Unlike stocks, real estate offers an opportunity to create wealth through long-term ownership. To become a successful real estate investor, new investors need to educate themselves about the market and develop a smart business strategy.
Start by learning how to invest in multi-family housing, with anything from a two-unit duplex to a 200-apartment building. You can also invest in commercial real estate, or even buy shares of REITs (Real Estate Investment Trusts).
The key to success is understanding what the market needs. For example, a property with low maintenance and operating expenses can attract tenants and boost your rental income.
1. Learn the Basics
Whether you choose to be an active real estate investor or invest passively, it’s important to learn the basics of the industry. Understand the types of properties and investments that are available, how to evaluate neighborhoods, and what kind of return you can expect on your investment.
It’s also helpful to read books on the subject, especially those by authors who are experienced real estate investors. These kinds of books often change the way you think, empowering you to make better decisions as you move forward in your investing career.
Another good resource is to join a real estate investment club in your area to network and meet other like-minded individuals. These groups are run by experienced investors who are eager to share their experiences and lessons learned.
2. Invest in Multi-Family Housing
Investing in multifamily housing is an excellent way to build an investment portfolio. This can include anything from duplexes and triplexes to apartment complexes. These types of properties offer a steady flow of income and are easy to manage.
This type of investment is also more stable than a single-family home. If a tenant moves out of a multifamily property, it still generates rental income because other tenants will continue to pay rent. This is a great option for novice investors because it allows them to live in one of the units while reducing or eliminating their own housing costs.
Investing in multi-family housing is also a great way to meet people in the real estate industry. This can lead to business partnerships, private lenders, and other potential investors.
3. Invest in Commercial Real Estate
When most people think of commercial real estate, they picture office buildings and malls. But the term actually encompasses a broad spectrum of income-producing properties that can be passive or active investments.
Real estate investors can also focus on short-term projects like repurposing retail shopping centers as warehouses or logistical distribution centers. The pandemic lockdown has accelerated this trend, with many vacated malls now housing these new uses.
The first step to a successful commercial real estate investment is finding the right property at the right price. This requires researching market trends, analyzing property costs and returns, and calculating debt service coverage ratios.
You should also consider working with an investor-friendly realtor and an attorney that specializes in real estate investment transactions. They can help you locate potential properties and accelerate the closing process.
4. Invest in Rental Properties
Real estate investing can seem intimidating, especially for new investors. There are active strategies like flipping houses and personal ownership of rental properties that can consume a lot of your free time and require significant savings for the up-front costs.
However, passive opportunities like investing in REITs and residential complexes can be a good fit for those who want to invest in property but may not have the time or resources to actively manage it themselves.
In either case, savvy real estate investors know to focus on areas with a stable or growing economy and look for properties that have positive cash flow – meaning that the rent it generates covers its mortgage or debt service, property management fees, and taxes. Then they keep track of their expenses using robust accounting software like Stessa, designed by and for real estate investors.
5. Invest in Real Estate Investment Trusts (REITs)
Real estate investments can be a great way to earn extra income and diversify your portfolio. But investing in this industry requires a significant amount of time and effort, so it’s important to consider your budget and time commitment before starting a new venture.
Real Estate Investment Trusts (REITs) are companies that own and operate commercial properties like data centres, infrastructure, apartments, healthcare units and more. They pay out a portion of their profits as dividends to shareholders, which can be taxed annually depending on the account you hold them in.
REITs can be bought individually and traded on the stock market, or investors can invest in REIT mutual funds or ETFs. Choosing the right REITs is crucial to maximizing your return, so look for companies with strong management and a long track record of performance.