• by The VRET Team

How to Get Started Investing in Real Estate: A Comprehensive Guide

If you’ve been paying attention to the housing market lately, you’ve probably noticed it’s hotter than ever before. Homes are selling in hours for thousands over list price, and interest prices are historically low. It’s a fantastic time to get into real estate investing, but how do you start?

There are several great ways to start investing in real estate the smart way. Read on to discover where you should begin and how you can improve your chances of a successful investment.

The Benefits of Real Estate Investing

Before we dive into all the different ways you can start investing in real estate, let’s talk some about the benefits of real estate investing. First, real estate is one of the safest investments you can make because property values consistently rise in almost all cases. Of course, you do have to be prepared to commit to a longer-term investment, but in the end, it will almost always pay off.

Depending on the sort of real estate investment you’re doing, it can also be a fantastic source of passive income. Passive income is money you don’t have to work to earn and is one of the most reliable paths to significant wealth. If you play your cards right, you can sit back, manage occasional maintenance needs, and collect a check every month.

Don’t Use Home Equity to Invest

With home values rising across the nation, the temptation is to pull out money from your equity with a second mortgage to buy investment real estate. Although this is done with some frequency, it is best to use saved money to get your start.

If you do want to use this financing method, please be conservative. This is the home for your family, and taking high risks thinking that prices always go up could create a problem later. Consult with your financial expert or CPA before you do this.

Get Involved in REITs

One of the simplest and lowest-cost ways to get involved in real estate investing is to buy into a REIT. Real estate investment trusts are a way to crowdsource rental investing effectively. On your own, you may not be able to afford a whole rental property, but when you pool your money with several other investors, you can all reap the benefits.

A REIT allows you to buy a portion of a rental property – often a condo or apartment in a high-cost city. Because you’re sharing costs with several other investors, your individual investment requirements aren’t as steep. In addition, you’ll get your share of the profits based on how much of the property you paid for, and you don’t have to deal with the hassle of landlord responsibilities.

Use Online Real Estate Investing Platforms

If you want to dip a toe into the real estate investing world but you have a little more money to play with, you may want to look into using online real estate investing platforms. These programs operate similarly to peer-to-peer lending programs, although they focus only on real estate. However, it is important to note that many of these investments come with a higher degree of risk.

Online real estate investing platforms can connect you, the investor, with real estate developers who need projects funded. You may be able to loan them the money to cover some or all of their project. In return, they’ll pay you interest, or they may offer you shares of the property they eventually build.

Rent a Room

If you’re ready to move beyond the world of online real estate investing, you may want to start by renting out a room. If you own a home with more than one bedroom or a duplex setup, you could rent out your extra space on a long-term basis. Keep in mind that you’ll need to take on the duties of a landlord if you decide to go this route.

An easier way to make money off your extra space is to offer it for short-term or vacation rentals. Plat-forms like Air BnB and VRBO make it simple for hosts to rent out their space for the weekend or other short-term stays. You may have to find somewhere else to stay, but you can skip the long-term landlord responsibilities and still make good money.

Buy a Rental Property

Once you start buying rental properties, you create tax-deferred income that can pay your bills and create financial freedom. First, you have a deprecation schedule that can offset your profits. Second, any monies you put into repairs or improvements are also expenses that add to the depreciation.

Look for markets that will cover your mortgage and the repairs, maintenance, and property management and can still yield positive income. Once you add this to buying in a good neighborhood with great schools that will appreciate well, then you are on your way to the financial security your family needs.

Flip Houses

If you’ve ever watched any HGTV, chances are you’ve considered flipping houses. Watching Chip and Joanna transform haunted houses into stunning abodes is enough to make anyone break out their hammer and crowbar. But before you start trying to rip out cabinets, make sure you stop and think about what flipping houses will really look like for you.

Flipping a house can be a great way to make money, but you have to have a lot of money to invest up-front and a lot of time and expertise to dedicate to the project. Transforming a home is a lot of work, especially if you plan to do it yourself, and a lot can go wrong. So be sure you’re financially and emotionally ready to take on that risk and do what it takes to make your flip a success.

Save Up Money

When you’re preparing to start investing in real estate, one of the smartest things you can do is start saving money. At first, these extra savings should go towards paying down your mortgage as quickly as possible. From there, start putting that money into savings accounts, CDs, and other low-risk investment options.

The money you save will be critical for down payments, closing costs, and initial repairs if you plan to buy an investment property. If you want to go the online investing route, this money will be your initial investment. So save up as much as you can – at least 20 percent of the price of the property you intend to buy or invest in.

Spread Out Your Wealth

As you get into real estate investing, it can be tempting to put all your money into that effort. Real estate investing is expensive, and you may want to dedicate as much of your discretionary income to-wards it as possible. But while real estate is a relatively safe investment, you still never want to put all your eggs in one basket.

While it’s certainly rare, events like the 2009 housing market crash can leave real estate investors in dire straits. Rather than losing everything in a disaster like that, take precautions and spread your wealth out. Invest in stocks, CDs, and other such opportunities in addition to your real estate investments.

Should You Stay Local?

If you live in a market with high affordability, excellent job growth, and a booming economy, you are investing in the right place. However, you may be in a market that has very high prices but lower rents. Cities in California come immediately to mind, where it may be a better investment to rent instead of buying a personal residence.

Maybe your city has high taxes and insurance, which creates a negative cash flow, and if so, you should look for a better market that creates income and low vacancy. A city like Oklahoma City has affordability and reasonable tax and insurance rates. Other cities like Oklahoma City are out there, so use some research to find out the best place for your first investment.

Prepare for the Worst

No one likes to think about the risk side of their investments, but you must do so. For example, the housing market could crash, your rental property could burn to the ground, you could get sued for a liability issue, or you could discover major structural issues with your flip house. There are thousands of things that can go wrong in real estate investing, and you need to be prepared to handle them.

Make sure when you’re saving and budgeting money that you set a chunk aside as contingency funds. Then, when things don’t go as you expect them to on your flip project, you’ll have that money available to handle the issues. If the market crashes, you’ll have some funds to work with while you figure out another plan for your properties.

Start Small

It can be very tempting to throw caution to the wind and dive straight in on real estate investing. You watch four episodes of Good Bones or First-Time Flippers, run a search of cheap homes in your area, and start dreaming about what you can make them. But it’s easy to get in over your head when you rush into real estate investing like that.

Instead, be patient, go slow, and start small with your real estate investments. While you pay off your house and save money, buy into some REITs or start renting your house out on weekends. If you plan to flip a house, maybe start with a couple of improvement projects at your own home that will give you practice doing that sort of work.

Hire a Realtor

Hiring a realtor is one of the smartest things you can do when you start investing in real estate, especially if you’re buying rental properties or flip houses. You’re going to be making a lot of real estate transactions, and you want to be able to dedicate your time to working on those investments. But, unfortunately, there’s also a lot that can go wrong during real estate transactions and very serious consequences if it does.

Talk to several realtors in your area and find someone you trust to work with you in the long run. They should be experienced, knowledgeable, and easy to work with. Explain your plan to them and take their advice about making the real estate market in your area work best for you.

Keep Both Eyes Open

It’s easy to start looking at real estate investing as an all-win opportunity. You get to do some minor home maintenance and sit back, collecting thousands in rent every month. Or maybe you’ll put in a little more elbow grease, transform abandoned houses into something beautiful, and make $70,000 a sale.

But the truth is that real estate investing takes a lot of time, patience, and savvy if you hope to be successful. Don’t dive in looking for a get-rich-quick scheme; you’ll wind up losing money. Instead, be smart about your investments, be realistic about the amount of work you’ll have to do for them, and stay focused on the long-term rewards.

Start Investing in Real Estate

Real estate investments can be a great way to make your money work better for you. The best way to invest in real estate is to start slow, pay off your house and save up plenty of money first. Then dip a toe into REITs, online investing platforms, short-term investments, and small projects before you dive into renting and flipping houses.

If you’d like to start investing in real estate, check out the rest of our site at The Virtual Real Estate Team. We help investors to grow their wealth with real estate in Oklahoma City. Schedule an appointment with us today and start growing your nest egg, achieving financial security, and retiring on your own term.