Become a Real Estate Investor: 5 Tips to Get Started

Wanna get rich? Working for an hourly wage, while important for paying your bills, will never get you there. Maybe it’s time to start looking at becoming a real estate investor.

There’s a reason that 90% of millionaires make their fortunes by investing in real estate. It’s a safer investment than the volatile stock market and the potential returns are much higher.

Of course, as with any investment, there is a certain amount of risk. You could put your money on the wrong property and lose a lot. But the good thing about real estate is that it will almost always be worth at least something. Unlike stocks which can become worthless if the company goes broke.

Intrigued?

Check out these tips below to get started as a real estate investor.

1. REITs

Real Estate Investment Trusts (REITs) are like the mutual funds of the real estate world. In fact, it kind of feels like investing in the stock market with the way many companies are set up.

These companies amass large sums of money from hundreds or thousands of investors to buy commercial real estate. They may own hotels, apartment buildings, office buildings, or retail space.

They then pay dividends to the investors from the profits generated by the building. You can usually choose to take your dividends as cash or automatically reinvest them to grow your investment faster.

Each REIT has its own rules and method of operations so you’ll want to do your homework before investing.

2. Crowdfunding

Crowdfunding is a similar idea to REITs but has a different execution. You may be familiar with crowdfunding through sites like GoFundMe and Kickstarter. Real estate investors saw an opportunity with this way of raising funds and the idea is taking off.

President Obama signed the JOBS act in 2012 that would allow non-accredited investors to invest in private companies. Before that, you had to be accredited. This meant you had to have a net worth of $1 million or have made $200,000 for two years.

Obviously, this left the average investor out in the cold. Government regulators worried that the JOBS act would allow unscrupulous characters to take advantage of uninformed investors and this delayed the actual enactment of the act until 2016.

Now, with the green light given, crowdfunding is taking off. Crowdfunding sites allow you to get started investing in real estate with as little as $500.

You can manage your own portfolio, which means you’ll need to study the markets and pick which properties you’d like to invest in. Or you can have the company do it for you — if you trust them and don’t really understand how to do it yourself.

3. House Hacking

How about living in an apartment or a house without paying rent or a mortgage? Imagine what you could do with all that “extra” income?

How do you do it? Instead of renting an apartment or investing in a small single-family house, you buy a multi-family property or a large house.

For example, buy the right four-plex and you can live in one unit, rent out the other three, and pay the mortgage with the tenant’s rent payments. The same idea applies to a large, single-family home. Buy a four-bedroom house, rent out the unused bedrooms and you can live rent-free in yours. If you do it right/get lucky, you might even have a little extra cash flow each month.

Of course, you’ll have to come up with the initial downpayment, which might require some hard work and sacrifice. But it’s certainly a viable way to get on the road to riches — or at least a very comfortable standard of living.

Image Credit: Mark Moz via Flickr CC 2.0 – Become a Real Estate Investor 5 Tips to Get Started

4. House Flipping

With all that money you’re saving by not have to pay rent or a mortgage, you’ll find that it’s quite easy to save up another downpayment. If you feel confident enough, it may be time to branch out into house flipping.

The idea here is to purchase a fixer-upper well below market value. Then you fix it up and resell it for a handsome profit. Done well, house flipping can be a lucrative enterprise. But be prepared to make some expensive mistakes on your first flip.

To make a profit house flipping a lot of things have to go right. You have to find the right property at the right price and then the right buyer once it’s ready. Don’t expect to make a fortune on your first flip, but with practice, this can make a lucrative income stream.

Take some time to learn all about what you can do with the proceeds from your first sale. There are many options for reinvesting if house flipping is not to your liking.

5. A Full-Fledged Landlord

Another lucrative option is to become a full-fledged landlord. This is different from house-hacking in that you don’t live in the property with your tenants. You own the property and are responsible for maintaining it, but at this point, you should be earning positive cash flow each month.

Once you understand how to be a good landlord, you can take the proceeds from your units and put it into buying more units.

With a good property manager on your payroll, it won’t even take a lot of work. The manager will handle maintenance requests and collect payment each month. You can continue growing your investments by adding more properties or pay off the mortgage and enjoy your passive income.

Become a Savvy Real Estate Investor

Whichever route you take, be sure to do your homework. Any type of investing is risky and you need to fully understand what you are putting your money into.

Even if you’re just getting your feet wet with REITs or crowdfunding, you need to investigate the companies thoroughly before making your choice. That’s how you will become a savvy real estate investor and really reap the rewards of your hard work.

Check out more articles on our site to learn more about smart ways to invest and grow your wealth.