TABLE OF CONTENTS

    Investing in real estate has major benefits, like growing your wealth and passively generating income without getting a second job. There are many ways to invest in real estate, including house flipping, rental properties, REITs, syndication, and online investment platforms.

    Real estate investing for beginners can initially seem daunting, but once you get the hang of it, you can start letting your money work for you. Like other types of investments, real estate provides more benefits the earlier you start, but anyone can begin investing in real estate at any point throughout their lives.

    This article will teach you how to invest in real estate and about the best real estate investments for beginners to help you find the best method based on your preferences and financial goals.

    KEY TAKEAWAYS

    • Investing in real estate is a great way to grow your wealth, diversify your portfolio, and protect yourself from the rising costs of inflation.
    • There are many ways to invest in real estate ranging from passive investments like REITs, REIGs, and online investment platforms to more active investments like rental properties and house flipping.
    • The best real estate investment strategy for you will depend on your budget and financial goals.

    Why Invest in Real Estate?

    Real estate investing for beginners can seem complicated, but there are many potential benefits, and the earlier you start, the more you stand to earn. A few advantages of investing in real estate include:

    • Diversification: Real estate investing can help you diversify your portfolio to spread your risk. For instance, if you put all your money into stocks and the market crashes, you could lose everything. Choosing different types of investments can mitigate risk if one investment fails.
    • Increased income: One of the major reasons to invest in real estate for beginners is to increase your income over time. Whether you invest in physical real estate or trusts, you can receive an additional monthly income. That amount you receive will primarily depend on the type of investment, with some offering higher yields than others.
    • Financial security: Real estate investing is a long game; you can’t expect to earn a profit immediately, even though some types of real estate investments yield returns faster than others. For instance, flipping a house typically yields faster returns than investing in rental property. However, both types can provide you with long-term financial security.
    • Property holds value: Real estate continues to hold value and tends to appreciate in value. Apartments, business suites, and other types of rental properties will always be needed because people need homes and workplaces. As long as you take proper care of the property and it’s located in a decent location, your investment can continue to hold value, allowing you to rent or sell it when the time is right.
    • Tax benefits: When you invest in real estate, you may be able to deduct expenses associated with investment properties you own, such as property taxes, mortgage loan interest, insurance, maintenance costs, and so forth. And if you sell property, your returns are taxed as capital gains with lower tax rates than income.
    • Inflation protection: As mentioned, investing in real estate for beginners can provide financial security, but it can also protect you from rising inflation. Home values and rent prices tend to increase with the market, so investment properties appreciate in value and can give you an increasing income to protect you financially during inflation.

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    Of course, real estate is just one type of investment; it’s not the only option for growing your wealth. However, when comparing investing in stocks vs. real estate, one is more volatile and riskier than the other. Real estate is considered less volatile than stocks because their values rise and fall quickly. On the other hand, stocks are liquid, meaning you can sell them quickly for an immediate profit.

    Bonds and certificates of deposit (CDs) are another type of investment considered one of the safest because you won’t lose money by investing in them. However, less risk comes with small gains.

    Investing in real estate for beginners carries risk just like any other type of investment, so it’s crucial to find the right strategy based on your risk tolerance and goals.

    How Much Money Do You Need to Invest in Real Estate?

    How much money you need to invest in real estate largely depends on the type of investment. However, you don’t need to be wealthy to begin investing in real estate. For instance, you can buy into a REIT for as little as $1,000 or a REIG for around $5,000.

    That said, having more capital on hand will open up more options. For instance, if you want to flip a house, you’ll need at least enough capital for a down payment and closing costs for a mortgage..

    How to Start Investing in Real Estate

    If you’re wondering how to invest in real estate, you’ve come to the right place. While there are the more obvious investments like house flipping and rental properties, real estate is much more accessible than you think; anyone can do it, regardless of their income. Here are a few real estate investments for beginners that can help you increase your income while diversifying your investment portfolio:

    Real estate investment trust (REIT)

    Real estate investment trusts are one of the most accessible ways to invest in real estate for beginners because you won’t have to purchase, maintain, or manage a physical property. REITs are companies that own real estate properties ranging from residential to commercial buildings and are traded on stock exchanges.

    When you buy into a REIT, you purchase shares, which range in cost, with many below $100. You earn a return on REIT investments in two ways: dividend payments and selling your shares for a profit. Dividends are typically paid quarterly from the income generated from the REIT company’s holdings.

    You can purchase REITs on almost any investment platform. Since REITs own various types of properties, they help to mitigate risk and you’ll earn a portion of the income from all of their properties.

    Ultimately, no work is required when investing in REITs because you’re not responsible for anything other than purchasing shares. And, like stocks, REITs are more liquid, allowing you to easily cash them out by selling them for a higher price than you paid.

    Unfortunately, REITs aren’t right for everyone. If you prefer to take a more active role in your portfolio, you may prefer another type of real estate investment.

    Rental properties

    Rental properties are a more active type of real estate investing for beginners. When you invest in rental properties, you purchase an apartment complex, single or multi-family home, condo, townhome, or just about any other type of residential or commercial property and rent it to tenants.

    You earn money from these properties through rental income and can choose to save money by becoming the landlord and taking a more active role. However, if you prefer to be more hands-off, you can hire a management company to take care of the day-to-day management of the rental property.

    Rental properties generate passive income over time. While you’ll earn a monthly income from your tenants’ rent, paying back your mortgage can take many years, so you can’t expect a high return immediately. However, once you reach the break-even point, you’ll begin to earn a passive income that can eventually become your only source of income, depending on the number of tenants you have.

    Your rental property can appreciate over time, so you can make even more money when you decide to sell it. But, of course, the property you purchase is never guaranteed to increase in value, so it’s a good idea to research the area to ensure it’s appealing to renters.

    One of the most significant benefits of investing in rental property is that you can earn income monthly as your tenants pay rent. However, you’ll also have the flexibility of selling the property if it appreciates in value.

    Unfortunately, rental properties can come with a lot of challenges. If you choose to save money and become the landlord, you can expect lots of late-night calls from tenants. You’ll also need to stay current on the landlord-tenant laws in your area to ensure both parties are holding up their ends of the deal.

    Being a landlord can become a full-time job, depending on the number of units you rent out, so if you want to avoid dealing with tenants on a daily basis, you’ll need to hire a management company that can take care of tenant issues for you. This can be costly, but may be well worth it to help you generate a more passive income.

    Flipping houses

    Flipping houses has become increasingly popular over the last few years and can yield returns faster than other types of real estate investments for beginners. House flippers purchase homes that require renovations and spend time and money fixing them to increase their value before selling them for much more than they paid. The ultimate goal is to fix and flip a house as fast as possible and stay within a budget that yields higher profits.

    However, flipping houses isn’t as easy as it appears on television. Selling a newly renovated house can take a long time, depending on the number of buyers interested in the property. Additionally, you’ll have to be good at budgeting and looking at what comparable properties in the neighborhood recently sold for to determine how much to spend on purchasing the property and the renovations.

    Flipping houses is a more active type of real estate investing for beginners. It’s possible to do it while you’re also working at a full-time job, but it’s not ideal since you’ll have to manage every aspect of the renovation on your own. However, a successful fip can be highly profitable.

    Unfortunately, there are many financial risks, and many first-time flippers run into budgeting issues that can reduce their returns. In addition, the investment isn’t liquid until the property is sold, which can take many months depending on various factors like market conditions.

    Online investment platforms

    Online investment platforms are a great option for investing in real estate for beginners because it’s a hands-off approach. Online investment platforms allow you to invest in various real estate projects and work similarly to crowdfunding sites.

    With this option, you can invest in a mortgage loan on a property and receive a portion of the interest as the loan gets repaid. You can also choose equity investing, which allows you to invest directly in a property and become somewhat of a part-owner. With this method, you’ll receive a portion of the profits the property generates.

    Many of these investment platforms have a minimum investment ranging from $1 to $5,000, so they’re relatively accessible depending on the investment format or real estate type you’re interested in.

    Depending on the platform, you can get paid weekly, monthly, daily, or quarterly, and dividend yields vary, so we recommend doing your research to ensure you make the right choice based on your budget and goals.

    Real estate investment platforms are relatively new, only appearing in the last decade or so, so there are some risks associated with them since there’s less data than other investment options.

    Real estate investment groups (REIG)

    Real estate investment groups are essentially mutual funds for rental properties where investors pool their money. If you think investing in rental property is a good idea but don’t necessarily want to deal with the hassle associated with it, REIGs might be the best option for you. When you invest in REIGs, a company buys or builds rental properties and allows investors to purchase them, with the REIG managing the units instead of the investor.

    With a REIG, you’ll receive shares or interest, allowing you to make money via mortgage lending and earn returns from rental income. Unfortunately, investing in REIGs can be risky, and one company may engage in fraud since they’re not regulated by the government. Therefore, you should always research various groups to ensure you’re investing with the right group of individuals.

    Real estate syndication

    Real estate syndication is a lesser-known investment strategy, but it’s a good option for investors who don’t want to hold property. With syndication, a group of investors collectively raise capital to purchase real estate. A sponsor, a company or individual, oversees and manages the investment and is responsible for distributing profits to investors.

    The investors take a more passive role and contribute the capital, making it similar to crowdfunding on investment platforms. However, syndication provides larger opportunities and requires an agreement between the investors and the sponsor.

    With real estate syndication, you make money through the appreciation of the real estate asset and rental income, giving you an easy way to enter the world of real estate investing without actively managing the property.

    This type of investment is best for investors who prefer a hands-off approach since you won’t have control over your investment. Unfortunately, the costs to invest in syndication are relatively high since they target large-scale projects.

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    Investing in Real Estate for Beginners: 6 Tips

    Learning how to start investing in real estate for beginners can be daunting. What’s most important is that you do your research on all the different ways to invest to help you make the right decision. Here are a few tips to help you begin investing in real estate to grow your wealth:

    Create a budget

    Before you invest in real estate, you’ll need to set a budget by evaluating your financial situation. If you don’t have enough money set aside to fund a mortgage loan, flipping houses and purchasing rental properties aren’t possible for you. If you have very little to contribute, you might prefer a REIT or try your hand at a real estate investment platform to see how your money can grow.

    However, if you have enough saved for a down payment and closing costs for investment property loans, you might prefer to fix and flip or invest in rental property.

    Do your research

    Always do your research before you choose an investment strategy. You should learn all the basic investment terms and best practices for your chosen investment type. In addition, you’ll need to perform more specific research depending on the investment route you take. For instance, if you plan to flip houses in California, you can learn about San Diego real estate investing and other areas to buy into by reviewing comparable home prices and sales to determine if you can turn a profit.

    Similarly, if you plan to invest in rental properties, you’ll need to determine how much to charge in rent by learning more about the area and what tenants are willing to pay based on square footage, amenities, and other features.

    Meanwhile, if you plan to invest in a real estate syndication, you’ll need to research the various groups you’re interested in. Since these syndicates aren’t regulated, you may fall victim to a scam if you’re not careful, so consider running background checks and doing your research on the other investors to ensure you make the right decision.

    Maintain an emergency fund

    You should always have an emergency fund when investing in real estate, especially if you’re holding property. For instance, if you purchase a rental property, it can take many months to find tenants, and you’ll need to spend money on marketing and maintaining rental units to make your property look appealing.

    Meanwhile, you never know how long it will take to sell a property. If you go the fix-and-flip route, you may not always be able to sell the property as quickly as you’d like, so having cash reserves can ensure you can pay off your mortgage loan and have money available for emergencies.

    Network with other investors

    Networking with other investors can be educational and help you find the best investment opportunities. You can attend networking events and investment clubs to meet new people and get tips. Many investors even find mentors to help them succeed in real estate investing.

    In addition to getting tips from more experienced investors, networking allows you to start meeting people who can help you later on. For instance, you may meet a realtor who can help you sell a property once you renovate it.

    Start small

    When you’re new to real estate investing, you might get excited and want to jump in head first. However, you should always start small by dipping your toe to ensure you make the right decision. For instance, if you want to invest in rental property, consider investing in a single-family home before moving on to larger investments like apartment buildings.

    Meanwhile, if you’re investing using an online platform or app, consider only investing a few hundred dollars until you understand how the app works and which real estate investments you’re most interested in.

    Choose the right loan type

    If you plan to purchase property, you must choose the right loan based on your financial situation and goals. For instance, many real estate investors take deductions on their tax returns, which lowers their income and may make them ineligible for a loan. In these cases, you may choose a DSCR loan that allows you to qualify for a loan based on the property’s rental income rather than your personal income.

    Of course, there are many other types of investment property loans available, depending on your needs. For instance, if you plan to fix and flip a property, you may choose Non-QM loans like bank statements or asset-based loans or a conventional loan with a low down payment requirement.

    What’s most important is that you can repay your loan. Some loans come with higher interest rates because they carry more risk for the lender, while others require higher down payments. You should consider your potential returns and the cost of your mortgage to help you determine which loan can help you turn the highest profit.

    We’re here to help walk you through your home-buying journey, whether you’re just starting your search or looking to refinance your current property.

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    Learn How to Invest in Real Estate as a Beginner

    Investing in real estate can help you passively or actively grow your wealth, depending on the type of investment you choose. If you prefer to be a more active real estate investor and want to purchase a rental property or flip houses, finding the best loan is crucial since its costs can impact your bottom line and earnings.

    Talk to a Griffin Funding mortgage expert today to learn about your investment loan options and find the best one based on your unique financial situation and goals.

     

    Bill Lyons

    Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 22 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 10 years in business.