For centuries, real estate investing has been at the forefront of building tremendous generational wealth. Some of the nation’s wealthiest and most prominent individuals have created their empires through years of buying, selling, and developing land and buildings. Now, media companies and television shows have picked up on the action with popular productions like Million Dollar Listing, Selling Sunset, Flip or Flop, and Love It or List It.
It seems as if whichever way you look, there are people generating market-beating returns strictly investing in real estate. But, are there even any opportunities left in the market?
While walking around large cities such as New York, London, and Tokyo and viewing the remarkable multi-million dollar skyscrapers, exquisite atriums, and impressive office buildings, the aspiring small-time investor can easily be discouraged. We at RealEstateSkills are here to tell you the opportunities are boundless and it’s time you too learn how to become a real estate investor.
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Real estate can be split up into two main categories: commercial and residential.
Each of these areas represents a windfall of opportunity for the aspiring investor.
A real estate investor is one to seize an opportunity in the housing market or commercial space to either:
Whether one is buying and leasing out multi-million dollar warehouses to large corporate entities or buying and flipping houses in one’s local community there is only one goal - create positive cash flow at an attractive rate of return.
I’m here to tell you that with just a couple bucks in savings, you can tap into market-beating long-term risk-adjusted returns that are far superior to any big shop buying and selling billions of dollars in real estate can achieve. With some grit and a little bit of cash, you can easily learn how to become a real estate investor.
Step one, do you need a license?
A licensed real estate individual typically refers to a real estate agent that can help investors buy and sell both residential and commercial properties. While a noble pursuit, getting a real estate license is not required to invest in real estate.
Real estate licenses and certifications are a great way to gain access to real estate market information, trends, and prices. However, unless you want to simply broker a deal, work for a brokerage firm, gain a commission for your work, and walk away, being a real estate agent is not the way to go.
The only thing an aspiring investor needs to crack into the industry is some will, determination, and some basic algebra.
How much money will it take to purchase this property and get it leased up? If I renovate this building, what is the expected price it can achieve if I were to sell it? What are my expenses and month-to-month cash flow?
By answering these questions you’ll already be halfway there. You don’t need a license to be a titan in the industry.
"Ideas are the beginning points of all fortunes." -Napoleon Hill, American Author
From Wholesaling to Fix-And-Flips, there are a number of popular ways to jump into the real estate industry - each with varying start-up costs, timeframes, and expected returns. The following list discusses the most prominent strategies anyone can implement to break into the industry.
Buying a rental property is a great way to create monthly cash flow with little money down.
Although some will buy a rental and lease it to short-term tenants through websites like Airbnb and VRBO, the most common and popular way to break into this aspect of real estate is to purchase a single family home and rent it out to a long-term tenant. By getting a mortgage from a bank, investors can expect to achieve anywhere between 6% - 12% a year annual return on investment (ROI). The main crux of the strategy is to ensure the annual net operating income (NOI) exceeds all expenses and anticipated vacancies throughout the year.
REITs are another great way to break into the real estate industry.
Multi-billion dollar companies led by experienced investors raise money in the capital markets to source various deals across the world. These companies buy, sell, and hold real estate in various trusts that trade on the stock market like any other stock at prices typically below $100 a share.
Any small-time investor looking to get exposure to a particular real estate sector, geography, or investment style can buy into one of these companies and participate in the company’s future growth. Some REIT operators are phenomenal asset allocators with industry experience - why not ride their coattails to amass exceptional wealth?
As an added bonus, REITs are required to pay out a majority of their income to investors as dividends. Not only can you participate in the growing share price of these companies, but you can also enjoy a hefty 5%-15% dividend while you wait.
For more on REITs, watch this short video explaining how they work:
Wholesaling is a great way to learn about a particular market and pocket some cash in the process.
The act of wholesaling property is buying a below-market value property - generally a foreclosure - and quickly flipping it to a willing buyer at a higher price.
The wholesaler is able to control the property through the Purchase and Sale Agreement and connect a willing buyer to a given property without ever having to step foot in the building. It is a great way to gain industry experience and create a network of willing cash buyers and sellers.
As mentioned above, commercial real estate typically includes multi-family, industrial, retail, and office properties.
Although these properties are usually bigger and pricier than single family homes, they still present major opportunities for the determined investor. Investors with little experience, but a strong desire to seek out commercial tenants can look at various Triple Net Leases (NNN) in areas in the midwest.
These leases require the tenant to pay for all building related expenses - i.e. taxes, maintenance, and insurance - all while the owner sits back and collects rent.
Since these properties are considered much less risky, the returns are usually a bit lower. However, for just $50,000 - $60,000 down one can purchase cash flowing properties with strong property values and high quality tenants such as national restaurant chains or speciality retailers and receive 6%-8% a year on their investment.
Fix and Flips are a great way to make a quick, short-term profit on an investment property.
For these strategies, it’s not unusual to achieve, outside of closing costs, 30%-50% returns in just 3 - 6 months of work!
In a Fix and Flip scenario, an investor - or a flipper in this case - purchases a beaten-down property - usually a foreclosure - and beefs it up for a quick profit on a sale. Generally, the two biggest factors for successful real estate investing flipping are time and money.
The key here is to buy the house at a discount, repair the house as fast as possible, sell the house at, or above, market value. Then, the flipper rinses and repeats. We kid you not when we say it’s possible to buy a $50,000 home, renovate it for $50,000, and sell it for $150,000 - all in 6 months!
Crowdfunding is a great way to gain passive exposure to real estate investing without having to get your hands dirty.
With the passing of the JOBS Act during the Obama Administration, unaccredited investors (investors with less than a million in assets) became eligible to participate in crowdsourced investment opportunities.
Companies such as Fundrise, Realty Mogul, and Holdfolio find investments - typically in the commercial real estate investment and lending realms - and offer a piece of the pie to outside investors. Now, any investor looking for some diversification can buy a piece of the deal and take a backseat ride as the property performs.
Period. It’s that easy.
Each company is different, but the usual minimum investment amount is $500. With just $500 down one can be a partner in a major 100 unit multi-family project, an impressive self-storage complex, or even a huge shopping mall renovation. The possibilities are endless, and so are the returns.
According to Fundrise, they have averaged 8.7% - 12.4% returns each year.
Now that we know there are a plethora of opportunities out there, the real question is - how much money can one really make as a real estate investor?
The short answer is - a lot. Real estate investing can bring you a lot of money. But don’t take our word for it, we'll show you with a few examples.
In the world of real estate rentals, you can buy a $70,000 house in Indianapolis that has a rental rate of $800 a month, or $9,600 a year.
There are a large number of financing options out there, however, the traditional way is to find a bank mortgage lender or hard money lender.
A 25% down payment would mean an initial capital outlay of just $17,500 and a mortgage of $52,500.
Assuming a 4% mortgage interest rate, and taking out standard expenses such as real estate tax, vacancy, a property manager, insurance, and maintenance fees your return would look like this:
Now, imagine you have $100,000 in savings instead of $20,000. And, you buy two bigger houses instead of a small house in Indianapolis. All of a sudden, you are making $10,000 a year in passive income with minimal effort. Not bad considering the long-term returns of the stock market have typically been just 8%.
Now, what if you’d like to make it full-time and decide to buy four houses a year with your $100,000? Two to rent and two to flip.
Let’s check out a flip scenario:
Over the life of the project, you spend $75,000 to purchase and renovate the house and, after 6 months of blood, sweat, tears, and grit you profit $25,000. You do it again for the final 6 months of the year and next thing you know you’ve turned $75,000 into $100,000 not once, but twice!
Next thing you know, you’ve got a handful of rentals and flips under your belt and you’d like to venture into commercial real estate.
The possibilities are truly endless.
But, what if you have bad credit or limited savings. Is it still possible to break into the industry?
There are plenty of ways to develop an investment strategy in the real estate industry and achieve financial freedom despite having little to no money or bad credit.
One such investment strategy would be to form a partnership strictly designed for real estate investing using what’s called sweat equity.
A sweat equity partnership includes two or more partners investing in a real estate deal. Typically, one partner puts down the money for the investment and the other “pays” his or her share by managing the property to achieve the desired return.
Depending on the agreed upon structure, the manager will typically get 25%-50% of the profits in exchange for their sweat equity - i.e. the work they put into the investment.
Another great way to invest in real estate with no money down is to work in wholesaling.
As mentioned above, real estate wholesaling is connecting buyers and sellers of real estate and pocketing the price difference.
It is a great way to build a network, learn a particular market, all while building up a strong cash reserve for the next opportunity. But, with all the available opportunities, can one access the profits without being a full-time investor?
You don’t have to own a real estate business and become a full-time investor to be a successful real estate investor. The beauty of wholesaling, fixing and flipping, and managing rentals is that they can be done on the side - with limited time commitments.
By hiring an exceptional team around you, including property management companies, general contractors, and experienced real estate brokers, and utilizing smart systems and software, your real estate investing ventures can be part-time and hands-off.
Yes, if you want to maximize the amount of cash generated from real estate, full-time is the way to go. But, if you want to manage 3-5 rentals, work on 1-2 flips a year, and wholesale a few properties here and there you don’t need to be a full-time investor.
The beautiful thing about real estate is that you can grow it as large or small as you want, to meet your own personal financial and lifestyle goals.
So, where do you get started? Education.
There are no formal requirements to familiarize yourself with real estate. However, it is essential you get educated and know how to operate in the field.
Check out blogs and podcasts such as RealEstateSkills and Bigger Pockets. Read books like the Real Estate Game and The Book on Flipping Houses.
But, when it comes down to it, there is no better education than throwing yourself into the task. Buy that rental, flip that house, and take that wholesaling course! You won’t regret it.
Real estate has proven to be a tremendously enriching industry to tap into. Wholesaling, fix and flips, rentals, REITs, and crowdfunding are all good investments and great ways to get involved and generate financial freedom.
There are a tremendous amount of resources available to you through coaching, mentoring, podcasts, articles, and courses.
Take the plunge. You’ll be happy you did, you’ll hit your financial goals, and you could even turn into the best real estate investor out there.
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