Real estate investing is (arguably) the greatest way to build wealth and grow passive income. But we also know that real estate investing as a beginner can seem like a daunting undertaking, and it doesn’t have to be. In this guide, we’ll cover everything from why you should invest in real estate as a beginner, how much money you need to get started (hint: it’s less than you think), and how to find great deals that will make your investment worthwhile.
Why Invest in Real Estate
If you’re looking to build wealth, real estate is one of the best ways to do it. You can buy properties and rent them out, then use the rent money as cash flow for your investment portfolio. Or you can flip houses (buy low and sell high), build rental properties, or simply hold onto a property long-term and watch it appreciate over time.
Real estate investing not only serves as a hedge against inflation but also as a multi-exit investment that can build generational wealth in the background. Unlike stocks, crypto, gold, or cash, real estate profits can be made in several ways—it’s up to you to find out which way you like the most.
How to Invest in Real Estate as a Beginner
There are a few things that you should keep in mind when investing in real estate as a beginner. First, start small. If you’re new to the game, don’t jump into it with both feet and invest tens of thousands of dollars on the first deal you see. You will most likely lose all of your money if you do! Instead, start with something small—like an extra room or garage that could be rented out for some extra cash.
Secondly, choose something you know. While it might seem tempting to take on riskier investments like commercial properties or undeveloped land at first, these can be dangerous without extensive knowledge about them. By choosing something familiar—like residential homes—you will have an easier time learning how each part of the investment process works while also getting used to handling a variety of responsibilities associated with owning property.
But, you can’t get started until you know the possibilities out there!
7 Beginner-Friendly Ways to Invest in Real Estate
Thankfully, real estate is a very diverse asset class, spanning more investment types than you could even think of. Here are seven of the most “beginner-friendly” ways to get started in real estate investing.
- Buy REITs
- Join a REIG
- Try Real Estate Limited Partnerships
- Invest in Real Estate Mutual Funds
- House Hack (or Rental Arbitrage)
- Invest in Crowdfunded Real Estate
- Lend Private Money
1. Purchase REITs (Real Estate Investment Trusts)
REITs are a growing and popular investment vehicle for the masses and can be considered a passive real estate investing strategy. They’re essentially mutual funds that invest in real estate, and they allow investors to diversify their portfolios without having to worry about the day-to-day management of properties. They can result in some serious price appreciation all while giving you quarterly dividends. Anyone can buy REITs for as little as a few dollars!
2. Join a Real Estate Investment Group (REIG)
REIGs are a great way for beginners to get started in real estate investing. You’ll have access to experienced investors who can help you learn the ropes, and they’ll often provide mentorship, guidance, and support throughout your journey.
3. Try Real Estate Limited Partnerships (Joint Ventures)
A limited partnership is a great way to get started in real estate investing. You can find someone who has experience with the process and is willing to mentor you while you learn how to manage your investment properties (and eventually make money!).
Some real estate partnerships are formed when a passive investor simply has money to invest, while the active investor (you…maybe!) finds the deal, manages the property, and handles all the headaches. This is a great way to get into real estate investing with very little money down.
4. Invest in Real Estate Mutual Funds
Another way to invest in real estate is through mutual funds. There are many different kinds of mutual funds, but one type specializes in real estate investments. A real estate fund invests your money into properties that are managed by professionals. These funds usually have low minimums and fees associated with them, which makes them an attractive option for investors who aren’t quite ready to put serious skin in the game yet.
5. Try House Hacking (or Rental Arbitrage!)
House hacking is another way to invest in real estate with little money. It involves living in a home that you own but also renting out extra rooms or an entire section of the house. This can be a great way to earn extra income each month while still owning property!
Rental arbitrage or Airbnb arbitrage are types of real estate arbitrage that are essentially the same concept as house hacking, but you rent the home, instead of buying it. While rent hacking isn’t directly real estate investing, it can help you financially get well on your way to investing in real estate.
6. Invest in Crowdfunded Real Estate
Real estate crowdfunding is an alternative way to invest in property. Instead of purchasing an entire home or apartment building, you can buy shares in a property. The real estate crowdfunding company will use this money to build or buy the building—which may be an apartment complex, office building, hotel, or something else—then they’ll sell or rent each unit individually and pay their investors some nice interest.
7. Lend Private Money
Lending private money—to a friend or family member who is buying a home, for example—is one way you can invest in real estate without buying property yourself. Private lenders offer their money to investors at an 8%-12% (on average) interest rate. This is usually provided as short-term debt, meaning it’s paid back in a year or less. This is a more “passive” type of real estate investing but requires more upfront cash.
Expert Tips for Beginner Real Estate Investors
Now you know where to start, but before you do, make sure you follow some of these tips to be in the best financial shape possible before you do your first deal.
Network
Meet other real estate investors and find out what they do. You can also use social media, like Facebook groups and LinkedIn discussions, to ask questions and learn from others who are already in the business. You can also find a mentor who can help you get started. This is especially important if you’re new to real estate investing, as mentors will be able to guide you through the process and explain things that may be confusing at first.
Read Up on Real Estate Investing
Books and blog posts are a great way to learn about real estate investing. Some great websites where you can read real estate-related articles are:
- The Real Returns (that’s us!)
- BiggerPockets
- Real Wealth
- Mashvisor
- HousingWire
- Redfin
Listen to Podcasts on Real Estate Investing
Sometimes, listening is better than reading. Maybe that’s why the real estate podcasting space has blown up so much over the past few years. Here are some of our favorite real estate podcasts:
- The BiggerPockets Real Estate Podcast
- Real Estate Rookie
- On The Market
- Real Estate Monopoly
- Real Wealth Show
Pick a Market
Picking a market is a very important choice for a real estate investor. You’ll need to make sure your market is in a price range you can afford, big enough to support demand, small enough that you don’t have unlimited competition, and with enough property managers and maintenance professionals around to fix up the property.
The best way to start? Look for your competitive advantage in the market. Do you have any local connections? Do you know any investors in the area? Use what you have to your benefit.
Learn the Lingo
Talking about real estate can often sound like another language, which means you’ll need to brush up on your investing vocab. Here are some common terms most people miss:
- ARV = after repair value
- LTR = long-term rental
- STR = short-term rental
- NOI = net operating income
- BRRRR = buy, rehab, rent, refinance, repeat
- LTV = loan-to-value
And there are many, many more!
Brush Up On Your Math Skills
Real estate is a numbers game. Not only when pursuing deals, but analyzing them. You’ll need to know how to calculate things like ROI (return on investment), NOI (net operating income), cash on cash return, after repair value, and more to be successful in the real estate game.
Don’t Force a Deal
We get it. You want a deal. You want the cash flow. You want to post a picture on Facebook of the new rental property you bought. What you don’t want to do is buy a deal just for the sake of buying a deal. Take it slow, run your numbers, and invest only when it makes sense. If it doesn’t pencil out, it’s probably not worth buying!
Do It!
No matter how prepared you think you need to feel, nothing will make you a real estate investing expert besides getting out there and getting it done! Find a deal, run some numbers, make some offers, and get your first investment underway. From there, you can start building some serious wealth!
Best Books on Real Estate Investing for Beginners
Blog posts are great, but nothing can give you a complete deep dive like reading a book from an expert’s point of view. Here are some of the time-tested classics real estate investors love:
- Best for All Beginners: The Book on Rental Property Investing
- Best for Managing Properties: The Book on Managing Rental Properties
- Best for Commercial Real Estate: Crushing It in Apartments and Commercial Real Estate
- Best for Action-Taking Inspiration: The Millionaire Real Estate Investor
- Best for Finding Deals: Finding and Funding Great Deals
Actionable Next Steps for Investing in Real Estate
Don’t worry. You do not have to buy your next investment property this week. But, you should start taking action right away so you can get to that deal on a timeline that works for you.
Step 1: Get Your Finances in Order
If you want to invest in real estate, you need to take care of your money first. This means getting your finances in order, so you can afford the best properties and make smart decisions going forward. This means:
- Getting your credit score up
- Having a sizable personal emergency reserve
- Having an emergency reserve for your future property
- Paying off all “bad debt”
- Minimizing your unneeded monthly expenses
Step 2: Pick The Type of Investment That’s Right for You
Before you can pick a property to buy, you need to know what type of investment is right for you. There are many different types of real estate and even more investment types within those, including single-family homes, condos or townhouses, commercial properties (office buildings or retail space) multi-family units, mobile homes, trailer parks, and more. Find what you’re passionate about and go after it!
Step 3: Set Up Clear Goals and Hard Numbers
Now that you have a general idea of what type of investment is right for you and what your goals are, it’s time to set up some clear goals and hard numbers like; CAP Rate, Gross Rent Multiplier, and NOI to name a few. You want to be able to clearly define what success looks like so that you can work towards achieving it. Here are some questions to ask yourself: How much money will I need for my down payment? What kind of interest rate am I willing to accept? How long do I plan on holding onto this property? What is my minimum monthly cash flow? Can I afford to hold this property if the market goes down?
Step 4: Research Areas to Invest in
Once you have your answers, it’s time to start looking at areas that fit your criteria. You can use a variety of resources including Redfin, Zillow, Realtor.com, and more. Be sure to check out the neighborhood crime statistics as well as any recent changes in median home values.
Step 5: Talk to Someone Experienced
If you are just starting, or if you’ve never owned a rental property before, it’s always a good idea to speak with someone who has experience in real estate investing. They can help you through the process and answer any lingering questions that may remain. Experienced individuals can be investor-friendly real estate agents, investors, lenders, brokers, or any other type of real estate professional in your area. Even property managers can be a great source of knowledge!
Step 6: Start Searching!
Now that you’ve done your homework, it’s time to start searching for a rental property. Begin by looking at the MLS (Multiple Listing Service) in your area. The MLS is a database that allows real estate professionals and agents to share information about properties near them with other investors, as well as with buyers and sellers. If you don’t have access to an MLS, get in touch with a local realtor or real estate agent—they’ll set you up!
Final Thoughts on Real Estate Investing for Beginners
Real estate is one of the most powerful wealth-building assets on the planet. But, it isn’t easy for beginners. With a moderately-sized learning curve, real estate can seem like a whole different world, but just a few weeks or months of education can change that perception. Before you start investing, know what you do (and more importantly, don’t) want to do in the realm of real estate investing. What interests you? What experience do you have that could transfer over? How financially prepared are you to make the jump?
If you’ve thought through these questions, you’re probably ready to start investing!
Real Estate Investing for Beginners FAQs
Still feeling a bit intimidated? These beginner FAQs should give you bite-sized answers that can give you the confidence to start investing!
It’s as simple as buying a property and holding onto it until you sell. You’ll need to find a property, get an appraisal and financing in place, sign the papers and then wait for the property to appreciate so that you can sell it for a profit. Or, continue renting it out and get monthly cash flow!
It’s usually best to start with a single-family home. These properties are easier to manage and have fewer expenses than multifamily properties, so they’re more suitable for beginners.
Maybe you’re looking to purchase something smaller, like a condo but want to know ‘are condos a good investment?’. The short answer is that they can be if you pick a prime location. If you feel confident in your abilities and have the resources available, you can consider buying a duplex or triplex.
If you’re stretched for time, investing in a REIT (real estate investment trust) or real estate mutual fund may be the best way to go!
If you want to invest in real estate but lack the funds, the first step would be to get educated. Know the asset class, understand the numbers, and then reach out to local investors and present a deal to partner up on. Experienced investors don’t have a ton of time to teach, but if given the right opportunity, they may be more than happy to mentor.
