The Essential Beginner's Guide To Real Estate Investing

People often ask what’s the best way to get started in real estate. There’s plenty of people that have been hanging out on the sidelines, waiting to jump in, but aren’t really sure how to get good enough at the game to win, so they just stay on the bench.

That question, unfortunately, is not an easy one to answer because there are literally dozens of ways to invest in real estate and hundreds, if not thousands of ways to structure deals.

Another major factor is credit, time, and money. Many people find themselves in unfortunate situations where their credit isn’t the best and they don’t have the money to invest and they see real estate as the way out. Real estate is not a get rich quick scheme,it’s a build wealth slowly game. You need decent credit and it takes money to make money. Now that doesn’t have to be your credit or money, but the reality is that most haven’t done the research or taken steps to learn techniques that could allow them to do low or no money down deals. You typically have to partner with someone who is going to rely on your skills, labor, knowledge and/or expertise. So if you have a skill that you can leverage, that’s a great place to start.

A good way to get into real estate with little to money is wholesaling. Wholesaling is when you get a property under contract, but don’t close on it, and you sell the contract to someone else for a profit. Those that have been successful have been able to scale by marketing for properties for sale and investors looking for deals.

I always suggest that if someone doesn’t currently own a home,that they purchase a duplex, triplex, or quadplex with FHA, which would only require 3.5% down. it’s the only way you can get into a multifamily with less than 20% so it truly is an incredible opportunity. You get a taste of being a landlord and you get to live for cheap or even free if the numbers make sense. Not having a hefty rent or mortgage payment allows you to begin to supercharge your saving ability to be able to invest in the next property. It’s very easy to get intimidated and never start learning or to get overwhelmed once you start learning and to wind up with paralysis of analysis, never doing anything. There are even people that dive head first into investing rather than dipping their toe in the pond first and they have a traumatizing experience that turns them off to the idea altogether.

If you’re one of those spectators hanging out on the sideline, rest assured that there are many ways to get involved. In this article, I will walk you through how to diagnose where you are, what you want out of investing in real estate, and the best way(s) for you to get started.

Here’s a summary of what we’ll cover:

  1. Get a Birds Eye View of Where You Are

  2. Get a Birds Eye View of Where You Are

  3. Identify Your Why

  4. Decide whether or not you want to be “hands-on”

  5. Evaluate Your Risk Tolerance

  6. Decide How Much You Want to Invest

  7. Figure out which Types of Investments you want to Pursue

  8. Takeaways and Recap

Use the New Real Estate Investor Road Map

Download this One-Pager to help guide you through the steps below. There is space to organize your thoughts and write them down. Step 1: Get a Bird’s Eye View of Where You Are

First and foremost, before making a decision to do anything in real estate, it’s important to take a step back and look at where you are in life, your financial journey, and what you are hoping to achieve.

Did you just finish college, are well into your career, retired or somewhere in between? Are you married with children or is it just you?

Are you at a stage where you don’t mind being mildly inconvenienced in your living situation or are you ready to live out your days in your “forever house”? How much money do you have to invest?

What are you hoping to get out of investing? Do you want a one-time returns or are you hoping for smaller on-going returns? Do you need the money to live off now or are you looking to supplement your retirement income? How much would it take for you to become financially free? Getting a good birds eye view of where you are will help you decide what type of investing you want to do, how much risk you’re willing to take on, how aggressive you should be, how much money you can comfortably invest, what you’re looking for by way of returns, and the time frame you’re hoping for

It’s a lot to think about, but if you narrow down these basics, it will make it much easier deciding how to move forward.

Step 2: Identify Your Why

Because there are so many different ways to invest in real estate, from investing in REITS (shares of a real estate portfolio) to short term rentals (ie Airbnb), from investing in syndication’s (group investments) to house hacking (Sharing a living space), and everything in between, it’s very easy to fall prey to “shiny object syndrome”. One day you want to buy a fancy downtown condo for Airbnb, the next day you look into storage units. Trust me, I’ve been there.

You can make money in almost any real estate investment opportunity, that’s why it’s easy to get swayed by the jaw-dropping story of how someone made loads of money investing in one thing or another. But I would encourage you to filter out the noise for a minute and look within and decide what’s best for you and stick to it for awhile. It’s hard to excel at everything, so work on mastering just one thing before you move on to the next.

It sounds cliché, but it’s so important to understand your why. Why do you want to invest in real estate? Are you hoping to create passive income so that you can quit your job? Or are you looking to beef up your retirement nest egg? Do you want money now or later?

Are you looking for freedom of time or location? Are you hoping to take advantage of the tax benefits? Perhaps you’ve heard about house hacking and want to give it a try?

Whatever your reasoning, make sure to take some time to gain clarity around what you hope to get out of real estate investing that you’re not getting out of your current investing options (stocks, bonds, CD’s, savings accounts, etc.). This will better prepare you to resist the temptation when shiny object syndrome strikes.

Step 3: Decide How Hands-on You Want to Be

I’m sure you’ve seen all those house flipping shows on HGTV, where they go from a dilapidated dud to a showstopping beauty, complete with a champagne-laden open house. They make it seem so glamorous. They go in with masks, protective eyewear, sledgehammers and you can imagine getting all your frustration out demolishing one of those places. They crawl through moldy spaces with cobwebs and critters. They uncover unexpected repairs. Lots of drama for sure, but in the end, they git her done. And they get the personal satisfaction of being able to say that they turned an eyesore into a work of art.

If the previous paragraph excites you, fantastic. Then perhaps you want to be more of an active, hands-on real estate investor. It can be incredibly gratifying, but it’s often very hard work. And even if you aren’t the one doing all the work, it can be challenging to manage these crews. It’s important to understand that getting into flipping is high risk, high reward and hard work. But if you’re up for the challenge then get to it!

If, on the other hand, that description made you cringe and want to step reading, don’t fret! The world of real estate investing has plenty of options for you too. Perhaps you want to be a more hands-off investor, and are looking for passive investing opportunities.

The decision of LINK whether to be an active or passive investor is an important one, so take some time to think about where you are on the spectrum, given your current life situation and goals.

As I mentioned wholesaling is a good way to get into real estate with little to no money down and without getting your hands dirty in the physical sense, but you could still spend a significant amount of time on the hunt for deals and end buyers. Purchasing a duplex, or house hacking can be a good intro to investing because you are renting out either the other apartment in your duplex or rooms in your house. There will inevitably be repairs and things that come up, but it’s far less daunting than a property that you don’t live in and can’t be around to keep an eye on things. For this strategy you have to be comfortable sharing your living space. This may not be the best option if you have children or you really like your space.

Investing in a syndication (group investment) is a truly passive investing opportunity where you put in the money, you leverage other people’s sweat equity and expertise, and you reap the rewards. Of course, they will get a piece of the returns, but it’s a small price to pay for not having to deal with cockroaches and dirty toilets, don’t you think?

Step 4: Evaluate Your Risk Tolerance

Every real estate investment, along with driving in a car, riding in an airplane, or investing in stocks comes with some level of risk. Heck, even something as simple as walking down the stairs is not entirely risk free.

As with any investment, in real estate there tends to be a correlation between risk and reward. The higher the risk, the higher the potential reward. The lower the risk, typically the lower the reward.

For example, a ground-up new construction project in a seedy neighborhood might come with a higher risk profile than an existing apartment community, whose rents would cover the mortgage and expenses and still provide cash flow.

In real estate, because there are physical assets and paying tenants, there are often ways to mitigate risk.

However, there’s always that teeny tiny chance that you could lose it all. If the thought of losing money makes you nervous and your palms start sweating, take that as a sign that you need to start off slow and with smaller amounts of money. This will help you learn the ropes on a smaller scale and get more comfortable. Your cash returns might not be as big, but you will thank yourself in the long run.

If you are in a position where your world would be completely turned upside down if you lost any amount of money, then you might need to evaluate if investing in real estate is right for you at this time. It might make better sense to focus on building up your cash reserves, and evaluating your overall financial picture before jumping in. Step 5: Decide How Much You Want to Invest

Now that you have a better understanding of where you are, why you want to invest, how hands-on you want to be, and where you stand on the risk/reward profile, it’s time to think about how much you want to invest.