A lot of people say that they want to invest in real estate, but only a few actually follow through with the necessary steps to learn how to become a real estate investor.
If you’re motivated and willing to learn the ropes, real estate investing is a smart way to make (mostly) passive income and to become a true entrepreneur. That said, there are a lot of mishaps and missteps that can occur along the way, so it’s important to more or less know what you’re doing before you dive in. You should do as much research as possible and/or consider taking a real estate class online.
So, ready to learn how to become a real estate investor? Let’s get started!
What Are the Most Common Ways to Invest in Real Estate?
A real estate entrepreneur or real estate investor is anyone who pursues a career in real estate. However, instead of being a full-time agent, you build your real estate portfolio so that it can be a supplement (or eventual replacement) to your full-time income or a passive income stream of its own
You can dabble in all kinds of niches in the real estate industry, adding things like rental property, commercial real estate, and residential real estate to your real estate business portfolio.
There are a few different ways you can invest in real estate, which we’ll outline and explain below.
Buy and Hold
Buy and hold is a long-term strategy that can really pay off for many successful real estate investors. In this plan, you’ll invest in a property to build equity and invest for future appreciation. It won’t allow for quite as much positive cash flow, but if you’re willing to wait around to reap the benefits, you could receive a potential windfall later on.
Cash Flowing Property
This is one of the most common ways to invest in real estate. In this model, which is almost completely passive, you’ll buy a property with stable cash flow. This is the most common way to invest in real estate for people who don’t want to have to put a lot of active work into the endeavor.
You can use invest in a rental property yourself or use a service like Roofstock to get started with this. The Roofstock Marketplace has a long list of single-family rental homes that make perfect passive income properties.
You can create a free account on this platform and start searching for real estate properties to buy. Once you make a profile, Roofstock will contact you directly to let you know when there are matching investment properties for sale.
This technique of real estate investing is a bit more time-consuming and requires some skill. However, fixing and flipping homes is a great way to make extra cash – most homebuyers don’t have the cash, time, or skills to make costly repairs or renovations to homes.
By updating and repairing a home in the “fixer-upper” model, you can often sell the property for much more than you put in it.
As a real estate wholesaler, you won’t make your money by actually taking possession of the home. Instead, you’ll find a motivated seller who is “in distress” because of some issues related to a home. you’ll estimate the fair market value and repair cost of the home and then assign the contract to another real estate investor – in exchange for a nice profit, of course.
Crowdfunding and Real Estate Investments Trusts
If you’re interested in a real estate investing opportunity that is 100% passive, you will want to give crowdfunding a try. In this system, you will collect small amounts of money from multiple real estate investors to buy and then manage complex larger income-producing properties.
If you decide you want to give crowdfunding a try, we recommend starting with a company like RealtyMogul. This company offers vetted properties (only about 1 out of every 1000 properties meets their harsh criteria) so you don’t have to worry about accidentally investing in a dud.
Not only that, but RealtyMogul has a small minimum $1,000 investment with both residential and commercial real estate offerings. It’s perfect for passive income and the growth of your portfolio.
You can also deal in public-traded REITs, or real estate investment trusts, which are found on the major stock exchanges. You’ll receive a small pro-rata share of the cash flow and profit once the property has been sold.
Fundrise is one of the largest Real Estate Investment Trusts. The beauty of Fundrise is that you’ll be investing with other people in a large bundle of real estate properties so all of your money won’t be tied up in one commercial, residential, or rental property.,
It’s a great way to diversify your portfolio and the beauty of it is that it is almost completely passive. You can check out everything Fundrise has to offer here.
How to Become a Real Estate Investor
Before you dive on into real estate investing, it’s important that you take the proper steps to educate yourself on what it takes to be successful. A successful real estate investor doesn’t have to have a background in the real estate business or in property management.
However, you do need to decide what you are hoping to get out of the whole process. Do you want your role to be more passive or active? An active investment strategy includes things like buying and selling properties, finding your own rental properties, and fixing and flipping. A passive strategy will include investing in recurring cash flow streams and property appreciation over time.
Either way, here are some steps to take to get yourself on the track toward becoming a profitable, prominent real estate investor.
1. Educate Yourself
The best way to educate yourself, of course, is by doing. However, you might not want to dive on into the real estate world (where you’ll be spending lots of money) without at least a basic idea of the ins and outs.
There are all kinds of real estate courses, websites, books, and YouTube channels you can take advantage of. There are even coaching programs. Take advantage of any kind of real estate investment educational resources you can find. You need to be able to understand the financing options, the housing market, and various investment strategies for beginners.
2. Build Your Network
Next, build up your real estate network. It can be challenging to become a real estate investor if you are trying to dive into property management on your own. Consider enlisting the help of a professional to get you started rather than risking money and time tackling real estate on your own.
Your real estate network should include a mentor to help teach you about the ins and outs of real estate investments, a licensed real estate agent who can help you find investment properties for sale (and close the deals), an accountant to deal with taxes, and a lawyer to keep you updated with laws and regulations in the housing market.
Having a home inspector on your side isn’t a bad idea, either!
3. Develop a Plan
Once you’ve educated yourself and found a team of professionals to help you get started, you need to take a close look at your finances. Set some goals, both short- and long-term, before you buy a property.
That way, you’ll know the steps you need to meet your goals and be able to stay in touch with your budget. You don’t want to overspend.
Conducting a thorough financial analysis will tell you the best way to finance your property, whether it’s through a traditional mortgage loan, a private money lender, or a hard money lender.
4. Choose Your Location
Where do you plan on investing? The location you selected will largely determine how successful you are in real estate investing.
You shouldn’t always focus on buying investment properties that are for sale near you – your housing market may not have everything you need for it to be a profitable location.
Therefore, you will want to consider other features like current housing market trends, property prices, home construction and opportunities for development, the market’s rate of real estate appreciation over the years, and tenant vacancy and occupancy rates.
5. Come Up With an Investment Strategy
Take another look at the potential real estate investment opportunities and strategies we told you about earlier in this article.
Which of them is right for you?
You don’t have to stick to just one real estate investing strategy, but you might want to start with just one residential property or initial investment until you get the hang of things.
You can come up with a theme in your property investment theme to streamline your approach. Perhaps you only want to invest in rental properties. Maybe you would rather invest in more traditional real estate investing opportunities, such as vacation homes or flip houses. Whatever the case may be, pick a horse and run with it to prevent yourself from getting overwhelmed.
6. Find the Perfect Property
You don’t have to have a real estate license to invest in real estate, but what many successful investors know is that you do need a qualified expert by your side who knows the value of various properties and where to find them.
You’ll have an easier job finding the ideal property if you can narrow down your search – perhaps you only invest in single-family homes or vacation houses.
You can narrow down your search by other qualifiers, too, such as budget, location, and more.
How Much Do Real Estate Investors Make?
Here’s the beauty of real estate investing – the sky’s the limit when it comes to how much money you can make.
Want to use passive real estate investing as a supplement to your full-time income? You can make a few thousand dollars extra per year without hardly having to lift a finger.
Or you can do what many real estate investors do and turn real estate investing into a full-time gig. You could earn more than $150,000 per year – or more! – in this gig.
Educate yourself on what other experienced real estate investors are doing, and then get started. The real estate market in many parts of the country is hot – so what are you waiting for?