– How to Get Started –
One of the most common questions I get when speaking to others about what I do is: “What’s the best way to get started investing in real estate?”
Let me tell you, there are near countless ways to invest in real estate and thinking about just how to get started can certainly be overwhelming.
After being on our own journey for many years and doing massive amounts of research, study and networking, we decided to put together this quick guide that will help you understand your situation, uncover what you’re looking to achieve and reveal the best way to get started.
Prior to investing a sizeable amount of money into real estate, it’s critical to have a clear-eyed view of your situation – what you’ve been through, where you are currently and build an expectation of what is yet to come.
Life stages are significant and impactful factors in our lives. You could be a young adult, just getting out on your own; a new graduate starting out in the workforce; mid-career with a growing family; or getting ready to retire.
What is your financial situation and what are you seeking from your investments? Perhaps you’re looking for a large, one-time payout, or maybe you’re interested in smaller, ongoing interest income. Do you have any amounts in mind like how much you want to invest, how much you’d like to earn, or what your financial freedom number is?
Getting a 50,000 foot view of your current situation and answering these potentially tough questions about yourself will help you assess the amount of risk you’re willing to face, how aggressive your investment strategy should be, and the timeframe in which you need to see returns.
There are potentially thousands of ways you can get involved in real estate investing (house hacking, mobile home parks, syndications, Airbnb’s, corporate housing, just to name a few). In almost every opportunity, you stand to make some money.
Shiny object syndrome is real and can have you frantically leaping from one opportunity to the next, only to discover that this one takes too long, that one is too hands-on, and the one before that was too passive.
This is why it’s so important to drill in to your personal reasons for investing – your WHY. Take some time to really understand your motivations; be clear on what you want to do with the returns you’ll make; ID your personal and financial goals; and identify what you’re looking to get through investing.
Do you want to create passive income so you can quit your job and spend more time with your spouse and kids? Are you interested in becoming a landlord and managing property full time? Are the tax benefits of real estate most attractive to you? What do you really want?
Becoming firm in your reasoning and goals before investing will help you avoid shiny object syndrome and the stress it causes down the road.
I won’t believe you if you tell me you haven’t seen those HGTV shows where they take a broken-down junker of a house with mold and rotted floors and then, wa-lah!, they turn it into a magazine cover-worthy, gotta-have-it hot property with irresistible curb appeal.
If you’re vying to be the one busting drywall and exploring the crawl spaces, you are perhaps a more hands-on investor. It’s physically tough, yet gratifying work.
If meeting unexpected critters and wearing goggles while sloshing dirty toilet water on your shoes makes you cringe, thankfully, the world of real estate investing has passive, hands-off investment options for you.
This is a pivotal decision in the process, so take your time and really determine just how hands-on you prefer to be when it comes to your real estate investments. Be sure to consider your current situation, your why, the time you have on hand, and your financial goals.
All investments – stocks, mutual funds, real estate, and even gold – come with risk. Along these same lines, every bit of risk correlates with the potential reward. The adage is that high-risk investments come with higher potential payouts, and low-risk investments tend to have a lower opportunity for profit.
As an example, a new construction highrise in a transitioning area may be riskier while an existing apartment building with current tenants might present lower risk. Real estate investment components always include physical assets and tenants, along with many other moving parts, and there are often ways to mitigate risk. But, there is always the risk of a total loss.
If the idea of potential losses makes you wince, you should consider beginning with smaller amounts of money so you can learn the ropes and gain confidence. Your returns will come in the form of experience and education at first, and with time, as you grow your capital, the financial returns will come around.
Now that you clearly understand your current life situation, financial and time-commitment goals, and the risks you’re willing to take, you can begin to think about just how much money you’re ready to invest.
Hopefully I don’t have to explain why you shouldn’t plop your entire life savings at any investment opportunity (I know someone who did and it didn’t go so well). Nonetheless, I will let you know you should begin with a modest amount you’re comfortable not being able to access for about five years. Your finances should be set up so that all your current living expenses are entirely covered, you have separate savings for emergencies, and that you have additional resources for income and expenses for at least six months into the future.
When you begin to review investment deals, you’ll also want to pay attention to the investment’s exit strategies, just in case you need to get your money out sooner than expected.
Finally, here’s where we get to put it all together. At this point, you’ve evaluated where you are, how hands-on you want to be, how risky you want to play, and how much money you’re willing to invest. With this information, you can narrow the types of investments that best fit your lifestyle and goals.
Most likely, you fit into one of these groups:
Within each of these groups, you might pursue a narrowed-down handful of opportunities that will allow you to best use the assets at your disposal – your time and your money. For example, hands-on investors with lots of time can invest in Fix and Flips, wholesales, house-hacks, or even leading their own syndication deal. In contrast, hands-off investors without much time are more suited for commercial real estate syndications and crowdfunding investment sites.
Investing in real estate is as big of an endeavor and as exciting as you thought it was, which means it can also be overwhelming. As you can see, there are many ways to begin investing in real estate. It will be easiest for you to determine your own, personalized approach by clearly answering the questions presented above, step-by-step.
We’ve also pulled together more about the investor group types and the investment opportunities that fit each investor’s category here in The Beginner’s Guide to Investing in Real Estate pt.2
You can begin investing in real estate with just a few hundred or a few thousand dollars, learning along the way, and slowly building up your knowledge about real estate investments and your capital. Don’t be afraid to fail, though, because even the most successful real estate investors have lost money somewhere. They are “successful” now, though, because they kept going.
Here’s to continued learning, doing and creating Passive Income…for life!
In addition to the ideas just presented, you can amplify your journey with the following resources: