Taking the first steps into real estate investment can be daunting, especially if you don’t know where to start. With so many strategies out there, it can be difficult to know what to focus on. These three real estate investment strategies for beginners are easy to understand and can provide you with long-term benefits. If you’re just getting started with your real estate investing career, use these tips as your guide.
Real Estate Investment Strategies for Beginners #1 – Try Property Flipping
One of the simplest and least-expensive ways to get started with real estate investing is through property flipping. This can be a good way to learn more about buying, renovating, and selling homes without taking on a big commitment. If you decide you’re interested in pursuing other types of investment opportunities after successfully flipping one or two properties, that’s another story—but you won’t know until you try! Property flipping involves looking for fixer-upper properties that are undervalued, purchasing them at low prices, making some renovations to improve their appearance and value, and then reselling them. Not every project will turn out well (this is why people say it takes timing and money), but if you invest time into doing your research before beginning each flip project (including assessing market trends in your area), most investors do experience positive results over time. Plus it feels great to complete each project successfully!
How do you find the right property to flip?
Before committing yourself to a property, make sure you understand how to properly evaluate it and decide whether or not it’s worth your time. Flipping properties doesn’t require an advanced degree; it does require some techniques and thinking about what’s important to you before you start. Location is a critical part of your flipping strategy. Read this article for in depth tips on how location can factor into your search for properties that will meet your buying criteria. In addition to location, you may also want to consider the type of property (single family, multi-family, etc.), age, or size. These factors can affect how much you might have to invest in fixing up the property. There is also a profit component we’ll talk about later.
When you are just starting out, you may want to consider investing in properties that are close by. This can help with closing deals or make it easier to address any problems that may arise after the successful purchase of the property.
Methods to evaluate properties to buy for flipping
Before committing to buying a property, it’s important to evaluate every potential deal with a level head. Here are three methods you can use as a beginner real estate investor to vet properties before purchasing:
1) Determine the ARV – ARV is the after repaired value of a home. Use the CMA (comparable market analysis) method to look at other homes for comparison that are recent sales, close in proximity, and similar in square footage. Once you have a chance to look at the property through pictures on-line or in person, you can estimate how much it would take to repair the property and estimate the profits you could make.
2) Estimate Expenses – As a beginner, target homes in need of cosmetic improvements rather than structural changes or major renovations. You may even be able to tackle cosmetic improvements yourself. Renovations and structural changes can turn out to be larger jobs than expected which will cost extra time and money to complete.
When you are evaluating a potential property, add up the costs to renovate the property. Be as thorough as you can, and estimate on the high end. Include labor and materials. Deduct another 5 to 10% for extras and any unknowns. Since you know the ARV, you can then estimate your potential profits.
3) Rental Income Potential – This method evaluates how much rental income you could expect from a given property based on its rental market context. In other words: Would renters pay enough rent to cover your mortgage payments plus expenses based on how you financed the property? While there’s no surefire way to accurately predict rents, a good place to start is looking at recent comparable rentals near your potential flip. Some investors plan on renting out their property before selling, or offer terms to renters to allow them to buy. Allowing a future buyer to rent first can also help them qualify for a mortgage with a new Fannie Mae program.
Real Estate Investment Strategies for Beginners #2 – Partner Up
It’s easy to become intimidated by real estate investing and develop a strong sense of “There’s no way I could do that.” The truth is, though, you can start small—just like any other investment strategy. If you don’t have experience in property or financing, team up with someone who does and see how they handle it. You might find out it really isn’t as complex as you thought—and if not, they can help. Talk to others who have done it; there are plenty of online forums where people share their tips on buying, selling, and building properties; once you get into them, you may even make some money just by sharing your own experiences! Local real estate investor clubs, groups, meetups and associations are great ways to find potential partners. Bottom line – if you find a great deal, partners will follow!
Real Estate Investment Strategies for Beginners #3 – Buy Rental Properties
The phrase “real estate investment” usually brings to mind buying and flipping properties these days, but people used to primarily associate real estate investment with buying rental properties. You can create profits from a rental property investment in two ways. One way is with appreciation. A single-family home, duplex, triplex or fourplex can provide good returns in an appreciating real estate market. Keep in mind that appreciation happens over long periods of time, so you need to be willing to hold on to property for at least five years if you want your investment strategy to pay off. This is one reason why it’s best to start small when getting into real estate investing. Start with something manageable; if things go as planned, move up from there as you develop more experience.
The second way of getting profits from rental properties is through rental income. This requires a focus on what type of tenants will be interested in your property which can drive how much rental income you will receive and how easy it will be to attract prospective tenants to your property. In this next section, we’ll discuss again the importance of property location.
How do you find the right property to turn into a rental?
If you are handy and can make some repairs, you may be able to identify and fix up properties to rent out in working neighborhoods made up of mid priced homes. These properties will cost less to purchase and may make it easier to achieve rental profits above any mortgage payments you have to make on the property if you didn’t pay all cash. Sometimes people will pay a lot more for a small property in a “desirable” neighborhood than they will for a larger property in a less desirable neighborhood. Convenience is also a factor. People like to live close to work and where their children attend school. In short, if a location is desirable based on renters’ needs, they will rent!
In Conclusion
Getting started in real estate investment requires strategies for beginners and even experienced investors. We hope these 3 quick strategies provide a starting point for you. Continue to visit our website as we post more articles and publish other resources to assist and educate you on your journey.
If you found this article helpful, please share our website and visit often to receive more tips, information, or news to help you achieve success in all your real estate needs!
