Real estate is one of those things that can be super fun and exciting but can also feel a little intimidating when you are just getting started. It’s a surefire way to build wealth, but there is a lot to consider. How do you afford a property? What if the market crashes? Where do you even start?
Using smart strategies and thinking long-term is how the best investors win in any market. For beginners, it’s advisable to start with the fundamentals before moving forward. So let’s go over how to get started, where to find funding and what to avoid so you don’t end up in over your head.
Research the Market Before Purchasing Anything
You need to know the market before you purchase anything. Housing prices, interest rates and rental demands change constantly. Rental demand is booming right now as more people are renting instead of buying. That means the perfect rental property could be an excellent investment.
Not all markets are the same though. In some regions investors are aplenty, making finding good deals more difficult. Others are losing people, a trend that can push home prices down. So, research is essential. Check out things like job growth, school ratings and neighborhood trends before closing a property.
A single-family home, a small duplex, or even a fixer-upper in a burgeoning neighborhood is a good place to start. These kinds of properties are more manageable and provide consistent rental income.
How to Fund Your First Property Purchase
Many believe you need loads of cash or pristine credit to invest in real estate, but that’s not always the case. Buying property doesn’t necessarily require having a big savings account.
One way is to use creative financing for real estate investing— this essentially includes finding non-traditional ways to pay for a property. For example:
- Seller financing — You don’t borrow money from a bank. Instead, you pay the seller directly.
- Lease options — You lease a property with an option to purchase.
- Self-directed IRA – If you have retirement savings, you could use those to purchase real estate.
- Private lenders or crowdfunding – Some investors take loans from individual lenders instead of banks.
If you already own a home, you may be able to use the equity in your home to purchase an investment property. A home equity line of credit (HELOC) or cash-out refinance can give you the money without needing to save more.
Another option is to team up with someone else. Many novice investors team up with others to share costs and risks. That way you don’t have to go in all alone.
And be sure to consider down payment assistance programs. Some government-backed loans allow for smaller down payments, which can make it way easier for you to buy your first property.
Select the Right Property
Some properties are not good investments. Some are lovely but become money pits. Some seem downright boring but are goldmines. The trick lies in knowing what to look for.
Here are some easy to manage options for beginners:
- Villas – Easy to rent out and manage.
- Small multi-unit properties (duplexes, triplexes) – More rental income with less risk than large buildings.
- Fixer-uppers in good locations — These can be a great choice if you’re willing to renovate.
The importance of a good location is equal to that of the property. A cheap house in a rundown area won’t be a wise investment. Search for places with job growth, good schools, and rising property values.
Also determine what type of investor you would like to be. Are you interested in a long-term rental for passive income? Or do you plan to do flips for quick profits? Your objectives will determine what type of property would work best for you.
What Most Beginners Get Wrong (And How To Avoid It)
First-time investors make a lot of the same mistakes — and they can be very costly. Here are some of the biggest ones:
- Underestimating expenses — Being a landlord is more than just paying a mortgage. You’ll have to pay property taxes, repair costs, insurance and possibly go months without a tenant. If you don’t carve out a budget for these, you may find yourself stuck financially.
- Buying without doing proper research – Some buyers get on the bandwagon for a “good deal” even though they do not look at rental demand or future expected home values. A low-cost home is not always a wise financial move.
- DIY-ing Everything – Managing a property does sound straightforward; however, tenants, repairs and legal issues soon become a full-time job. Investors often employ a property manager, who takes these headaches on their behalf.
Also, don’t let emotions control you — just because you like a home doesn’t mean it’s a good investment. Remember, numbers, not feelings, are all that matter.
Why Real Estate Is Still Working (Even in a Difficult Market)
Many people don’t believe real estate is worth it anymore with high interest rates and rising prices. But here’s the thing—real estate has always been a good investment.
Homes decrease and increase in price, but they tend to go up over time. And unlike stocks, real estate has two huge advantages:
- Immediate income – By renting out your property, you can earn money from the get-go.
- Long-term appreciation – With time, your property might appreciate and become a valuable asset.
And real estate is real — you can see it, rent it, and fix it up. If you’re investing in rental properties, know that even in bad economies, people need a place to live. This is part of the reason real estate investing has made so many millionaires.
Actions You Can Take Right Now to Get Started
If you’re serious about getting started with real estate investing, here’s something you can do today:
- Begin market research – Assess rental demand, job growth, and property prices in various regions.
- Check your finances – Learn what you must have to pay for that first property.
- Determine what type of investor you wish to be – Are you searching for rentals or flips?
- How to be better informed – Get involved with local real estate groups, seek out podcasts, and connect with experienced investors.
- Don’t get discouraged – The best deals don’t always show up immediately, but when they do, you want to be prepared.
Starting out in real estate can be daunting, but it doesn’t have to be. If you know the market, pursue the right funding options and buy the right property, and you’ll be well on your way to building wealth. Of course, you’ll screw up — that’s how learning works. But if you do a little research and plan for the long term, you can win.
With real estate, many people have achieved financial independence. The question is — are you ready to make that first move?