A common goal for those looking to increase their income, particularly their passive income, is to invest in real estate. Investing in real estate comes with some real challenges and risks but can also pay off handsomely if you do it well. Therefore, it’s important that you get started off on the right foot if you want to invest in real estate. For those of you that want to pursue this path, but don’t know too much about real estate investing, this guide is here to help.
Here are the 3 basic steps you should follow to get started with real estate investing.
Understand the Types.
The first thing you’ll want to do is understand the different types of real estate investing. While there are many different types of property you can invest in, there are essentially three major types of real estate investing, including:
Residential: Residential investments include things such as homes and apartment buildings, along with vacation properties. Basically, if someone can live there, it is a residential property. Newer real estate investors often choose to go with residential properties, as they are usually easier to get started with.
Commercial: Commercial real estate includes properties like retail stores and office buildings. These are the properties where people conduct business. These properties are typically more expensive than residential ones and are hard for a single person to purchase on their own. If you are just starting out, you’ll likely need to join with others to invest in a commercial real estate property.
Industrial: Lastly, there are industrial properties. These include any large special-purpose structures, such as warehouses or car washes. These properties generate sales for the owner, rather than the owner renting out the space to another company.
Decide on Your Funding Source.
After you understand the different types of real estate investment options that exist, the next thing you’ll want to learn about is your potential funding sources. Chances are you do not have all the money you need to invest sitting in a savings account. If you do, then that is your source of funding and you don’t have to look elsewhere.
For everyone else, you may need some assistance to afford your first investment. One option is to go to your bank or credit union and ask for a loan. They will want a detailed plan about your investment and will take your personal financial situation into account, including your current savings, assets, and your credit score, when determining how much they will loan you.
Another option is to go through a hard money lender. According to the founder of Gauntlet, Lou Forino, hard money lenders are “someone who is lending money to real estate investors, normally secured by a note and deed of trust. This loan is not a bank loan from the local or national institutions that takes months.”
Lastly, you can join with other investors. You could invest in a real estate investment trust, join a crowdfunding platform or join a real estate investment group. The point is to find other investors who want to go in on a property, but like you, don’t want to purchase the entire thing.
Research Your Options.
Before you make any investments, it’s essential that you conduct thorough research. There are plenty of real estate investment options out there but not all of them are right for you. For example, if you don’t have a lot of free time to work on your property, then investing in an apartment building may not make sense, as landlords invest a lot of time. The same goes for flipping homes, which can require a lot of time to fix up the home yourself.
Think about not only how much money you want to invest but how much time and the level of risk you want to take on. Then explore the risk factors at play with each individual investment you are considering. Finally, it’s a good idea to consult with a lawyer before making any investments to ensure the legal work is all in place properly. If you want some advice on how to get started with researching a real estate investment property, this guide provides some helpful tips.
Investing in real estate can be a very lucrative choice but only if you take the time to do it right. There are some real risks involved and if you aren’t careful, you could quickly lose your entire initial investment. Real estate investment isn’t just about finding the best investment. It’s about finding the best investment for your current situation.