Real estate investment remains one of the most lucrative, moneymaking ventures in the known world. However, it is not always clear where to begin or how investing in real estate truly makes you money. Similarly, while the idea of purchasing rentals, flipping houses, or backing a real estate venture may sound ideal in the conjectural, we simply do not live in a time that supports emptying your savings when the return is unclear. Luckily, investment has changed over the years and it is no longer exclusively for “members only.” From investment apps like Fundrise to the implementation of crowdfunding in general, real estate investment is now open to all for very little down. In fact, when it comes to real estate you do not need: credit, massive amounts of capital or major assets thanks to creative financing, lots of money, experience, or skills to leverage. So, whether you are considering real estate to generate passive income to boost your overall financial health or looking to make big money, there are options available to you.
5 Steps to Become a Real Estate Investor
1. Understanding Real Estate Investment
Real estate remains one of the foremost ways of making considerable sums of money. Historically, this has remained true throughout the ages because shelter is a basic component of both industry and survival. Secondly, real estate happens quickly! Thus, if you have the skills to flip homes for quick resale, you can potentially earn big money quick. For example, flippers may purchase a home for $85,000, sink 15,000 in on upgrades, and sell it for $135,000 or more. Or investors may choose to purchase several homes in a nice area for $1000 a month and charge $2,000 to rent them out. This is considered positive cash flow (when you make more than you are spending) and as you owe less, you gain more, allowing you to invest and expand, doubling or tripling your earning potential. As you can see, there is money to be made in real estate. Lastly, it does not require a lot of money to begin. You can begin investing for zero down!
Typically, real estate investment falls into one of the following domains:
- Single family homes
- Multifamily properties
- Mobile homes
- Vacant land
- Commercial real estate
Understanding the language behind real estate provides insight.
Here is a list of common terms you may encounter:
- Financial Investment is defined as the process of giving money to make money in one of the six investment types. For the purposes of this article, we will be looking solely at property.
- An investment portfolio is an active display of your investments across the board. A diversified portfolio demonstrates a wide variety of assets and protects against major losses by maintaining the balance between gains and losses (risks).
- Investing directly refers to buying and investing in a property outright
- Investing indirectly refers to purchasing through an investment fund
- Growth investment is a venture that gradually becomes more valuable as it ages. It additionally speaks to the willingness of the investor to carry an investment over time, despite what the market may do in the interim. Property or real estate is considered a growth investment.
- A return is the money you make from an investment.
- A capital gain is when the value of your investment becomes worth more money.
- Crowdfunding is the practice of raising small amounts of money from many people, via the Internet, to fund a venture or project fast. Crowdfunding is not restricted to real estate. In fact, GoFundMe is an example of a lucrative, crowdfunding site that is estimated to be worth around 600 million dollars. Real estate crowdfunding investments work similarly wherein a pool of investors collaboratively invest in a real estate venture, becoming shareholders. As shareholders, you generate profit off your number of shares (which is determined by how much you invest).
- An investment fund refers to the act of investing as part of a group and owning a share of the collective investment.
- Stocks are stakes of ownership one has in a company.
- Bonds are debts that investors acquire to reap money from the interest rates as well as the total payoff.
- The Market is a complex system and difficult to paraphrase in a few sentences. However, because your money, gains, or losses are governed by the market, a solid attempt at understanding what it is, how it is driven, what can effect it, and how it stands amidst our current economic state should be established before investment. In short, the market is the spinal cord of economy, where investors buy and sell assets. This is not to be confused with the Stock Market, which sells and buys pieces of major corporations, or securities through open stock. There are many types of investment markets, but they are all dependent on our economy.
- A market trend is a mathematical prediction to how the market moves over time. It is designated by three domains: secular (long-term), primary (average term), and secondary (short term), and is used to determine whether an investment should be made or not
Before investing, spending time researching and understanding your role will help determine what type of investor you want to become. It is also highly recommended you research and make every attempt to understand the market before you invest your money.
2. What Type of Investor Will You Be?
Before choosing how to invest your money, there are a few questions to consider:
- How much money are you able to put down without it being a financial liability to your family?
- How much are you hoping to make from your investment?
- Are you willing to partner with others to see your investment realized?
- Are you planning to leverage your skills and provide sweat equity?
- What is your timeframe?
- How much time can you dedicate to your investment?
- Are you willing to work with banks?
- What is your back up if the market goes south and you lose your funds?
- Am I looking for passive income?
Answering these questions will determine which type of real estate investment would work best for you and outline the necessary steps to get you there.
3. Traditional Real Estate Investment
Now that you have established what you hope to gain from your investment, consider the following types of real estate opportunities available to you.
Rentals can be separated into two domains: Vacation and long-term. While it may be true that both can bring you considerable income, overseeing rentals, renters, and property upkeep is a fulltime job. That is unless you contract a brokerage or property group and pay for them to oversee the process for a large fee. Furthermore, although considerably less hassle comes with vacation rentals, you do have to consider down seasons, upkeep, high insurance rates, and whether tourism is a sustainable in that area. Thus, if you are considering investing in a rental unit or building, take time to weigh the facts and be sure you are ready for a lifestyle change.
Made popular through home improvement tv, flipping houses is another way to create a high return on your investment. The idea behind flipping is easy to understand. House flippers buy a fixer upper in an upscale neighborhood, fix it up, and sell it for more than the purchase price, walking away with considerable sums of money. As with any investment, there is always risk involved, but unlike rentals wherein people are pledging a monthly amount, flipping must be done within a certain budget and timeframe to make the investor money. At times, investors will cut out the middleman and find a buyer before they flip, which is referred to as Contract Flipping.
Short sales refer to the act of selling a property for less than what is owned on a mortgage. To do this, the seller must have the banks permission, and while it is not a common way of purchasing a home—it is common enough. Short sales are often a last-ditch effort to thwart of repossession. In terms of investment, this means purchasing a property for less than its worth with the intention of reselling for its full potential to generate profit. According to most sources, there is money to made and it is not uncommon to walk away with over $100,000, depending where you live.
Commercial Real Estate
Under the same notion of flipping, those involved in commercial real estate obtain properties, add upgrades, and resale or rent for greater profit. Depending on location, commercial rentals create considerable payouts. According to research, commercial real estate is where the big money lies. However, it is cautioned that there is a great deal of consulting and interpretation needed to pursue this venture. Before ever purchasing commercial real estate, profits, marketing, location, and several other factors should be considered to determine whether the building is a secure investment or pose low risk against losses.
Some choose to lease properties and sit on them until a market upswing where they can sell the lease for more, or a downturn where they can purchase the property for less. This requires a knowledge of market trends and the ability to sit on investments for a period until they become profitable.
4. Hands-off Investment Options
Owning, flipping, or managing properties is not for everyone. Some simply prefer less direct ways of investing, which is where options such as crowdfunding comes into play.
Crowdfunding occurs when a pool of investors go into a real estate venture together and make money from their share. Most individuals like this option because it costs nearly nothing to begin, eliminates the need for banks and loans, and can be monitored by your phone. You can begin with as little as $500. Most people do see returns on their investment. However, be sure to read the fine print and understand how this works before investing.
Popular sources in this domain are:
- RealtyMogul is structured for passive income growth and requires a $1000 minimum to begin. Unlike others, they deal in commercial and residential opportunities, which is ideal for those who are interested in pursuing both or have a preference of one over the other. Moreover, RealtyMogul is known for its taste, sourcing the most lucrative and best opportunities for their investors.
- Fundrise is one of the most reputable real estate crowdfunding options available. Upon researching how much people earn per year, the numbers range from the low hundreds to massive returns. Like anything, risks are involved, the market must be considered, and how you invest impacts your total gain. Fundrise is unique because you are not restricted to a singular deal, offering flexibility and diversification. With Fundrise you can start with as little as $500! Read Our Review Here
Become a Hard Money Lender
Another option is to become a hard money lender. A hard money lender is a personal investor, who invests in others real estate projects and uses collateral as the basis of approval. Hard money lenders earn interest off their loan and take whatever collateral was being held if the loan falls through. While some may feel awkward about this option, hard money loans help others achieve their dreams, where banks mostly work to squash them for anyone with less than perfect credit. The world needs reputable, trustworthy solutions who stand to challenge misguided preconceptions. For the right person, hard money lending could work in your favor.
5. Finding Money to Invest
Invest in Real Estate with Zero Dollars
It is worth mentioning that there are ways you can begin investing almost immediately with zero down. This is ideal for those who have no funds or are looking for a way to maximize their payouts.
Consider the following options:
- Take advantage of peer-to-peer lending networks
- Get a bank loan that requires zero down
- Bring in a partner who can realize your vision and has the money to back it
- Consider hard money lending
- Use home equity as your line of credit
- Capitalize on your assets by trading cars, jewelry, recreational vehicles for land
- Consider seller financing or leasing options
- Find an individual selling land that allows you to make monthly payments and requires no money down
If those do not work, here are additional options to consider.
- Obtain a side gig
- Draw from your savings
- Start on easy platforms and work your way up
- Consider creative financing options
- Bring in partners and find your own investors
- Start small and work your way up
Obtain All the Facts
Before you invest actual dollars, be sure to read the fine print. There should be no surprises when it comes to your finances, and often, fees, cash out minimums or time restricted payouts, and a slew of other factors should be considered before you invest. Moreover, crowdfunding comes with a lot of rules and requirements, so be sure to ask all your questions upfront.
Read any contracts, and only choose lenders that are reputable and have a proven track record.
Finally, be sure you understand how investment will affect your upcoming taxes so there are no surprises at the end of the year. Investment should be about empowerment and financial health, and not causing undue hardship.
Real estate investment is a versatile, lucrative platform that works with your investment style, and requires as little as zero down to begin. There is a misconception that you must spend a great deal of money to generate a worthy return, but with real estate investment that does not apply. Extraordinarily little is all it takes to see your dreams realized. Therefore, if you are searching for ways to make money, investing in real estate can get you there.