Investing in real estate is a popular strategy to grow your wealth. Adding real estate investments to your investment portfolio can add diversification and help protect your wealth from the volatility of the stock market.
Check out these real estate investing tips for beginners to discover if you want to own property, buy shares in a real estate investment trust, join a real estate investment group or join the real estate movement through the sharing economy.
How to Start Investing in Real Estate
Decide which route you want to go to become a real estate investor. Then, follow these general steps to start investing in real estate:
- Determine how much time and money you want to spend in this type of investment.
- Set your real estate investment budget: $1,000 to $3,000 for fund investors up to five figures for direct real estate investors.
- Do your research. Find out which real estate options and group investment options are available to you.
- Choose the real estate investment option that fits with your financial and time availability. Less time and money is required for REIT investing with greater outlays for direct real estate investing.
- Save up a cash cushion, as investment-related expenses will crop up. Direct real estate investors will need a larger cash cushion than hotelier real estate investors.
- Be prepared for setbacks. Like any other financial endeavor, you’re likely to experience challenges. But if you do your homework first, you’ll be prepared.
Types of Real Estate Investments
A few options exist for getting started as a real estate investor. Depending on your resources and personal interest, you can find the beginner investing choice that best suits your financial strategy. Here are four of the most accessible types of real estate investing:
1. Rental Properties
To become a direct owner in real estate, find a home, condo or apartment building, buy it and then rent it out. Before becoming a landlord, you’ll need a down payment, property inspections and to review the property’s rental potential and expense records.
Benefits of real estate investing include the opportunity for steady cash flows and capital appreciation, along with tax benefits. However, it takes due diligence to uncover a suitable rental property selling at the right price. And, a key lesson in Real Estate Investing 101: The rental property’s expenses — repairs, maintenance, etc. — shouldn’t be greater than your rental income, or you’ll be losing money instead of making it.
If you have the down payment, time and motivation for direct real-estate investing, find a real estate agent who deals in rental properties and start viewing properties. Be prepared to evaluate the property’s financial records. Do the math to ensure your rental property will provide a good return on your investment.
2. Real Estate Investment Trusts
Real estate investment trusts are real estate investment companies that own or finance income-producing real estate. REITs buy many properties — including apartments, hospitals, hotels, industrial facilities, office buildings and mortgages — and then sell ownership shares to individual investors.
REIT investors enjoy many of the same benefits as direct real estate investors. REITs must pay out at least 90 percent of its taxable income to shareholders annually. REIT returns outpace the consumer price index, according to REIT.com, making REITs a good inflation hedge.
REIT funds might increase in value, but positive returns aren’t guaranteed. Buy during a housing bubble, and when real estate prices return to normal, your REIT might drop in value.
Invest in a REIT as easily a mutual or exchange-traded fund. Sign into your investment brokerage account, punch in the fund ticker symbol, choose the number of shares and click “buy.”
3. Real Estate Investment Groups
To start a real estate investment group, pool your money with other investors to buy property together. You get the benefits of owning a rental property — without the cash and management responsibilities.
The National Real Estate Investors Group offers education and information about how to join a group. Club goals — education alone, or education and investment — and monthly dues will vary.
Joining a real estate investment group provides the opportunity to learn and potentially invest in real property. But getting into business with others is complicated and doesn’t always work out. Read the group’s policies carefully before joining, and have an exit strategy, just in case.
To join a real estate investors’ group, search online for local groups, or start one yourself. The NREIG has resources to help you get up and running.
4. Home Rentals
With the advent of the sharing economy and websites such as Airbnb, ordinary individuals can become landlords. Expert tips to become a hotelier begin with understanding your goals for becoming a rental host. Renting your property through the sharing economy requires a serious commitment, financial outlay, appropriate insurance and ongoing management.
The benefits of renting a part of your home include extra cash and the opportunity to meet interesting, new people. Being a hotelier involves preparing the site for the visitor, managing the listing, being available for questions and concerns, and regular cleaning.
To become a hotelier host, stop by the Airbnb website for a wealth of resources to get you up and running.
No matter what route you take to become a real estate investor, evaluate your personal circumstances before investing. Ultimately, if you’re seeking a guide to real estate investing for beginners, then get your feet wet with a small investment in a REIT fund. It’s more affordable than buying an apartment block. If you’re ready for greater real estate management, check out direct real estate investing, or rent out a room through the sharing economy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.