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The Basics of Investing in Real Estate

aerial view of a housing neighborhood He said, “Real estate investing is one of the most secure and easily available avenues for ordinary citizens, like you and me, to safeguard their financial future and build generational wealth for their children and unborn grandchildren.”

If you are like me, you have heard these words in diverse forms from different people. Almost everyone knows there is a ton of money to be made from investing in properties. Yet only some people you know are making money as property investors.

Why is that?

As Blanket Homes says, the reason is simple: while we hear a lot about the whys of real estate investing, real education on how to get started as a real estate investor needs to be improved. The gap between what we know to be possible and our ability to make those possibilities a reality is what holds us back.

Most people who want to venture into real estate investing don’t do it because they do not have the confidence that comes with training and competence. Their reluctance is worsened by the horror stories of others who have become property investors only to fail.

If you have been thinking of getting into real estate investing but have held back because you don’t think you know enough to succeed, this post can help you get started on closing that knowledge gap. Here, you will start seeing what you must learn to invest in properties.

Different ways that beginners can invest in real estate

1. Land speculation

Aerial view of green field, position point and boundary line to show location and area. A tract of land for owned, sale, development, rent, buy or investment.

Land speculators buy undeveloped land to sell it in the future after it has appreciated. This investment is simple because there are no maintenance costs. But to succeed, you must understand the future potential of that land.

2. Property flipping

This is about buying, fixing up, and selling residential properties for instant profit. It would be best if you had considerable capital and experience with home renovations to do this. As a beginner, due to lenders’ experience requirements, you may have difficulty getting a construction loan.

3. Short-term rentals

This is a relatively easy way to get into property investing. You can build or convert an existing space – a spare house or accessory dwelling unit – for this purpose. These rentals are more profitable than regular residential properties, but demand is often seasonal.

4. Residential rental properties

There is high demand for rental properties, but managing them is hard work. Residential rental properties can be small-scale (duplexes and single-family dwellings) or large-scale (apartment buildings).

5. Commercial real estate

These can be self-storage units, warehouses, malls, factories, or office buildings. They tend to have higher values than residential rental properties. Financing these properties can be challenging.

6. Real estate investment groups

This is a hands-off property investment strategy where friends buy real estate. It can also be a firm that invests in real estate using pooled funds from investors. The investors own shares of the investment property.

7. Real estate investment trusts (REITs)

REITs let you invest in real estate in the same way as you would buy shares. REITs are traded like stocks. Other than being hands-off, the main advantage of REITs is their liquidity.

Getting started as a real estate investor

coworkers with their hands in a huddle

For new investors interested in short-term rentals, residential rental properties, and commercial real estate, here are the critical steps, skills, and information they need to get started.

1. Choose your property investment strategy

What kind of investor do you want to be? What kinds of investments are best for you? It depends on your short/long-term investment goals, age, risk appetite, investment timeframe, and availability.

2. Learn how to evaluate a future investment

How do you determine the viability of a property? You must understand the parameters that define the potential of a location and how to use the critical numbers to measure the performance of a projected investment.

3. Understand the requirements for property financing

Access to financing is a huge problem for new investors. The main issues are meeting lenders’ needs for credit score, down payment, cash reserves, personal income, and debt-to-income ratios.

4. Build a team for your investment

New investors often don’t know real estate investing is a team sport. Investors who go it alone set themselves up for failure. It would be best if you had the expertise of realtors, attorneys, mortgage brokers, accountants, and handymen.

5. Determine how you will manage your properties

business woman holding phone and coffee, smiling upward to the sky

An investment property is only a passive source of income once it is under the management of a professional property manager. Before buying an investment property, decide how you plan to manage it.

How can new property investors gain the proficiency to spot excellent real estate investing opportunities and transform those opportunities into sources of substantial and sustainable passive income?

The best way is to find others who have walked that path and learn from them. Many pitfalls confront new investors on their way to property investment success. Working with an experienced investor is the best way to avoid them.

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