Let’s take a look at some real estate investing tips for beginners. Real estate is a fantastic industry. It’s a place where you can make your money grow and have that money work for you allowing it to increase so that you have more money in the future. It’s also an industry involving risk, but you can manage that risk. You can look at opportunities that give you enough return to make that risk worthwhile. So as a beginner you’re going to want to learn a few investing tips or even better understand some aspects of Real Estate so that you can manage these risks and have your money work for you, so you come out ahead.
Real estate can be simple, perhaps not easy, but simple when you break it down into manageable components and when you understand the elements involved to investing, taking on risk, and following the environment of the economics in the area, you’re looking to have your money work for you.
When you choose to be in real estate, you certainly want to be all in with both feet. If you hesitate with a decision, it can cost you time and money. It doesn’t mean that you need to rush anything, but it’s a great idea to look at information and study it point where you would have confidence in the due diligence that you would put towards a project. By having all the facts, this makes this process a lot easier for you. So real estate is a fact-finding mission. You also want to keep things timely as I said earlier if you procrastinate, you can lose out on incredible deals which also translates to leaving a lot of money on the table.
There are a handful of methods used to make money in real estate. Some ways are more popular and widely used than others. In reality, they boil down to a couple of simple approaches and are great for beginners
Direct ownership using the buy-and-hold strategy.
Direct real estate investment has the highest risk but also the highest reward. It’s widely debated whether the direct real estate approach is a passive source of income because of the responsibilities involved meaning, having to deal with repairs fixing light bulbs late into the evening the costs associated with that as well. If you grow your number of properties to the point where you can get a property manager, then it can be a source of passive income, and you can have someone maintain those properties bringing you up with time. It may not be cost-effective if you’re running just a few units you’ll likely be doing that work yourself.
Here’s how direct ownership works. You have a property you rent it out to a tenant, that tenant will pay you money monthly. Then the landlord pays the taxes on the property, the mortgage, and the maintenance all with the rent money.
The best method for a complete beginner would be the owner-occupant method. It would be where you would own or purchase a home. It could be a home consisting of many apartments within it. This type of home would be considered a multi-family dwelling. This kind of house often helps two, three or even four families in need. You would also live under the same roof and share the premise with these other people.
The best case scenario would be that you are netting money at the end of each month. This money could be set aside for repairs and as an emergency fund for example if you’re going to have to put a new roof on the house. You’re going to want to have money set aside to do that because that’ll be expensive.
The second scenario which is the most common scenario which means you’re covering your costs or your expenses at the end of each month so that there is no remaining money left over. You’re enjoying the free equity in the home. So as a long-term strategy this is good because you will own that house because your tenants are paying your mortgage.
The worst case scenario is that your expenses exceed your mortgage. Now if you run into a situation where you have bad tenants, and there are constant repairs needed, or you just have a run of bad luck where maybe you can’t even rent the place out then you’re responsible for the mortgage over and above.
However, once the mortgage is paid off, you own the property free and clear you will still come out ahead over time. By deciding at some point to continue to rent once the properties paid off. You’ll be netting that money over and above, or if you choose to sell the building your mortgage free and that is all positive. If a property appreciates while you own it, you’ll even have more money in the end if you were to choose to sell or keep that equity in the building.
Another method is Buy and flip
If you’re going to get into the buying flip strategy, there are some things that you want to consider. The first thing would be you would seldom ever purchase an investment and put it in your name.
The better option would be to put it in a separate legal entity, that could mean a limited liability corporation or limited partnership. It will allow you to manage risk and protect your assets in the event something goes wrong. In the buying flip strategy, there are a lot of moving parts. You will want to have as many facts as possible. Your fact-finding mission comes into the play here.
You could also get into real estate limited Partnerships; this allows you to be a bit more aggressive when it comes to purchasing while mitigating some of the risks because you would have Partners involved. The downside to this is also you are splitting the assets.
A group of us partnered up years ago and used this exact strategy to purchase foreclosures. If you’re wondering what a foreclosure is, you can see what one is here. The beautiful thing about this group, we were able to power through and purchase some fantastic upscale properties all inside of a year, it was exciting. But as I said earlier we were splitting the assets as well.