Many people want financial freedom but aren’t sure where to start. The stock market feels like a rollercoaster and it can be challenging to save up. Maybe you’ve heard about people making a fortune in real estate and have found yourself wondering, “Can I do that too?”
The good news is, real estate investing isn’t just for the wealthy or a select few. Almost anyone can get started as long as they have the right information, goals, and strategy in place.
From dipping your toes in the industry as a real estate agent or a house hacker, to flipping properties or owning your very own rental property, in this article, we’ll talk about how you can get started in your real estate journey. See what’s involved with each of these options, as well as practical advice and insights, that can help you to decide which option is right for you.
6 Strategies for Beginners to Invest in Real Estate
Real Estate Strategy #1: Start as a Real Estate Agent
What do millionaires Barbara Corcoran, Josh Altman, and Sean Conlon have in common? They all started as real estate agents. Corcoran began her career as a real estate agent in New York City and eventually founded The Corcoran Group, growing it to a point where it’s generating 20 billion dollars worth of sales. Altman, co-star of “Million Dollar Listing Los Angeles,” started as an agent and has also closed billions in sales, becoming one of the top real estate agents in the U.S. Conlon, a former janitor, one day started selling real estate, and soon became one of North America’s top brokers.
Becoming a real estate agent is a fantastic way to immerse yourself in the industry, learn the ropes, and get paid while doing it. It’s no wonder that there are over 3 million real estate licenses in the United States, although not all of these agents are actively selling.
In the U.S., real estate agents typically earn commissions of around 5% - 6% on the sale of a home, which is then split between the buyer’s and seller’s agents. So on the sale of a $300,000 home with a 6% commission, each agent could earn $9,000.
Advantages
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You’ll get to know the market inside and out, from pricing trends to what makes a property desirable.
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You’ll have access to properties as soon as they land on the market (or even before, in some cases).
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Your income as an agent comes from commissions on property sales, providing funds that you can save or invest into your own real estate ventures.
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Connecting with professionals across the industry can open doors to future investment prospects and partnerships.
Considerations
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Getting licensed and working as a real estate agent can be time-consuming. You’ll need to pass exams and dedicate yourself to building your business.
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The income can be inconsistent, especially if the market slows down.
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You need to stay current with industry regulations, market trends, and client preferences to sustain success in real estate sales.
Real Estate Strategy #2: House Hacking
House hacking is a creative way to get into real estate investing. The concept is simple. If your primary residence has an extra room or unit, you rent it out to other people. You can also do this by buying a large home or a multi-unit property, then live in one unit while renting out the others. This allows you to reduce your living expenses while building equity in the property. Mindy Jensen, co-host of the BiggerPockets Money podcast, has become a fan of house hacking after renting a spare bedroom in her home.
“House hacking is turning my primary residence into a money-making machine,” Jensen told CNET.
Advantages
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Rental income from the other units can cover your mortgage and other expenses, potentially allowing you to essentially live rent-free. This can be a game-changer for personal finances, freeing up income to invest in additional properties or other ventures.
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While tenants help pay down your mortgage, you’re also building equity in the property. Over time, as you pay off the mortgage and property values appreciate, your net worth increases.
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House hacking offers hands-on experience in property management, tenant relations, and real estate investment. This can be invaluable if you plan to expand your real estate portfolio in the future.
Considerations
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You need to be comfortable with the idea of living near or with your tenants. This close proximity requires good interpersonal skills and boundaries.
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You’ll need to manage the rental units and handle tenant issues, maintenance, and repairs. This can be time-consuming and sometimes stressful.
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Local zoning laws and rental regulations can affect your ability to rent out parts of your property, so be sure to check with authorities first.
Consider reading Living With Roommates: Strategies for Communication and Conflict Resolution before you house hack.
Real Estate Strategy #3: Flipping Properties
If you have an eye for spotting potential and a love for renovation, flipping properties might be your calling. Investors buy a property that needs some TLC, renovate it, and sell it for a profit. The reality? It’s a bit more complex, but incredibly rewarding if done right.
Advantages
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Flipping allows you to capitalize on market opportunities and your renovation skills to maximize returns. You can turn a tidy profit in a relatively short time frame with the right property and smart renovations.
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Unlike rental properties, flipping doesn’t tie you down to a long-term commitment. Once you sell a property, you can move on to the next project or take a break.
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Flipping properties lets you unleash your creativity. You have the freedom to create a home that appeals to buyers and enhances its market value.
Considerations
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Renovation costs can quickly add up, and unexpected issues can eat into your profits.
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A shift in market conditions could affect your ability to sell the property at your desired price, potentially leading to longer holding times and reduced profitability.
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Flipping requires time, energy, and expertise. You’ll need to manage contractors, stay within budget, and ensure that your renovations add value to justify the investment.
Real Estate Strategy #4: Buying Fixer-Uppers to Rent Out
This strategy combines the thrill of flipping with the stability of rental income. You buy a cheap property that needs work, fix it up, and then rent it out. This way, you get the immediate boost of increased property value plus the long-term benefit of steady rental income.
Advantages
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Renovations can increase the property’s value, boosting your equity.
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Renting out the property provides a consistent income stream, which can help cover expenses and generate profit.
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With the right renovations, you can attract reliable tenants or command higher rent prices. This could mean lower vacancy rates and maximized returns.
Considerations
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Renovating a fixer-upper requires a lot of sweat equity. You’ll also need to budget for purchase costs, renovation expenses, and any unexpected repairs that might pop up along the way. You need to run the numbers and perform due diligence to make sure you’re not saddled with a money pit.
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Being a good landlord means being hands-on. This investment requires time and attention to thrive.
Learn more about fixer-uppers here: Guide to Buying a Fixer-Upper as an Investment Property.
Real Estate Strategy #5: Buying and Holding Properties
The buy-and-hold strategy is all about playing the long game. You buy properties with the intention of holding onto them for a while, letting their value grow over the years before selling at the right time. Another bonus? While you wait for a good time to sell, you can also rent it out to generate income.
Advantages
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Real estate tends to increase in value over the long term. U.S. home prices have generally gone up, giving investors potential for nice profits.
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Provides a steady cash flow through renting, helping to cover costs and generate profit.
Considerations
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Real estate values can go up and down over time. So, it’s smart to pick your properties and locations carefully, considering things like where the economy is headed and who’s moving in.
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Owning property means paying regular bills, like for repairs, property taxes, insurance, and management fees. Investors should budget for these costs to make sure an investment stays profitable.
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Unlike stocks or bonds, real estate isn’t as liquid. If you need money fast, it might take some time to find a buyer and close the deal.
Find out how renting out an investment property helps you acquire recession-proof income.
Real Estate Strategy #6: Buying and Renting Out a Single-Family Rental
Buying a single-family home to rent out is a straightforward strategy for real estate investing. Single-family homes are in high demand in many markets, making it easier to find and retain tenants. In fact, single-family renters comprise 33% of all renters in the United States. Families often prefer the space and privacy these properties offer compared to apartments or condos. This can be a great way to start building your investment portfolio.
Advantages
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Single-family rentals are often easier to manage compared to multi-unit properties. With just one tenant or family to deal with, maintenance and tenant management may be simpler and less time-consuming.
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The monthly rental income can cover mortgage payments, property taxes, and other expenses, plus generate a profit.
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Over time, single-family homes values generally appreciate. Aside from the rental income, you can benefit from long-term capital gains when you decide to sell the property.
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There are numerous financing options available for single-family homes. Aside from conventional mortgages, there are government-backed loans like the Federal Housing Administration (FHA) loans and Veterans Affairs (VA) loans, which often have favorable terms.
Considerations
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The initial investment can be hefty, including the down payment, closing costs, and any necessary repairs or renovations to make the property rental-ready.
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There is always the risk of vacancy, which means you’ll need to budget for periods when the property is not generating rental income.
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Even with a single-family rental, you’ll need to manage tenant relationships, maintenance requests, and potential issues like non-payment of rent. Hiring a professional property manager involves some costs, but they can ease your workload and improve the tenant experience.
Why Should You Invest in Real Estate?
Real estate is a proven pathway to financial freedom because of its ability to generate steady cash flow, benefit from long-term appreciation (in most markets), and provide tax benefits.
It’s also seen as a solid investment choice thanks to the stability that it offers compared to many other investment options. If you’re a landlord, there’s also the added benefit of rental income as well.
“It is much easier to find cash flow in real estate than in the stock or bond market,” says wealth manager Shaun M. Jones. Real estate investors may have lower returns than stock investors, but rental property owners can expect a predictable cash flow, which isn’t always the case with the stock market and its fluctuations.
Properties also tend to go up in value over time. Yahoo Finance found that over the last 20 years, the average home price value in the U.S. has grown from about $140,000 to about $340,000. For rental properties, the average return of investment (ROI) is 10.6%. Real estate is not risk-free, of course, but its combination of growth potential and stability could make it a smart choice for anyone looking to secure their financial future.
While every investor’s journey is a bit different, the above strategies are some common paths that investors have taken to find success with real estate investing. Choosing the one that best aligns with your financial circumstances and investment style can help you to hone in on the next steps that you should take.
Not sure where to start? Just remember, every successful investor was a beginner at some point. Begin by taking every opportunity that you can to learn more about real estate investing. Then, start connecting with seasoned investors or mentors. Knowledge builds confidence, and by taking the time to learn more about real estate, you’ll soon be armed with the tools that you need to confidently begin your venture into real estate investing.
Start your real estate masterclass with Renters Warehouse Education Center’s extensive library of FREE resources and guides. If you’re looking to buy your first investment property, check out our marketplace of single-family rentals.
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