If you’re like most people, you might have a preconceived idea that you must be a billionaire to own property or that the only types of property that are available for investing are abandoned buildings. You would be wrong on both accounts. Getting your start in real estate investing doesn’t have to cost millions of dollars, and there are plenty of pieces of property available that are in decent if not excellent condition. Knowing how to start and where to look are just two of the steps you should take, and using this guide can help you with the rest.
What Is Real Estate Investing?
Before you can even get started investing in real estate, you need to know what you’re getting involved with. Simply put, real estate investing involves the purchase of land and buildings to make money. There are several different categories of real estate investment properties:
- Residential real estate: This type of property includes apartment buildings, homes, vacation properties, or anywhere else that people live. Typically, this is the easiest type of property to invest in if you’re new to investing.
- Commercial real estate: This type of property involves retail stores, office spaces, or any other locations used for business purposes. It’s usually more expensive compared to residential real estate, and you will end up managing more properties.
- Industrial real estate: This type of property features storage units, warehouses, and other large establishments such as car washes. They typically generate money.
The biggest benefit of investing in real estate is the monthly income or cash flow that you’ll make from these rental properties. Ideally, the amount of money you will bring in increases over time since rent increases due to inflation while your mortgage rate remains the same.
What Type of Real Estate Investing Styles Are Available?
After you’ve taken a look at what types of real state investment properties are available, you should examine the different types of investing styles to determine which one works best for you. The five main types of real state investing styles include the following:
- Sole Proprietorship: In this type, you own the property by yourself.
- Partnership: In this example, you own the property with others.
- Syndication: With this choice, your money goes into a pool with other investors to purchase the property. You’re likely a passive investor in this instance and don’t have a say in making decisions regarding the property.
- Real Estate Investment Trust (REIT): For this option, it acts like a stock in that you would own multiple properties and have shares that others can buy into.
- Crowdfunding: Similar to syndication, crowdfunding allows you to invest in an online platform.
You don’t need to stick with just one type of style, as plenty of investors opt to have different types of properties mixed in their portfolios. However, if you’re just getting started in real estate investing, it’s best to just stick with one option until you become familiar with the process.
How Do You Get Started?
Before you take the plunge into investing in real estate, you need to take stock of your financial situation. You need to decide how much money you can afford to spend on a down payment. Since real estate can be a risky business, you don’t want to invest any amount of money you can’t afford to lose.
Begin by putting money aside so you can reach your goal. If you’re looking at a $75,000 investment property, consider that you might need to put 20% down, which is about $15,000. If that number seems too high for you, you might want to set your sights a little lower and look at some property worth about $50,000. With this amount, you would need to put down about $10,000. The rest you would take out as a loan.
Keep in mind that real estate investing can take up a huge chunk of your time. Fixing up the property, whether you opt to do it on your own or hire professionals, takes time and commitment. You can’t just fix the property and expect to be done with it. Maintenance is considered a regular task that you must continue to practice. Consider outsourcing any sort of maintenance to management companies if you can afford it.
How Do You Earn Money?
When it comes to real estate investing, you can earn money in three ways: rent, appreciation, and loans. You’ll see most of your earnings come from rent no matter what type of property you invest in. How much money you can earn depends on several factors, including the type of property, the local market, and if you’re outsourcing some of your tasks to another company.
Appreciation involves the increase in the property’s value over time. Whenever you decide to sell the property, the appreciation makes sure you’re selling it for more than what you paid. You’ve probably heard of property flippers as they use appreciation to make money. It’s important to note that it’s not a guarantee that you will sell the property for more than what you paid.
The last way you can earn money is through loans, which are passive investments. In this option, you lend money to a real estate developer and earn cash on interest payments. It’s also called debt investing. The loan is secured by the property itself, and they’re most often used with development projects. However, in the event of a default by the property owner, you have to recoup your losses through foreclosure.
Real estate investing can be lucrative, but it takes patience and a lot of money to get started. Entering this type of investing is a solid choice since it can diversify your portfolio. When the stock market isn’t performing well, it’s always a smart idea to have other ways of earning money. If you’re interested in learning more about real estate investing, make sure you reach out to the professionals at Titan Funding. We understand how volatile the stock market can be and can offer you access to opportunities in real estate.