Real Estate Investing for Beginners 101

Investing in real estate can provide numerous financial benefits. It is a great way to build a nest egg. Using research tools, such as books and blogs, and asking real estate professionals for advice, beginners can improve their financial literacy and profit from real estate.

Why Invest in Real Estate?

Real estate is widely considered to be the second biggest investment class – second only to the stock market.

Those looking to diversify their investing strategy outside of the stock market will almost certainly explore real estate as a top option for alternative investments.

Real estate investing provides personal control over wealth along with opportunities for appreciation, cash flow, and dividend income.

How to Get into Real Estate

When you begin the process of real estate investment, first identify your goals. If you need assistance, professional partners can answer your questions. A financial planner or advisor can help you with the first step of determining your readiness as well as a financial plan. A real estate agent with experience in real estate investment properties can also be a big help. Look for someone with commercial experience, or contact a commercial brokerage. Commercial real estate brokers are trained to assist in analyzing commercial real estate investments.

Another way to get into real estate is by joining a real estate investment group. These groups make the decisions for you with your input, and invest your money into a pool with other people. Although note that real estate investment groups, also known as private equity groups, often require investors to be accredited.

Alternatively, another great option for real estate investing for beginners is to buy into a real estate investment trust, also known as an REIT.

An REIT is a form of collective investing. REITs purchase and manage a portfolio of properties. By purchasing shares in REITs, you become a partial owners of the portfolio.

This is a common entry point to real estate investing for beginners, because it doesn’t require you purchase the property individually. As you can imagine, that requires a lot of cash upfront. There are several major benefits investing in REITs have over owning real estate outright, particularly for beginners.

How to Choose the Right Real Estate Investment

Consider your goals when planning your real estate investment. Questions to ask yourself include:

  • What is the term of the lease?
  • How much can you invest?
  • Is the real estate located in a high quality market?
  • What type of real estate is it? (e.g.: commercial, retail, residential, etc)
  • If you are considering going the REIT route: who is managing the property portfolio? What is their track record? What are their fees?

If you’re a real estate investing beginner considering REITs, we highly recommend you read our in-depth article about REITs and how they work.

Types of Real Estate Investments

Both residential and commercial real estate can be used for investment. On the residential side, owning a home can be considered an investment, especially if you buy in a rapidly growing market. The appreciation will pay off when you sell.

Also, residential homes can be used for short term rentals, via agencies like Airbnb and Homeaway. Some homeowners have opted to purchase a home with a basement apartment or mother-in-law unit that can be rented out for short-term rentals or long-term leases.

Other commercial investments include both residential and commercial properties. Residential real estate means homes and condos and buildings zoned as residential, while commercial property can include apartment buildings, multiplexes, office buildings, industrial buildings, manufacturing space, and income producing properties such as parking lots or retail venues. Another way to invest is by putting money into an exchange traded fund, or ETF. This is a fund that invests in stocks issued by real estate trusts, or REITS.

Whatever you decide, owning the property and the entrepreneurial aspect of real estate investing can be lucrative, stimulating and even fun.

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