If you've ever wondered how to invest in real estate, you've come to the right place! With so many ways to invest in all sorts of different types of real estate, navigating this vast arena can be intimidating.
While it may seem that real estate investing is reserved for the ultra-wealthy elite people of the world, that is very far from the truth.
In fact, the team at Real Estate Skills has used most of the strategies you're about to learn to:
Sounds pretty attractive, right? That's exactly why we created this Ultimate Guide - to show you the basics on how to start your own journey into the real estate investment world.
Whether you're brand new or purchasing your 100th building, this guide will give you a well-rounded outlook on the current real estate investment area.
So, let's jump right into it. We hope you enjoy How To Invest In Real Estate: The Ultimate Guide! Use this menu to jump to your preferred section of choice:
• 1. How to Invest In Real Estate?
• 2. How To Start Investing In Real Estate?
• 3. How To Create Wealth Investing In Real Estate?
• 4. How To Invest In Real Estate With No Money?
• 5. How To Invest In Real Estate With Little Money?
• 6. How To Invest 1000 Dollars in Real Estate?
• 7. How To Invest In Commercial Real Estate?
• 8. How Can I Invest In Real Estate Without Buying A Home?
• 9. How To Invest In Real Estate With Low Income?
• 10. How Much Money Do I Need To Invest In Real Estate?
• 11. How To Invest In Real Estate Crowdfunding?
• 12. How To Invest In Real Estate With Other People’s Money?
• 13. What Are The Best Books on How To Invest In Real Estate?
The more you learn about how to invest in real estate, the more you’ll see how there are an endless number of ways that you can invest in real estate. Considering the various types of investment property, countless strategies within each type of investing, and the wide geographic differences – learning how to invest in real estate can seem intimidating.
Luckily, you’ve come to the right place. To simplify things, I like to filter all the types of property investing into two categories: active investing and passive investing.
Active investing is when you’re directly involved with ownership and operating a property or multiple properties. You have an immediate influence on the way your money is being spent and how it’s being placed into specific investments.
House flipping and buying rental property are excellent methods of active investing. This is a hands-on type of investment approach to real estate that requires more work and can yield incredibly high returns on your money.
Passive investing is where you’re giving your money to someone else to buy real estate and invest the money on your behalf. This can take many forms, such as private money lending, real estate mutual funds, real estate investment trusts REITs, real estate ETFs, equity REITs, and is the way the majority of folks get exposure to the real estate market.
It’s called passive because it’s a hands-off approach to invest in real estate, while still achieving decent returns.
You see, there is a clear tradeoff here in the methods of real estate investing. The closer you are to the action, the more benefit you may realize through the power of real estate investing.
We’ll dive into specific real estate investing strategies in the later sections. Now, let’s cover where to begin on your journey.
Most people reading this want to know how to start investing in real estate. The reality is, there are a few prerequisites before rushing to buy a property or going full-time as a real estate investor.
My best advice is to get your personal finances in order before you can seriously start investing. You need change your perspective and start running your life like a business. Most importantly, understanding your current financial situation and taking a stance to improve it.
This means creating a personal balance sheet to understand your assets, liabilities, and your net worth. Additionally, create a personal profit and loss statement to get a better grasp on your own cash flows – just like a business!
Do you have more money at the end of the month? Or, do you have more month at the end of your money?
You need to start saving enough money to invest in real estate. Ever hear of the idea ‘Pay Yourself First?’ It’s a fundamental concept from the book The Richest Man In Babylon, which essentially encourages those who wish to become financially free to pay themselves first, or stash away money to eventually invest, when receiving income.
So, when you receive your paycheck, before paying all of your bills and spending the entire amount on other expenses, make sure you save at least 10% of what you make in order to start investing in real estate. Be frugal - the more you save, the faster you’ll be able to invest in property and accelerate your journey to financial independence.
Last but not least, invest in your education. Read books and enroll in courses. Become a sponge that absorbs every bit of knowledge around real estate. Don’t be afraid to spend money on educational books and courses that will teach you how to make millions in return.
If you want to know how to create wealth in real estate, first you need to understand what you’re really after. What is wealth and how can you create it through real estate?
Wealth is traditionally defined as “an abundance of valuable possessions or money,” which focuses on the material aspects of wealth.
Another interesting way to measure wealth is in the amount of time that you can live off of your own assets and resources before needing to get a job to make more money.
Real estate not only creates wealth through financial freedom, but also time freedom. You see, we learn to lease our time for dollars which inherently is quite limiting. If we live paycheck to paycheck, we’ll never save up enough assets to stop working altogether.
How to create wealth investing in real estate is about creating significant income that is independent of your daily involvement. So, when you’re too old or sick to remain employed, or just tired of working altogether, you can rest assured that you’ll still have rental income coming in every month to support your living expenses.
True wealth and financial freedom come from buying property and making the right investments, so that you create enough passive income to cover all your expenses in excess.
Accumulating enough passive income and net cash flow from rental properties and real estate investments is how to create wealth and achieve financial independence by investing in real estate.
It’s important to note the difference between being wealth and being rich. Being rich is simply having or making a lot of money. The problem with having a lot of money is that it will eventually run out.
Additionally, having a large paycheck and earning $1,000,000 per year is great, but if you live a million dollar lifestyle, you spend it all and have nothing at the end of the month. Thus, you must work more hours to earn another wage.
You see the key difference to being wealthy is owning assets that replenish your bank account every month. So, when you spend all of your money, your assets will continue to provide for you indefinitely – that is wealth. Endeavor to buy properties that you may hold and benefit from forever.
The beauty of real estate is that you can do both – get rich & make lots of money and create wealth & financial freedom. If you want to create wealth investing in real estate, focus on cash flow.
The top strategies on how to get rich and make a lot of money in real estate are flipping houses, buying and selling property as a real estate agent or real estate broker, real estate development, and real estate wholesaling.
Strategies on how to create wealth investing in real estate include buying property and renting it out, owning and leasing commercial investment property such as office buildings, buying shares in real estate mutual funds and real estate ETFs that provide cash flow.
One of the most frequently asked questions is how to invest in real estate with no money. This question comes from both new investors with no money and experienced investors who have all their money tied up in real estate deals.
The nature of investing requires that you do need money to expend with the expectation of realizing a profit. That being said, it doesn’t have to be YOUR money that you’re investing.
So, the question should really be framed as how to invest in real estate with no money of your own.
There are a few suggestions, depending on the experience level, track record, sophistication, and financial savvy of the investor receiving this information.
While it’s not real estate investing, the best and most lucrative strategy for any level of investor is wholesale real estate. Also known as flipping real estate contracts, wholesaling is the business of securing the rights to purchase properties and selling your rights to another investor for an assignment of contract fee. We call this fee a "Wholesale fee."
For example, wholesaler Alex offers to purchase a hoarder house, 123 Maisel Lane, for $365,000 and the seller agrees. Alex then sells right to purchase 123 Maisel Lane to house flipper Ryan for $390,000.
Thus, wholesaler Alex would make a $25,000 wholesale fee profit without ever buying the property or investing any money into the house!
House flipper Ryan plans to spend another $35,000 to remodel the house and sell it for $535,000. Therefore, the $25,000 fee to the wholesaler is justified, as Ryan will make even more money by fixing and flipping the house.
In today’s market, it’s one of the best ways how to invest in real estate with no money.
So, we covered how to wholesale real estate without spending any money. Now let’s take it a step further.
The second way how to invest in real estate with no money is by using Other People’s Money (OPM). You can execute just about any real estate investing strategy using money that does not belong to you.
The main component to successfully using other people’s money is utilizing a financial practice called leverage. It’s essentially borrowing money at a cheaper rate to place into higher yielding investments. You profit on the difference between the two rates.
For example, you borrow $1,000,000 at 5% annualized interest, which you then use to buy a 10-unit apartment building with a 10% cap rate. That means you end up keeping 5% of that yield as your profit.
We’ll go more in depth on this topic in a later section. So, what if you have just a little bit of money to invest? Read the next section to get some guidance on what to do.
“Buy land. They’re not making it anymore.” – Mark Twain
So, you have some savings and you want to know how to invest in real estate with little money. For the purposes of this ultimate guide, let’s define “little money” as $10,000 or less.
There are surprisingly a number of options available to you. Again, it goes back to our initial concept of whether you want to be an active investor or a passive investor. Let’s cover each type of investing.
Active strategies for investing in real estate with little money are house flipping, rental property, and house hacking. Believe it or not, there are real estate markets in the United States where single family houses cost as little as $10k. Now, you might have to deal with a whole plethora of issues and repairs, however you can borrow money to complete those repairs and use the BRRRR strategy.
Investing in real estate with little money can also be achieved by obtaining a low money down loan which can cover 90-100% of the purchase price. For example, a VA loan requires 0% down, although you may need to cover some closing costs unless you are exempt. This way you can buy a nicer, more expensive house with minimal out of pocket cost.
Passive real estate investing with little money includes strategies such as private money lending, investing in real estate investment trusts REITs, peer to peer lending.
Understanding how to invest 1000 dollars in real estate boils down to several options. If you want to grow that 1000 dollars quickly, you can start flipping real estate contracts, also known as wholesaling. You can use those 1000 dollars as your earnest money deposit. While you can wholesale without any money out of pocket, it certainly helps to have some dollars to use for earnest money deposits.
With 1000 dollars to invest in real estate, You can also utilize more passive strategies such as private money lending, buying shares of a real estate mutual fund, or consider investing it into a crowdfunding deal on platforms such as Diversyfund.
Also, you can utilize any of the previously mentioned strategies on how to invest in real estate with no money or little money.
If you’re wondering how to invest in commercial real estate, you should first be clear on what exactly it is you’re investing in. Commercial real estate is any kind of property that is intended for business purposes and produces income. Commercial property covers a wide range of asset types including office buildings, retail shopping centers, large apartment buildings, hotels, land and mobile home parks.
Commercial real estate generally requires more money to purchase since the properties are much larger and produce significantly more income than single family residential property; thus commercial properties are more valuable.
You can buy a commercial property outright with cash, although the majority of investors take out a commercial real estate loan of up to 70-80% of the total investment. That means they need to come up with a 20-30% down payment to purchase the property. Commercial loans are much different that residential property loans, in that the qualifications to obtain the loan and terms of the debt varies dramatically.
While some real estate entrepreneurs invest in commercial real estate all on their own, most use Other People’s Money to fund their commercial deals. There are many ways for going about how to raise money for real estate deals. One popular way is called real estate syndication.
Real estate syndication is essentially a strategy to pool funds together from many investors to purchase one asset or group of assets. There are general partners, who is syndicating or putting the deal together and responsible for the management of the assets. There’s also the limited partners, who are simply contributing money into the deal for an expected return on the money but have no day-to-day obligations or liability.
Syndication allows both active investors to work as general partners, and passive investors as limited partners, to work together in harmony to invest in commercial real estate deals.
If you’re looking for a quick and easy solution on how to invest in commercial real estate, consider buying shares of a publicly traded Real Estate Investment Trust (REIT), which you can do as easy as you buy stocks online. This way, you get a small piece of a commercial real estate portfolio managed by professional real estate companies. They generally pay out regular dividend yields and have the potential to increase in value. Check out the Definitive Guide on Real Estate Investment Trusts.
Here’s how you can invest in real estate without buying a home. One of the tried and true investment options is buying a rental property. You’re still buying a home, but you’re not living in it. You can even hire a property management company to handle the maintenance, locating tenants, and dealing with any issues. Hiring a property manager turns this sort of investing into a relatively passive investment, however you still need to manage the property manager.
Additionally, when you invest in commercial real estate, you’re not buying a home. You’re buying an income stream and any upside potential the investment has.
To answer the question of how can I invest in real estate without buying a home, it’s important to review the different types of real estate available. Check out this infographic on the types of real estate you can invest in:
Residential: Single family homes, duplexes, triplexes, quadplexes, townhouses, twin homes, multifamily homes, condos, mobile homes
Commercial: Office, hotels, strip malls, restaurants, medical buildings, educational campuses, shopping centers, retail, multifamily residential, mixed use
Industrial: Warehouses, distribution centers, self-storage facilities
Land: Agricultural, vacant land, ranches, farms
You see, there are plenty of options to invest in real estate without buying a home!
In this section, we’ll cover how to invest in real estate with low income. One of the best ways to do so is use a low-income loan, such as an unsecured personal loan, HomeReady loan, FHA loan, or a personal loan from friends and family, to purchase a property.
The optimal strategy in this situation is to buy a distressed or discounted 1-4 unit property, then rent out the rooms or other units on the property. This allows you to use the monthly rental income to help offset your mortgage payment.
In some instances, lenders will even allow you to use the projected income from renting out rooms or other units in the property to help lower your Debt To Income Ratio (DTI).
Fannie Mae’s HomeReady Mortgage program affords borrowers with low-to-moderate income to secure a home loan with a minimum down payment, no cash out of pocket, and at reduced interest rates, and with a reduced mortgage insurance premium that can be eliminated once the loan’s loan to value (LTV) amortized down to 80%.
Another option to consider is partnership with someone who does have income and credit, who can co-sign the loan with you. This way, you’ll qualify for a bigger loan.
You’ll receive a variety of answers to the question of: how much money do I need to invest in real estate? It completely depends on what your goals are, your time horizon for investing, and the resources you have available.
Most people asking this question are really wondering, what’s the minimum amount of money I need to invest in real estate?
Are you investing for cash flow or are you investing for equity gains? Can you afford to park your money for long-term appreciation or are you looking for a short term deal? Either way, you’ll need to understand what kind of return on investment is acceptable to you in order to move forward on any deal. Look at the total return and calculate how profitable your investment could be.
How much money you need to invest in real estate completely depends on what you’re trying to accomplish, and a good way to look at it might be as a percentage of your total assets.
How much of your total assets do you want to invest in real estate? 100% is not a good idea, as you need to have cash on hand as reserves in case of unexpected repairs and capital expenditures.
Based on the methods described earlier, you actually don’t need to have any money to invest in real estate – if know how to implement the proper strategies. These require financial savvy, hustle, and a level of expertise.
However, if you’re looking for a passive investment, you can get started with as little as $500 by purchasing shares of a publicly traded REIT, real estate mutual fund, or other type of crowdfunded deal.
Investing in real estate crowdfunding has become much more available technologically advanced in recent years. Numerous real estate crowdfunding websites have emerged offering investors both debt and equity investments in commercial real estate.
What is real estate crowdfunding? Simply put, it allows for the everyday investor to participate in big real estate deals. It’s a way for developers and professional real estate investors to raise money for large real estate deals by offering fractional shares of ownership to accredited and non-accredited investors.
The types of projects available to invest through real estate crowdfunding are many, including new construction and redevelopment of hotels, multifamily apartments, retail and office buildings.
The beauty of investing in real estate crowdfunding is its simplicity. It’s as generally easy as buying stock in a company and you can get started with as little as $1,000.
Check out this short video called How To Make Money With Real Estate Crowdfunding:
The following are some of the best real estate crowdfunding websites:
When you learn how to invest in real estate with other people’s money, the world becomes your oyster. We circle back to the power of leverage, being able to take money that you’ve borrowed at one rate, and deploying that money into another investment opportunity that produces a higher rate of return.
A great example of this in real estate is flipping houses using other people’s money. Let’s say you need $100,000 to purchase a house and another $35,000 to renovate it, and it will be worth $180,000 when it’s all said and done. You go to a private money lender who is willing to lend you $140,000 at 8% annualized interest. This means you’ll pay the lender $11,200 in interest if you borrow the month for the entire year (house flips usually take less than 6 months!).
After all your expenses, you would clear about $29,000 in net profit, or a 20% return on investment. You pay the private money lender’s $140,000 back plus $11,200 in interest. So, after paying the lender back, you put $17,800 in your pocket! That is how you flip houses without any of your own money, using other people’s money to invest in real estate.
When you have access to other people’s money, it becomes a matter of finding more real estate investment opportunities to create large profits for you and your investors.
If you’re just getting started with reading books about real estate investing, here are some of what we think are the best books on how to invest in real estate:
With so many reasons to learn how to invest in real estate, we've really only scratched the surface. I encourage you to take what you've learned in this article and use it as a guide to help navigate the fields as you progress forward in your real estate investing endeavors.
Figure out what you want to achieve in life, why you want it, and how real estate investing can help you reach your goals. Without a sound purpose or a strong "why" then the trials and tribulations of real estate business may overwhelm your initial enthusiasm.
Fortunately, with the abundance of opportunity out there to invest in real estate (such as the active and passive strategies covered in this Ultimate Guide), and no matter how much you decide to commit to real estate investing, there is a place in the industry for you.
What are your thoughts on How To Invest In Real Estate? Share your thoughts with us in the comments section below!
This article was written by Ryan Zomorodi, V.P. of Education at RealEstateSkills.com and President of RZ Holdings, Inc. Ryan specializes in the acquisition of distressed single and multifamily residential properties nationwide for wholesale, flipping, and rental. Connect with Ryan on LinkedIn and Instagram.
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