Real Estate Investor: Step by Step Guide on HOW ANYONE can do it

How to be a real estate investor: Anyone that has thought of real estate as a means of making money will at one point or the other ask this question: how can I become a real estate investor with little or no cash?

Maybe you are considering quitting your corporate job and starting a real estate investment business. You actually thought about it for years. The only thing that has stopped you from taking the plunge so far is not knowing if you have what it takes to become a real estate investor - especially with your limited knowledge and experience - and how to change that.

Starting a career from scratch at your age can be intimidating, but not impossible. You’ve seen others do it. And if they can do it, so can you.

However, if you look around you will find that success is easy for some investors and failure is hard for others. Of course, you don't want to be in the latter camp. How you do that? Are there things you should and shouldn't be doing? Who do you contact for answers to your questions about how to become a property investor?

Thus, before we go into answering all that question, who is a real estate investor?

Who is a real estate investor?

A real estate investor is someone who evaluates the real estate market and buys a property with the intention of creating wealth. Real estate investors can buy residential or commercial property, or a combination of both, depending on their specific investment objectives.

When you think of real estate investing, the first thing that probably comes to mind is your home. Of course, there are many other options for real estate investors to choose from, and not all are physical real estate.

Real estate has become a popular investment vehicle over the past 50 years.

Buying and owning real estate is an investment strategy that can be both rewarding and profitable. Unlike investors in stocks and bonds, future real estate investors can make use of leverage to buy a property by paying a portion of the total cost upfront and then paying off the balance plus interest over time.

While a traditional mortgage usually requires a 20% to 25% down payment, in some cases a 5% down payment is enough to buy an entire property.

Why You Should Consider Real Estate Investing

The main reason you should invest in real estate is the potential for higher returns compared to other asset classes (like investing in the stock market). In fact, real estate has had an average annual return of 11.42% since 1970 as compared to S & P500 annual return of 10.31%.

Real estate investments, when properly executed, provide asset leverage, asset control, and significant profit. You can even invest in real estate while you're still in college! Regardless of when you start, real estate investing is one of the many ways to expand your financial portfolio.

However, it's important to remember that comparing real estate to stocks is like comparing apples to oranges. While there are some similarities, there are many differences that investors should know and understand. Thus, to be a top-earning real estate investor here are some things to note on how to be a real estate investor.

How to be a real estate investor

As earlier stated, real estate investments can generate high returns and help you grow your wealth. Despite its potential financial benefits, becoming a real estate investor can be a daunting idea for some people. However, with the right knowledge and tools, anyone can do it.

There are some basics that you need to understand before you begin. Here are some amazing tips on how to become a real estate investor:

#1. Get the needed Educational background

First thing first, get the needed educational qualifications. Education doesn't necessarily mean getting a four-year degree. You can read books, blogs, and talk to brokers or mentors about various aspects of the business.

Thus, your very first step in becoming a real estate investor is to acquire adequate knowledge of the real estate business.

As an inexperienced real estate investor, you need to educate yourself about the real estate market, the negotiation process, and all the details involved in buying, repairing, and renting real estate.

For example, if you want to invest in rental properties, you need to read up on the laws and even the average rents in the area.

You should also educate yourself about the risks involved in becoming a real estate investor. Each type of real estate transaction can involve different risks.

In short, before buying your first investment property, you need to make sure that you understand the pros and cons of the business.

#2. Select a Specific type of real estate to Start In

With so many niches, it can be a bit confusing to become a real estate investor. It can be overwhelming when trying to get into many different types of investment property. With such confusion, you risk making bad decisions.

It would be better to start with a niche. For example, you can opt for wholesale, commercial, residential, or even real estate flipping. After you've mastered one niche, it's time to try another niche. It is impossible to specialize in everything at once. like the saying, goes “a craftsman is not anyone's master".

#3.Create a Business Plan

As with any investment career, writing a business plan is a crucial step in becoming a real estate investor. You should think of real estate investing as a business, not a hobby. Define your investment goals and how you want to achieve them.

For example, if you plan to buy distressed real estate for a turnaround, your plan should define the market you want to buy in and why, your limits on acquisition costs, rehabilitation budgets, and your target sales prices, each with a time period.

After you've created your business plan, you can share it with your mentor and make the necessary adjustments.

#4. Secure Your Real Estate Funding

Becoming a real estate investor is difficult if you don't have the funding. Real estate financing is often a major problem for an inexperienced real estate investor, especially when he or she is out of cash.

However, it is possible to acquire funding if you know where to look and what to do. There are many options like mortgages owner-occupied loans, hard money loans, and private money loans. You can also consider partnering with investors who are more experienced and have funding but don't have the time to make a new real estate investment.

You need to make sure that you clean up your balances, improve your credit score, and try to build good relationships with lenders. In addition to a good credit rating, lenders usually want a down payment of at least 20%.

#5. Build a Network of Friends and Business partners

Since real estate is a people business, it is important to network with professionals and other real estate investors. Build a team to support you on your way to becoming a real estate investor.

You should start integrating before you start investing so they can help you with this process. The key contacts you will need include real estate agents, real estate attorneys, builders, property managers, sellers, banks, and lenders.

The type of people you need depends on your business plan. What they offer should match what you want. For example, consider hiring a real estate agent who specializes in working with real estate investors rather than owners.

You can find such contacts by soliciting references from other successful real estate investors. You can also find them on various online platforms.

#6. Go for the Best Real Estate Deals:

To become a smart real estate investor, you also need to know how to buy an investment property. However, not all investment properties for sale will have a positive cash flow.

So there are a few things that you should be doing when buying an investment property if you want to be successful.

Conduct real estate market analysis and investment property analysis to find the best income properties in the US real estate market.

You can use the property market analysis to study the local property market. Buying a rental property in a good location is critical to your success as a real estate investor.

Investing in good neighborhoods will ensure your property has a high rental price as there are more potential tenants. A good location also offers more opportunities for appreciation.

On the other hand, investing property analysis will help you choose the right rental property by calculating key performance indicators for various investment properties.

Now, we know How to be a real estate investor, here are five key ways for investors to make money in real estate.

Five Sure ways you can make money as a Real estate investor.

Owing to the fact, that there are different areas in real estate any investor can focus on, the list below are the top 5 that is sure to give a high return on investment.

#1. Investing in Rental Properties

Owning rental properties can be a great opportunity for people with DIY and renovation skills who have the patience to manage tenants. However, this strategy requires significant capital to fund the initial maintenance costs and to cover vacant months.

According to the US Census Bureau, sales prices for new homes (a rough indicator of real estate value) rose steadily in value from 1940 to 2006 before falling during the financial crisis. As a result, sales prices resumed their rise and even exceeded the pre-crisis level.

Pros

• Provides regular income and properties can appreciate
• Maximizes capital through leverage
• Many tax-deductible associated expenses

Cons

• Can be tedious managing tenants
• Potentially damage property from tenants
• Reduced income from potential vacancies

#2.  Real Estate Investment Groups (REIGs)

Real Estate Investment Groups (REIGs) are ideal for people who want to own a rental property without the hassle of managing it. Investing in REIGs requires a capital cushion and access to funding.

REIGs are like small mutual funds that invest in rental properties. In a typical real estate investment group, a company buys or builds a collection of residential or condos and allows investors to purchase them through the company, thereby joining the group.

A single investor can own one or more stand-alone units, but the company that manages the investment group manages all units collectively takes care of maintenance, publishes vacancies, and interview tenants. In return for performing these management tasks, the company gets a percentage of the monthly rent.

A standard real estate investment group lease is in the investor’s name, and all of the units pool a portion of the rent to guard against occasional vacancies. To this end, you'll receive some income even if your unit is empty. As long as the vacancy rate for the pooled units doesn’t spike too high, there should be enough to cover costs.

Pros

• More hands-off than owning rentals
• Provides income and appreciation

Cons

• Vacancy risks
• Similar fees as mutual funds
• Susceptible to unscrupulous managers

#3. Investing in House Flipping

Home flipping is intended for people with extensive experience valuing, marketing and renovating real estate. Turning a home over requires capital and the ability to make or oversee repairs as needed.

This is the proverbial “wild side” of real estate investing. Just as day trading differs from buy-and-hold investors, real estate fins are different from buy-and-lease owners. Example: —real estate flippers often look to profitably sell the undervalued properties they buy in less than six months.

Real estate flippers often do not invest in real estate improvement. Therefore, the investment must already have the intrinsic value necessary to make a profit without change. or they'll eliminate the property from contention.

Flippers unable to quickly unload a property can get into trouble as they typically don't have enough untied cash to repay the mortgage on a long-term property. This can lead to continuous and total losses.

There is another type of real estate flippers that makes money by buying real estate at reasonable prices and adding value through renovations. This can be a longer-term investment where investors can only afford to buy one or two properties at a time.

Pros

• Ties up capital for a shorter time period
• Can offer quick returns

Cons

• Requires a deeper market knowledge
• Hot markets cooling unexpectedly
  
  

#4. Real Estate Investment Trusts (REITs)

A real estate investment trust (REIT) is ideal for investors who want portfolio exposure to real estate without a traditional real estate transaction.

A REIT is created when a company (or trust) buys and operates high-income real estate with investor money. REITs, like any other stock, are bought and sold on major exchanges.

A company must distribute 90% of its taxable profits as dividends in order to maintain its REIT status. This way, REITs avoid paying corporation tax when an ordinary company is taxed on its profits and then has to decide whether or not to distribute its after-tax profits as dividends.

Like dividend-paying common stock, REITs are a solid investment for stock investors looking to generate regular income. Compared to the above types of real estate investments, REITs allow investors to access non-residential investments such as shopping malls or office buildings, which individual investors generally cannot buy directly.

More importantly, REITs are very liquid as they are traded on an exchange. In other words, you don't need a real estate agent or transfer of ownership to redeem your investment. In practice, REITs are a more formal version of a real estate investment group.

Finally, when considering REITs, investors should distinguish between equity REITs that own buildings, and mortgage REITs that provide financing for real estate and dabble in mortgage-backed securities (MBS).

Both offer exposure to real estate, but the nature of the exposure is different. An equity REIT is more traditional, in that it represents ownership in real estate, whereas the mortgage REITs focus on the income from mortgage financing of real estate.

Pros

• Essentially dividend-paying stocks
• Core holdings tend to be long-term, cash-producing leases

Cons

• Leverage associated with traditional rental real estate does not apply

#5. Investing with Online Real Estate Platforms

Real estate online investment platforms are intended for those who wish to join others to invest in a larger commercial or residential property. The investment is made through online real estate platforms, also known as real estate crowdfunding. here, You only need to invest capital, even though less than is required to buy real estate directly.

Online platforms connect investors who want to finance projects with real estate developers. In some cases, you can diversify your investments with little money.

Pros

• Can invest in single projects or portfolio of projects
• Geographic diversification

Cons

• Tends to be illiquid with lockup periods
• Management fees

The Risks Of Real Estate Investing

You need to understand the risks before investing. One of the main risks associated with buying and selling a property at a significantly lower price due to market conditions or other conditions beyond your control.

Another common mistake is when to buy and sell, which can result in significant losses or losses on a trade or market rally ahead of your prediction, forcing you to buy the same product that was available at a bargain price.

If you own the rental, maintenance and other major costs can also be a challenge.

What are the Tax Implications of real estate Investment?

You should be aware of the tax implications of investment property from the outset. One of the most important determining factors is how the asset is classified and how it is used.

You don't want to part with a lot of the income you get from an investment in the form of taxes. The only way to do this is to understand the tax implications of investing in real estate beforehand. An important part of the classification of real estate is the treatment of real estate in the context of the rental real estate business.

Search the existing tax plans and get a clear picture of the different tax rates that apply. Always speak to a tax advisor if you have any questions or concerns.

CONCLUSION:

Real estate can be a lucrative option, but you need to make informed decisions and take consistent action. Use the action guides above to speed up your real estate investing education. However, don't forget to conduct your research based on your own financial situation in order to reach your maximum real estate investment potential.

Whether real estate investors use their properties to generate rental income or wait their time for the perfect sales opportunity, it is possible to build a solid investment program by paying a relatively small fraction of the price.

Thus, becoming a real estate investor takes a lot of research, a plan, the use of the necessary tools, and good execution. Of course, since real estate investments can be of great value, they can come with many risks. It is therefore important to be strategic, not emotional, like a typical home buyer. You need to invest enough time, energy, and money to be successful in this area.

Owning the business can result in high profits and growth in your net worth.