Buying your first property might seem like a daunting task, but it doesn’t have to be! All you need is an approach and a strategy. Use this step-by-step guide to invest in real estate with confidence.
If you’re serious about investing in real estate, you need an action plan to get started. Most people that “invest” in real estate don’t really invest, they buy a house and hope that it goes up in value.
Let’s be honest for a moment. You don’t know how to invest in real estate because you’ve never invested before. Maybe you’ve even lost money on your last house purchase! So now you’re looking for answers and hoping to find a strategy to help you avoid those mistakes going forward. However, the truth is… There is no “secret formula” that will get you rich quickly. Real estate investing isn’t about fads and trends, it’s about a strategy and an approach based on the benefits of owning property.
There are several things to consider before you buy your first house. This guide explains a simple, 5-step process for investing in real estate with confidence.
I’ve broken down the 4 steps to invest in real estate into a decision tree below. This diagram will help you understand how the process works and how each step relates to the other. I’ve included an outline of the process below as well. Once you read through, you will understand how to invest in real estate with confidence and get started on your property journey.
Step 1: Identify the real estate investment strategy that works for you
There are some strategies that work better than others, but at the end of the day, it doesn’t matter much what kind of strategy you use as long as it works. The best strategy is one that fits your personality and financial situation as well as your investment horizon. However, there are some base principles that all strategies must have in common.
The first step to investing in real estate is to identify a solution that is appropriate for your needs and preferences. Here are the basic principles of investing in real estate that will help you with your decision-making.
1) Invest what you can, when you can. Don’t invest too much all at once. Instead, invest a little at a time over time so that it becomes easier to afford.
2) Try to invest in REITs or REITs-like investments such as property investment trusts (PITs). Owning units within a real estate investment trust is very similar to owning shares of stock: all of your capital is invested in one company. The difference with REITs is that they own specific properties like office buildings, apartment buildings, retail stores, and more.
3) Invest in quality assets: the value of your investment will increase over time with the addition of additional properties to your portfolio.
4) Don’t invest in risky assets that have no intrinsic value. For example, real estate is a safe investment because it can be sold at any time for a profit. However, some investments are not as stable as real estate and are more prone to fluctuations in price.
5) Look for investments that you believe in with strong brand recognition and a proven track record of success over time. This might mean buying units within an existing REIT or investing in an existing property company that has proved itself over time.
6) Don’t put all of your eggs in one basket: diversify your investments so that an adverse event or set of circumstances will not destroy your entire portfolio.
7) Buy what you know and stick with it: buying a rental house is very similar to buying shares of stock, but there are some fundamental differences like the fact that you don’t own the land or the property itself. Some people think that they are better off investing in tangible assets like real estate and gold, but their argument fails to recognize how much money they will lose if they ever have to sell.
8) Reevaluate investments regularly: a real estate investment is not a static thing that you buy once and forget about forever. Instead, it is something that should be monitored and analyzed regularly to ensure that it does not become over-leveraged or overpriced by the market.
9) Invest in assets at the right time: buying an asset too early can result in paying too much money and creating a bad return on investment. Not buying an asset when it is undervalued can result in missing out on substantial gains later down the road.
10) Have the right mindset: patience and discipline are essential when investing, as it requires a certain level of commitment to hold onto your investments even when they are not performing as well as you had hoped.
11) Invest in what you know: invest in assets where you have some level of expertise or affinity with the field. This will help ensure that you make better decisions about how the asset should be used and will also prevent you from becoming too emotionally attached to it, which might impair your judgment about selling.
12. Learn to play well with others: while real estate investors are often portrayed as ruthless types who will do anything to get ahead, this is not always true. The truth is that most real estate investors are more like team players in that they will work together to make sure that everyone has an opportunity to make a profit.
13. Purchase rental properties through a real estate investment corporation (REIIC). An REIC is essentially a for-profit company set up specifically to invest in real estate, and it benefits you by allowing you total control over your investments. This means that you get the benefits of ownership without having to worry about the day-to-day management of the properties or paying for property management.
14. Understand what landlords need from you as an investor: with limited capital available, landlords are usually looking for tenants who will pay on time and keep their part of the deal.
Step 2: Identity what type of real estate investment you want to make
Now that we’ve covered the basics of real estate investing, we can get into the specific types of investments that are available.
There are essentially two types of investments: one-time buys and add-on buy. Buying your first piece of property is usually referred to as a one-time buy, whereas buying more property is called an add-on buy.
Step 3: Find a local investor to help you look for properties in your area
Local investors have access to the best deals because they know which properties are likely to appreciate over time and which ones will not. However, finding a good local investor can be difficult.
1) Look for an investor who has experience in your region with a long-term track record of success. If you don’t know where to look, ask around. You might be surprised to find out how many people have invested in real estate at one point or another.
2) Look for an investor who has access to the best and latest information about market trends and real estate investing in general. This will help ensure that you do not overpay for your properties or buy them from someone you shouldn’t trust.
3) Try to limit your reliance on one investor, as they might have their own agenda that does not necessarily coincide with your own.
4) Avoid investors who focus exclusively on short-term fixes like flipping properties and buying new ones. Although these kinds of investments can be lucrative, they are also very risky and often require less money upfront.
Step 4: Find suitable properties to invest in
This is where you really get down to business: finding properties that you think will appreciate in value over time. This is the fun part of investing, but it can be difficult if you don’t know where to look or what to look for in a good investment property.
1) Spend time figuring out which type of property you want to buy. Although this seems like it should be a simple question with only one right answer, there are actually a number of different types to choose from
2) Understand the market conditions in your area to help you assess whether a property is overpriced or undervalued based on recent trends.
3) Understand the current rental rates and average vacancies in your area to help you assess whether a property will be profitable when you lease it out.
Make sure that all the parts of your plan fit together before investing money into real estate.