Investing in real estate is usually done with one goal in mind: earn more money. We all want that, right? The question is how to actually get there.
Learn From People Who Have Already Done It
Learning from those who’ve already succeeded is essential. A book like Rich Dad, Poor Dad is a great place to start. It’ll help frame how you think about money and wealth. Here are the main takeaways:
- Buy assets, like real estate.
- Don’t subscribe to typical consumerism. Don’t let lifestyle creep eat away at your income.
- Don’t buy liabilities. If it isn’t putting money in your pocket every month, it’s not an asset.
- Poor people work for their money. Rich people make their money work for them.
- Poor people work IN businesses. Rich people start and work ON businesses.
Reading more books, blogs, and forum posts will help you get a feel for what success actually takes.
How Much Money Do You Need to Start Investing in Real Estate?
Investing in real estate is often thought to require hundreds of thousands, or even millions, of dollars. It doesn’t. You’ll need some money to get started, but probably less than you think.
Take a $75,000 investment property. A typical 20% down payment on that comes out to $15,000. On a $50,000 property, that’s just $10,000. Could you save $10,000 over the course of a year? Two or three years?
Getting educated and setting aside money for your first investment can take a year or more, and that’s okay. Just don’t lose sight of the goal.
Choose a Real Estate Market and Investing Style
Once you’ve started saving, it’s time to pick a market and a style of investing to focus on.
The five main styles of real estate investing are:
- Sole proprietorship – You own the property alone.
- Partnership – You own the property with others.
- Syndication – Your money goes into a pool with other investors to purchase a property. You’re typically a passive investor, not making decisions.
- REITs (Real Estate Investment Trusts) – Like a stock or ETF that owns multiple properties and sells shares investors can buy into.
- Crowdfunding – You invest through an online platform, similar to a syndication.
Many investors end up holding several property types even after settling on a preferred style.
The easiest way to learn the basics is a single-family rental (SFR). Once you understand the fundamentals, you can apply them to bigger, more expensive deals. Better to make mistakes on an SFR than on a $1 million, 20-unit building.
Some investors move into multifamily properties like duplexes, triplexes, and quadplexes. After a few deals with five or more units, some move on to larger commercial multifamily properties. Many experienced investors eventually shift toward funds and syndications instead.
Once you’ve picked a style, choose a market with real potential. It’s easy to feel overwhelmed by the number of factors and stats out there. When evaluating a new market, focus on these four:
- Population growth
- Job growth
- Wage and salary growth
- Employment diversity
You can find most of this data with a quick Google search. A few other resources worth checking out:
- How to Buy, Rehab, Rent, Refinance, Repeat
- Some of the Best Cities to Consider Investing in This Year
- Tax Breaks and Your Rental Property
How to Analyze a Real Estate Deal
Once you’ve identified a target market, it’s time to start analyzing deals. “Deal analysis” is just a fancy term for running the numbers. When you run them, you’re checking for a few things:
- Does it cash flow? Is there money left over each month after paying all expenses, including the mortgage?
- What do the expenses look like, and is there room to improve or reduce them?
- Is there strong rental demand in this area, and is this a property you’d actually want to own?
Build Your Real Estate Team and Network
Start getting to know the people who’ll be part of your deals, including:
- Real estate agent or broker
- Property manager
- Lender
- Insurance agent
- CPA or accountant
- Real estate attorney
You’ll likely work with all of these people directly. Real estate is a relationship business. It’s nearly impossible to succeed as an investor on your own, so getting to know your key team members will help you grow.
The best way to build a team is through referrals. If you’re just starting out and don’t know anyone who’s done a deal, get resourceful. Search “best investor-friendly property manager” in your market and start calling. Phone calls are the most effective way to build a new relationship since tone and attitude come through much more clearly than in a text or email, and people remember a voice a lot better than an inbox.
Team members can often recommend others, too. Just don’t skip your own due diligence, even on a strong recommendation. Building a great team is still your responsibility. There’s no substitute for a live conversation, but referrals are a great place to start.
Make Offers and Close on Deals
Making offers is one of the most important skills in real estate, and due diligence before that first offer can take weeks when you’re starting out. You’ll dissect a property thoroughly, and by the time you’re ready to make an offer, it’s already gone. Someone faster at deal analysis beat you to it two weeks earlier.
Learning what a fair deal looks like takes time, and that’s how you improve. If something looks like a good deal, make an offer. You can dig into the details once you’re under contract. That’s exactly what the due diligence period is for.
Once you’ve analyzed a deal, make the offer. Take input from your team, but you’re the one who ultimately decides if it’s a good deal.
What Makes the Most Sense for You?
Take your time with each step, and don’t be afraid to ask for help along the way. There are books, podcasts, forums, meetups, seminars, and training programs available, paid and free. You’re not on this journey alone. Find what works best for you and absorb as much as you can.
You could also chat with one of our experienced BDMs for more information. Please contact us.
