Real Estate Investing for Beginners: How To Get Started

By UBank
Monday, July 31, 2023

Investing in real estate is anyone’s game — it can be lucrative regardless of your previous experience or lack thereof. Wise real estate investments can be a great way to make passive income, augment your existing savings, and diversify your investment portfolio. With the right tools and guidance, you’ll be well on your way to reaping some of these benefits. Through this primer on real estate investing for beginners, we’ll walk you through the basics, including how to make the most out of your investments. If you’re new to the real estate market and want to get the lowdown, you’ve come to the right place!

Understanding real estate investing

If you’re interested in real estate investing, you have all kinds of options, including:

  • Residential real estate refers to any property where people live. You’ll make money by collecting rent or by selling the property once its price appreciates.
  • Commercial real estate refers to any property that houses a business. As with residential spaces, you’ll make money through rent and appreciation.
  • Real estate investment trusts (REITs) are companies that own commercial real estate. You can buy and sell shares of a REIT to get some skin in the game and bask in their earnings. One perk of investing in REITs is that they’re required to return at least 90% of their taxable income to shareholders annually.
  • Real estate crowdfunding platforms give you the opportunity to invest in new real estate ventures — both residential and commercial. They carry a high reward if the venture turns out to be successful, but also a high risk if it falls flat.
  • Raw land is exactly what it sounds like — you’ll buy the plot of land without any developed real estate on it. It’ll be up to you to build on it yourself.

Investing in real estate comes with a host of benefits, from increasing your cash flow to decreasing your portfolio’s volatility. You might be intimidated by the real estate market’s unpredictability, but don’t overlook the rewards that come with a sound investment. Here at UBank, we’re passionate about helping you take the next step toward investing in real estate. From helping you get real estate loans to providing you with investment advising and guidance, we’ve got your back every step of the way!

Real estate investing for beginners: setting goals

As you’re kicking off your journey into real estate investing, setting clear investment goals can make all the difference. Strong goals can help you keep your eye on the prize and figure out how to navigate different investing decisions. Some common real estate investment goals include:

  • Wealth accumulation. This is at the forefront of virtually all investors’ minds. The more successful your real estate investment is, the more wealth you’ll accumulate.
  • Passive income. This is income that you earn without any labor. It’s another big benefit of real estate investment.
  • Retirement planning. Real estate investments can reap rewards down the line, not just today. That’s why many people make real estate investments with the goal of a comfortable retirement. They couple great with traditional IRAs for a diversified portfolio. Speaking of which:
  • Portfolio diversification. This is a great way to reduce your investment risks. By casting a wide net, you can be more confident in the success of, at the very least, a portion of your investments.

If you’re looking to set some achievable goals for investing in real estate, we suggest taking the below steps.

  1. Set a benchmark for your target net worth. Doing this is a great way to figure out how much money you want to invest. One common metric for determining your target net worth is to set goals, by decade, that are each a multiple of your salary. For example, by age 40, you might set your target net worth at double your current salary. By 50, you might double your target. You get the idea.
  2. Figure out how much you’re willing to learn. Studying the real estate market can feel like a full-time job — it’s a complex and constantly changing world! Be realistic about how much time you’re willing to dedicate to studying its ins and outs. More ambitious goals require more involvement.
  3. Visualize what you want your investment portfolio to look like. Based on your investing goals, current income, and your ideal investment strategy, you can choose the best type of real estate investment for you.
  4. Determine who’s in your network. If you’re new to real estate investment, building a robust network can take you far. This might include real estate agents, buyers, sellers, property managers, and attorneys.
  5. Think ahead. You’ll need to decide when you want to bask in the fruits of your investing labor — now or later. Ask yourself: How much money will you need now relative to how much you’ll need later? How does your retirement savings plan look without real estate investments? These questions will help you narrow down your goals.

Building a real estate investment strategy

Now that you know what matters to you, it’s time to make a plan. Developing a real estate investment strategy can help you march toward your goals with confidence!

One of the best-known investment strategies is flipping, or purchasing a lower-value property, renovating it, then selling it for a higher price. Other common strategies include renting your investment properties to tenants and wholesaling, through which you buy and sell real estate contracts without home ownership. Below are some benefits of these strategies.

  • Flipping properties, when done smartly, offers a high profit potential.
  • Rental properties can provide you with a safe, consistent cash flow.
  • Wholesaling properties doesn’t burden you with the responsibility of owning a home. This can be a major time-saver that keeps you on the periphery if you’re looking for a less involved investment.

With pros, however, come cons. Below are the weaknesses of these investment strategies.

  • Flipping properties is often quite labor-intensive and time-consuming. This “buy, rehab, rent, refinance, repeat” method, while lucrative, comes at a major cost.
  • Rental properties can be a double-edged sword. Hiring a property manager can save you from cumbersome landlord responsibilities. However, it can also be pricey. It’s up to you to pick which is best for your lifestyle and goals.
  • Wholesaling properties involves two steps: finding a seller and finding a buyer. Both of these can be difficult and discouraging, especially for beginners

When deciding on an investment strategy, make sure you’re choosing one that’s aligned with your long-term goals, existing resources, and risk tolerance.

Conducting market research into real estate investments

There are plenty of tips and tricks you can use to predict the value of potential investment properties. For example, the most lucrative properties are often in regions with high job growth near good schools. If the property has well-developed infrastructure such as top-notch plumbing and reliable public transit nearby, that’ll be the cherry on top. If you need some quick info for your market analysis, you have all kinds of options. If you’re into data and statistics, the U.S. Census and National Association of Realtors are great resources for getting straight to the numbers. If you need a bit more guidance, online tools like BiggerPockets and Mashvisor can help you learn about the real estate market and research up-and-coming properties. We also suggest looking at real estate brokers’ Multiple Listing Services (MLS) databases, which are home to huge collections of for-sale properties. If you’re feeling more adventurous, you can search for housing auctions near you and, while respecting your budget, throw your hat in the ring. And once you’ve built up your network, you can bypass the internet and try to find off-market investment opportunities.

Real estate financing options and budgeting

Below are some of our tips for managing your finances and optimizing your return on investment (ROI).

  • Build savings. Before investing in real estate, make sure you’ve built up your savings. Those mortgage payments will keep coming, and you should be confident in your present — and future — ability to pay them.
  • Mind your budget. Each type of investment, from REITs to house flipping, requires a certain amount of money. Naturally, you’ll max out your ROI when you choose the forms of real estate investing that keep the most money in your bank account.
  • Do your research. From scoping out a property’s neighborhood to taking stock of the current market, doing your homework can help you stay confident. It’s how you figure out when, where, and how to spend your money — key to making smart choices.
  • Stay connected. Your network is always a key source of support. You might join real estate investment groups and get encouragement from other shareholders or shake hands with as many seasoned real estate professionals as possible. Whatever the case may be, it never hurts to know people.

Real estate investing for beginners: making an offer

Once everything has fallen into place, it’s time to make an offer and close the deal on your new investment property. If you’ve read up on your property, you should have a good sense of its pain points. Whether the house has been on the market for too long or requires some pricey repairs, you’ll want to emphasize its shortcomings when negotiating.

When assessing a property’s value, your real estate agent — with their experience with and knowledge of the housing market — can be a great resource. Together, you can develop a knockout initial offer.

Another key tenet of your initial offer will be determining any contingencies, which are clauses that, if unmet, allow you to back out of a deal. For example, buyers often set satisfactory inspections, appraisals, and title searches as contingencies.

To prepare for a seller countering your initial offer, you’ll want to have a negotiation strategy in your back pocket. We suggest being open-minded about what your negotiation could look like. While you could simply counter with a lower selling price, you might also ask your seller to cover some repair costs. This type of creativity and adaptability might be your ticket to a successful close.

Real estate investing for beginners: closing the deal

Once it’s finally time to close, you’ll see a lot of faces at the table. Don’t be intimidated — they’re all here to help the transaction run smoothly. Once you sign the contract, you’ll pay your agreed-upon earnest money, or upfront money. An attorney will then receive the contract and oversee the official closing.

Before closing, you’ll be in the due diligence period, or the time between accepting and closing an offer. One of the keys here is a professional property inspection. as well as a home appraisal, title search, land survey, and a review of any disclosures. Through completing these processes, you can determine your property’s potential for appreciation or rental income, which are both key in determining whether to close.

Once you’ve undergone all of these steps, it’s time to celebrate. After tons of hard work, your investment property is finally yours!

You don’t have to navigate the real estate market alone

Whether you’ve already started investing or you’re looking to take the initial plunge, navigating the real estate market without any support can be daunting. Here at UBank, we’d be ecstatic to walk you through the ins and outs of the real estate world. From educating you on investment strategies to getting you a mortgage loan, we’ve got you covered. Visit your nearest UBank location to meet your new best friend when it comes to real estate investing.

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