Entering the real estate market as a complete beginner can be extremely intimidating, especially in today’s market. The median listing price for a single-family home in the United States is $450,000, up 16.9% from 2021 and 31% from 2020. Home affordability is out of reach for many due to record-high home prices, inflation, and high mortgage rates. And yet…the competition remains stiff because of investor buyouts and low inventory.
So, how can someone with little to no experience break into the real estate market? Especially when the most common way to invest in or own property is to buy it as a home buyer?
Invest in Real Estate as a Beginner
This post is for educational purposes only. Invest at your own risk.
Real estate diversifies your investment portfolio and is a great asset for building long-term wealth. Whether or not you own a home or have limited funds, there are a handful of ways you can invest in real estate.
1. Crowdfunded Real Estate Investing
Crowdfunded real estate investing provides a lower barrier of entry as it allows you to invest minimal capital without having to manage a physical property. This type of investing pools money from several investors to fund a project for the actual property owners.
Selecting a project you’d like to invest in is very much like investing in an ETF or mutual fund. Through crowdfunded real estate, you have more opportunity to invest in properties you wouldn’t likely risk as an individual, such as large apartment complexes or commercial real estate.
Crowdfunded real estate investment platforms offer access to private market real estate investments with a small buy-in, anywhere from $500 to $10,000. You can explore specific properties, diversify with different types of real estate, earn dividend payments, and more.
Check out NerdWallet’s August 2022 Top Recommendations for Crowdfunded Real Estate Investment Platforms.
2. Public Real Estate Investment Trusts (REITs)
Another option for investing in real estate with reduced capital and risk is through a public REIT. This type of investment is also traded like a mutual fund, similar to crowdfunded real estate investing, but is publicly traded on the stock exchange. Public REITs are purchasable through a brokerage account.
As a buyer, you earn a portion of the produced income without having to directly purchase the property itself. With access to publicly traded REITs, you can invest in various large-scale properties and share in value appreciation and rental income.
3. Purchase Rental Property
If your current living arrangements and budget allow, then purchase property you can easily rent out. Do your research and due diligence to find a single family home, duplex, or triplex that you can rent to tenants.
Though you can purchase the property in cash, most people would purchase it with a mortgage. A mortgage allows you to use the bank’s money for the purchase while the property value appreciates AND the tenants pay down your mortgage.
Keep in Mind:
- Research to determine fair rental value
- Ensure your rental will generate 1-2% of the purchase price in monthly rent
- Generate positive monthly cash flow: the profit after all expenses are paid (mortgage, repairs, maintenance, insurance, vacancies, etc.)
Renting out a portion of a property that you own and live in is known as “house-hacking”. In this case, you are both the homeowner and the landlord. This type of investment strategy has been around for ages.
You can either rent out spare rooms in your home or additional units in a multifamily property, such as a duplex or triplex. The idea is that you leverage your space to cover your mortgage, so that you are essentially living “mortgage-free” while generating a profit.
If you aren’t ready to take on the landlord role yet, there are other ways to “house-hack” to build equity. These include renting out your driveway, garage, and even your swimming pool.
Check out the Today Show’s House-Hacking Excerpt for more information:
5. Live-In Flip
We’ve all witnessed the rise in popularity of house-flipping. Reality television, in particular, has had a significant impact on the glamorization of house flipping. Brian and I saw this for ourselves as we ventured through Waco, TX, the hometown of HGTV’s stars of Fixer Upper. Heavily influenced by Fixer Upper branding, the area is oversaturated with commercialized products and faux farmhouse decor. Waco’s Fixer Upper Effect appears to capitalize on and encourage the generic handyman spirit to chase after the mere chance of a profit through renovation and design.
The truth is that house-flipping can be fairly difficult to tap into, especially as a beginner wading into real estate. To excel in flipping, one should have a strong team in place to handle market research, contracts, lending, and renovations.
If you’re a beginner in real estate investing and interested in future flipping, then I recommend looking into the Live-In Flip. Living in the property while you renovate it allows for more flexibility and time. Not only will it be easier to secure funding (as it would be a primary residence), but it will also create a space for you to learn and grow in the process of house-flipping.
- Research the local market
- Secure a property below market value that requires some work
- Move into it
- Save money by DIY renovations
- Research and hire out affordable quality contractors for more complicated projects
- Re-sell after you’ve lived in the property for at least two years to avoid capital gains tax
Make a Move
Real estate investing doesn’t have to be overly complicated. Whether you are looking to invest $1000 into a crowdfunding platform like Fundrise or $100 to purchase a REIT through your brokerage account, there are a handful of options to buy-in with minimal risk.
If you’re ready to navigate deeper waters, explore investment opportunities with your owner-occupied property. Strike deals with new roommates or sign leases with tenants to offset your expenses and generate income.
Don’t let the current state of the market scare or discourage you. There are still attainable opportunities to invest in real estate today.
How do you plan on investing in real estate?
Excellent post for those with some spare cash that would like to put it to work. The current financial climate has people scrambling to make sound investments. We considered REITs previously, but our investments were locked up in corporare 401Ks and savings plans. To pull a large enough portion out at that time would have involved a hefty penalty. Things are a little different today. Maybe if I can buy back about 30 years I’d like to try it again.
Thanks! I think back on the townhouse I owned previously and how things would have panned out if I had picked up a couple of the foreclosed units back in 2012. Ah, hindsight is 20/20.
I enjoyed researching for this post. It’s an unnverving time to figure out where to invest right now; I like the idea of real estate, especially since it’s a different kind of situation compared to 2008. With careful due diligence, market research, and sweat equity, I believe real estate still offers a strong ROI.