, or online platform, and house flipping are the best options in real estate investing for beginners.
- Joining a real estate investment coaching club can smoothen out the process for a beginner.
Table of Contents
A Get-Started Checklist
Considering these factors allows you to get a clear picture of what channel to use and where to get help to achieve your investment goals:
- Assess your financial capacity
- Learn the basics of real estate investing
- Set clear goals - is it quick profits or progressive income
- Consider legal and tax implications
- Build a network
The Best Strategies Beginners Can Use to Start Real Estate Investing
Now that you’ve considered all the questions the checklist above brings, we’ll go through the friendliest real estate investing strategies you can use as a beginner.
1. Rental Properties
With rental rates and house prices rising every year across the country, it’s no wonder investing in rental properties is one of the most common entry points into real estate investing. This strategy involves purchasing property—residential or commercial—and renting it out to tenants.
The key to success in rental properties is choosing the right location and property type that appeals to potential renters. Factors such as the local job market, proximity to amenities, and neighborhood safety can determine the property’s rental demand.
The process begins with market research to identify promising areas, followed by financial analysis to calculate potential return on investment. Investors typically need to secure financing through mortgages, which require a down payment and good credit. Once acquired, the investor either takes on the role of landlord or hires a property management company to handle day-to-day operations.
Pros
- Consistent Income — Rental properties provide regular rental income, which can cover mortgage payments and other expenses.
- Tax Benefits — Investors can deduct property expenses, depreciation, and mortgage interest, potentially reducing tax liabilities.
- Appreciation — Over time, property values typically increase, which can result in significant gains when selling.
Cons
- Management Challenges — Handling tenant issues, maintenance, and potential vacancies can be challenging.
- Initial Capital Requirement — Property purchases often require a significant upfront investment (sometimes at least 20%) for down payment and closing costs.
- Market Risks — Property values and rental income can fluctuate based on local market conditions and economic downturns.
2. Real Estate Investment Groups (REIGs)
Perhaps you prefer investing in rental real estate without the hassles of being a landlord. Joining a Real Estate Investment Group (REIG) might be the ideal solution. REIGs are typically private partnerships that invest in real estate. They buy or build a set of apartments or condos and then allow investors to purchase them through the company, thus joining the group.
The group manages all the properties it owns, including maintenance, advertising vacancies, and handling tenants. In exchange for managing these tasks, the company takes a percentage of the monthly rent. This setup allows you to enjoy the benefits of rental properties with less direct management responsibility.
Pros
- Hands-off Management — REIGs handle the day-to-day maintenance and management of properties, making it easier for investors.
- Reduced Risk — By investing in multiple properties, you can mitigate the risk associated with individual investments.
- Steady Returns — you receive a portion of the rental income, providing regular dividends.
Cons
- Fees: REIGs charge management fees that can reduce overall returns.
- Lack of Control: You have little say in the management and selection of properties.
- Liquidity Issues: Access to funds or selling shares in REIGs can be challenging.
3. Real Estate Investment Trusts (REITs)
Real Estate Investment Trusts (REITs) offer a way to invest in real estate without actually buying property. REITs are companies that own or finance income-generating real estate across various sectors. They are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends, making them a popular choice for income-seeking investors.
Investors can buy shares of a REIT on major stock exchanges. This method provides liquidity and simplicity in investing in real estate, as it can be done through a brokerage account just like buying stocks. REITs invest in a wide range of real estate, from office buildings and shopping malls to residential apartments and hotels, offering investors a diversified portfolio within the real estate sector.
As a beginner, joining a local real estate group is a good start to leverage regional partnerships. However, you can also find other groups across the country through the National Real Estate Investors Association (NREIA) or social media sites like LinkedIn.
Pros
- High Liquidity — Unlike other real estate investments, REITs can be bought and sold quickly on the stock market.
- Dividend Yield — REITs are required to distribute at least 90% of their taxable income to shareholders as dividends.
- Diversification — Investing in REITs offers exposure to various sectors of the real estate market.
Cons
- Market Volatility — REIT shares are subject to market fluctuations, which can be as volatile as stocks.
- Taxation — Dividends are taxed as regular income, which can be higher than capital gains taxes.
- Limited Growth — Since most income is distributed as dividends, RxEITs often have less capital to reinvest and grow.
4. House Flipping
How about a more hands-on approach to real estate and potentially quick profits? House flipping is the name of the game. This strategy involves purchasing properties at a low price, renovating them, and selling them at a higher price.
Success in house flipping depends largely on finding undervalued properties that can be quickly and economically renovated. Put simply, a good understanding of property renovation, real estate market trends, and timing.
The goal is to complete the renovations and sell the property at a profit before any significant market fluctuations occur. While flipping can be lucrative, it requires thorough research, a good network of contractors, and the ability to manage a project from start to finish.
Quick fact. Some of the best cities for house flipping are Chicago (IL), Atlanta (GA), Cleveland (OH), Jacksonville and Charlotte in North Carolina.
Pros
- Quick Profits — If done correctly, flipping can yield significant returns in a relatively short period.
- Value Addition — Renovations can significantly increase property value, offering high returns on investment.
- Market Knowledge — As a flipper, you gain extensive market and renovation experience, which can be beneficial for future investments.
Cons
- High Risk — Flipping involves substantial financial risk, including unexpected expenses and market downturns.
- Capital Intensive — Initial investments and renovation costs are high, requiring significant capital or high-interest loans.
- Time-Consuming — Successfully flipping a house requires a lot of time and effort in managing renovations and sales.
5. Online Real Estate Platforms
Online real estate platforms, also known as real estate crowdfunding, have democratized access to real estate investments. These platforms connect investors with real estate projects that need funding. Investors can contribute a relatively small amount of money towards these projects and, in return, receive a share of the profits, which could be in the form of rental income or gains from property sales.
These platforms offer a range of investment opportunities in different real estate sectors and geographic locations. They are an excellent option for individuals who want to invest in real estate but do not have the capital or desire to buy a whole property themselves.
However, investors should conduct due diligence on the platforms and the projects they choose to invest in, ensuring transparency and legitimacy. Some of the best platforms for beginners include Fundrise, Arrived, and Realtymogul.
Pros
- Accessibility: Investors can start with a smaller amount of money, making real estate investing more accessible.
- Diversification: Investors can spread their investments across various projects and geographic locations.
- Transparency: Platforms often provide detailed information about investment opportunities, including risks, returns, and project status.
Cons
- Risk Level — Many projects on these platforms are speculative and carry high risks, including potential project failures.
- Liquidity — Investments in crowdfunding platforms can be illiquid, with commitments lasting several years.
- Management Fees — The management fees can reduce the overall profits.
Get a Headstart Into Real Estate Investing With New Wealth Advisors Club
Are you excited about real estate investing prospects but need like-minded people who can walk with you? Is your get-started checklist above looking bleak? The New Wealth Advisors Club is here for you. With our wealth of experience in real estate and passion for putting people first, you’re in safe hands.
We offer pocket-friendly 1-1 coaching, network-building opportunities with active investors, resources to close your first deal, and much more. Connect with us to start your real estate investment journey.
