As a child, Barbara Corcoran, the famed businesswoman and investor on Shark Tank, didn’t expect she’d one day achieve a net worth of 100 million dollars. As one of ten children from a working-class family, Corcoran struggled through high school and college. She came from a family that relied on help from a neighbor to get the groceries they needed, so becoming a multimillionaire seemed out of reach.
After bouncing around from job to job, at age 23, Corcoran used a $1,000 loan to open a real estate business. Real estate would soon turn her life around, taking her from a life of financial instability to life as a financial role model for millions of people.
“Buying real estate has made me rich—mostly through necessity, not by design. I bought my first itty-bitty studio after scraping together a few bucks because I needed to live somewhere anyway,” Corcoran said.
When her studio increased in value, she was able to put a hefty down payment on a one-bedroom. The equity from the one-bedroom soon enabled her to upgrade to a two-bedroom, then a three-bedroom, and eventually a 10-room New York City penthouse on Fifth Avenue.
Corcoran says, “Buying that tiny studio was the most important decision I made because it got me in the game.”
While getting into real estate can feel daunting, this article will teach you how to enter the real estate game and start growing your wealth, just as Corcoran did. No matter your background, real estate is a tried and true strategy for increasing net worth and building sustainable wealth.
Once you’ve read this, you’ll have the knowledge needed to get started in real estate. We’ll cover how to:
- Learn the industry
- Make a plan
- Figure out your financing
- Find your first property
- Leverage your equity to purchase your next property
- Stay in the game
How to Get Into Real Estate: 6 Investing Tips
1. Learn the Industry
You’ve heard the phrase “knowledge is power,” right? When you plan to invest in real estate, it’s especially important to take that principle to heart. Knowledgeable investors use their knowledge to guide decisions from day one, greatly increasing their levels of success.
Financial expert Charlie Chang advises future investors to get informed before anything else. “Be in the game,” Chang says. “What I mean by this is know what real estate investing entails and know how to do it. The first thing I recommend is having a lot of knowledge in real estate investing, and to do that, there are things like podcasts, books, YouTube, and mentorship.”
To get “in the game,” as Chang recommends, increase your real estate knowledge by following these tips.
Check Real Estate Listings Daily
Watching the housing market has never been easier with resources like Zillow and Redfin, which allow you to see all the properties listed in your area (or in any area you’d like to learn more about). Checking these apps daily will teach you how much properties are selling for, how quickly they’re selling, and what types of qualities increase a property’s popularity.
Read Up on Financial Literacy
Getting into real estate requires you to be an expert in budgeting, saving, tracking spending, and allocating resources efficiently. You should feel comfortable managing both your business and personal finances. Look to experts like Robert T. Kiyosaki, author of Rich Dad Poor Dad, for advice on making financially smart choices.
Make a Habit of Reading and Listening to Podcasts
Turn on podcasts like Real Estate Today or Bigger Pockets any time you’re in the car or doing dishes. If you don’t already have a habit of reading regularly, it’s time to change that habit. Instead of checking your phone while waiting in line or winding down before bed, open a real estate investment book.
While anyone can become an expert in real estate investing, it takes more than simply reading one article. You have to dedicate time and energy to learning the ins and outs of the business. But your deduction will pay off if you’re willing to put in the effort to learn.
2. Make a Plan
It’s never too early to start planning and strategizing. When you think like an investor, every step of your investment journey should be guided by a plan.
Start with a goal. Charlie Chang says, “Have a vision and a goal set in mind that you want to achieve for real estate investing.” Whether that’s just owning a few small properties in your local area or owning properties around the country.” This is the stage where you should be preparing and learning as much as you can.
Next, outline your business plan. A business plan will give you a clearer understanding of your financial needs and any obstacles you might face in working toward your goals. You can reflect on this plan throughout your real estate investing journey to help keep you on track to achieve your objectives.
Finally, decide which strategies you’ll use to reach your goals. Daniel Lesniak, real estate broker and founder of two top real estate companies, explains how real estate has numerous strategies to help investors succeed.
“Real estate is always a great investment because you have more options than with other types of investments . . . You can buy a house with the intent of flipping it, then rent it if the market turns south. If you buy a rental that appreciates in value significantly, you can sell it,” Lesniak says. “Real estate can be refinanced, rehabbed, and rezoned. You can develop it, lease it, subdivide it, or add parcels to it . . . This flexibility is one of the reasons it has created more millionaires than any other asset class.”
A smart investor might use a combination of real estate investing strategies to make a profit. It’s important to write these down and make a list of the strategies you plan to pursue because it guides your decision-making throughout your investment journey. Listed below are a few of the most common profitable strategies.
Investors who pursue an appreciation strategy want to buy properties that will increase in value over the years. While all investors hope their investments will appreciate in value, if you prioritize appreciation over other strategies, you may look to invest only in regions that are forecasted to experience above-average increases in value.
Appreciation is a long-term strategy. Many investors who prioritize appreciation have lower amounts of cash flow, meaning they will not receive a large return on investment until decades down the road.
House hackers purchase a property to live in, while also renting out portions of the property to cover expenses and generate income. This is a strategy that often helps real estate investors enter the market when they have yet to build a lot of wealth.
Duplexes or homes with mother-in-law apartments work well for house hackers because they provide private space for both the homeowner and the tenants. If a home with a separate unit attached is out of your price range, renting out a spare bedroom or two to roommates or Airbnb guests can generate income to help you begin working toward your next investment.
Short-Term Rental Property
Since the arrival of companies like Airbnb and VRBO on the scene, the short-term rental strategy has helped numerous investors achieve the cash flow they need to profit from their investments.
According to AllTheRooms, the average price per night for an Airbnb in the U.S. in 2021 was $216. While prices vary by region, season, and type of property, if your property is occupied two-thirds of the time at $216 per night, you’ll generate $4,320 in monthly revenue.
The price for long-term rentals in the U.S., while rising, is still below $2,000 per month. This is why many investors choose to pursue a short-term rental strategy to generate cash flow.
Keep in mind, though, that owners of short-term rentals deal with more drawbacks than long-term rentals. Because the short-term rental industry is still in its early years, regulation is often shifting.
Some cities do not allow short-term rentals or limit how many short-term rentals are allowed to operate. When pursuing a short-term rental strategy, there is some risk that you may need to shift to a long-term rental strategy at some point.
Managing short-term rentals can also be labor-intensive. Booking guests, communicating about check-in and property rules, and cleaning between each visit takes time and effort. Many owners of short-term rentals use property management companies to handle these tasks. If you choose to hire a property manager from a management company, be sure to factor in that expense when calculating your financial needs.
Long-Term Rental Property
Before the short-term rental business took off, real estate investors typically rented to long-term tenants. Many investors continue to choose to invest in long-term rental properties instead of short-term rentals because they provide reliable passive income without the complications of changing regulations that come with short-term rentals.
The work that goes into managing a long-term rental is not quite as time-consuming as managing a short-term rental because turnover is much less frequent. If you’re working with a management company, the cost should be lower because the demands are fewer.
You might wonder if a management company is really worth it for a long-term rental. It depends on how much time you can invest in your short-term rentals. So, what does a property manager do?
A property manager takes the pressure off of you by filling vacancies, handling maintenance, screening tenants, and collecting rent. In other words, when you have a property manager, your rental revenue will truly be passive income.
House flippers look for fixer-upper properties to renovate and sell again for a higher price. While house flippers have been known to make tens or hundreds of thousands in dollars after a sale, if you don’t have a lot of experience, it’s also easy to walk away with nothing.
In fact, due to the recent increased cost of goods and supply chain issues, profit margins for house flippers have fallen by 25.8% during the first quarter of 2022. Because it’s a risky strategy, house flipping is best for only those with knowledge and experience to pursue this option.
The cash flow from house flipping is much less steady. If everything goes well, you may be able to renovate and sell the property within a few months of buying it. However, the timeline can stretch to a year or longer if things don’t go according to plan. If you’re considering pursuing a house flipping strategy, ask yourself the following questions:
- How tight is your renovation budget? Budget more for the cost of renovations than you think you’ll need. You don’t want to run out of money halfway through the project and be stuck with an investment that won’t sell.
- How much spare time do you have to manage the project? House flipping is a major project that will take plenty of time, even if you outsource a lot of the work.
- What direction is the market moving? While home values are rapidly appreciating, house flipping is a reliable bet. Even if you sell just a few months after your purchase, the value will likely have increased. When home values are decreasing or changing unpredictably, house flipping is a very risky investment.
3. Figure Out Your Financing
Financing your first real estate investment is often the most difficult step in the real estate journey. As home prices and interest rates rise, financing your first purchase can take a bit of effort. But once you’ve figured out this step, you’ll be well on your way toward a strong financial future.
Before you speak with a lender, you’ll want a solid down payment in your savings. The minimum down payment allowed for a conventional loan is 3%. To put 3% down on a $250,000 home, you’ll need at least $7,500 in the bank. Your lender, credit score, and debt-to-income ratio may require you to have a larger down payment.
Having strong credit is also important before purchasing your first real estate investment. Conventional loans typically require a credit score of at least 620. However, some lenders may have more strict requirements for credit scores. If your credit score is below 620, alternative loan options are available, but the better your credit score is, the better your interest rate will likely be. That’s why it is best to work on building strong credit as soon as possible.
Shop Around for the Best Interest Rates
If you’ve saved up a down payment and your credit score is strong, it’s time to shop around for a lender. While interest rates are rising, finding the best interest rate possible is more important than ever. A good interest rate will save you thousands of dollars over the next few decades. Locking in a good rate now can make all the difference down the road.
A 2018 Freddie Mac study found that shopping around for the right mortgage lender makes a significant difference. Borrowers who got one extra quote saved an average of $1,435 over time on a $250,000 loan. Borrowers who got quotes from five different lenders saved an average of $2,914.
Since both home values and interest rates have risen since the Freddie Mac study, the amount you’ll save from getting multiple rates will be even higher.
Getting Help Financing Your First Real Estate Purchase
It may feel like becoming a successful real estate investor is a long way off while you’re working hard to qualify for your first home loan. If you have a low income or a low credit score, you may wonder if you’ll ever be able to make it in real estate. But if you can finance your first real estate purchase, each investment after that will become easier.
Once you’re a homeowner, your financial situation will improve, and with patience and strategic choices, you’ll be able to purchase your next investment property soon after. The most important part is getting your foot in the door by purchasing your first home.
Here are a few options to help first-time homebuyers qualify for a loan:
FHA loans are easier to qualify for, allowing homebuyers with low credit scores and small down payments to obtain a loan. While you don’t have to be a first-time homebuyer to qualify, this loan can only be used to purchase a primary residence.
If you’ve served in the Armed Forces, you may qualify for a VA home loan, which does not require a down payment or private mortgage insurance. These loans also must be used to purchase a primary residence, although it doesn’t necessarily have to be your first home purchase. While VA loans are only available for veterans and active military members, if you qualify, these loans can be hugely beneficial in getting you started in real estate.
First-Time Buyer’s Programs
Many states and cities have programs to help first-time homebuyers finance their first home purchase. These can help you if you want to make your first real estate purchase, but your income is not high enough to afford homes in your area. These programs have helped many buyers in expensive housing markets take the first step into real estate investment.
All of these programs can help you get your foot in the door of the real estate game. Once you’ve purchased your first home, you can begin building equity and financial stability. Soon enough, you’ll be able to make your next investment.
4. Find Your Perfect Property
With your financing in place, you can begin looking for the perfect real estate investment. When you’re new to the real estate investment world, you’ll likely want to work with an experienced real estate agent.
A skilled real estate agent can identify potential properties before others, analyze the market’s direction, point out needed renovations in a property, and negotiate for the best deal.
Real estate agents who excel at these things can significantly improve the value of your investment, which is why it’s essential to work with someone who knows what they’re doing better than anyone else. Once you’ve found that expert real estate agent, you’ll want to keep in close touch with them as long as you’re in the real estate business.
Match Your Purchase to Your Strategy
When buying an investment property, keep your goals in mind. The qualities you need in your property will vary depending on which real estate strategy you are pursuing. Here’s a list of qualities to look for in properties based on the strategy you’re pursuing:
- Look for properties in areas where home values are rising, and the population is growing.
- Avoid properties near permanent fixtures that could keep the home’s value from appreciating, like freeways, power plants, or other polluted and noisy structures.
- Choose properties with adequate space (either a spare bedroom or an attached separate unit).
- Must have the ability to attract tenants through location or attractiveness.
- Look for the qualities you want from a primary residence.
- Look for properties with close proximity to tourist areas, business hubs, universities, or other attractions that reliably draw visitors.
- Properties should be attractive and appealing to guests.
- Only look in regions where short-term rentals are legal, especially where the laws are well-established.
- Limit your search to regions with high rents and comparatively low home values.
- Choose a high-quality home that will attract high-quality tenants.
- Choose a property in an area where home values are rising.
- Must be priced low due to needed renovations.
- Renovations should not be cost-prohibitive.
5. How to Leverage Your Equity to Purchase Your Next Property
As your first real estate investment appreciates in value, it will become your ticket into further real estate investments. The average home appreciation rates in the U.S. are 3.5 to 3.8% per year. However, in recent years, many regions have seen home values rise as much as 20% in a year. Once you’ve purchased your first property, your growing equity can act as collateral to finance future purchases.
Many real estate investors use the following equity-leveraging strategies to purchase additional rental properties, pay for the construction of additional units on existing properties, or finance renovations in a house flip.
Home Equity Loan
A home equity loan is a lump sum that the lender disburses upfront. The borrower pays back the money in fixed installments over a time period that can extend from 5-30 years.
The amount you can borrow is determined by the amount of equity you have in your home. A home equity loan’s interest rate is fixed, meaning it won’t change over time.
HELOC stands for “Home Equity Line of Credit.” A HELOC functions like a credit card, meaning you can withdraw money as needed rather than borrowing a lump sum upfront. Initially, HELOCs may have lower interest rates than home equity loans. However, the rate is typically adjustable, which may get expensive over time.
Refinancing your home involves taking out a new mortgage to replace the existing mortgage. When you have equity in your home, you can take out a larger loan than you had previously and receive the extra money in cash. This is called a cash-out refinance. However, the terms of the loan may change. You will have closing costs to pay and your interest rate can potentially increase.
The best time for a cash-out refinance is when interest rates are lower than when you originally took out a mortgage. Talk with your lender to discuss your new interest rate and whether a cash-out refinance will be worth it.
Each time you add an investment property to your portfolio, you’ll have increasing amounts of equity that allow you to finance additional purchases more easily. Having that equity readily available makes it possible to move quickly when new advantageous properties hit the market. If you keep your goals in mind and leverage your equity smartly, your wealth will begin to snowball.
6. Stay in the Game
If you’re looking for a quick and easy investment strategy, real estate investment isn’t the place for you. Real estate investors are patient and perseverant. While your returns often come years or decades down the road, those who have built real wealth in real estate know their patience pays off.
While many real estate principles stay the same over time, the market is constantly changing. You should never stop reading books, listening to investing podcasts, and watching the movement of the housing market. Always assume there is more to learn and room to improve your real estate strategies.
As you get further into your real estate investment career, your strategies may shift. When starting out, many investors focus on residential real estate. But once you’re ready to diversify your portfolio, you might consider investing in commercial real estate. Or you might switch from a short-term rental strategy to a long-term rental strategy. You should constantly be looking for new things to learn to keep ahead of the market and ensure your success in the long term.
Build Your Network
Never underestimate the power of a strong network. As you continue your real estate journey, build relationships with others in the real estate industry. A good network will provide you with:
- Mentors who can share their knowledge
- Access to the highest quality lenders, contractors, appraisers, agents, and other service providers
- Early knowledge of potential investment opportunities
- A reputation for being great to work with
To build your network, attend seminars, conferences, and networking events whenever you can. Keep an active presence online and participate in your community. Stay in touch with the people you meet during each real estate deal. Before long, you’ll be well-connected and well-respected in the industry.
Increase Your Wealth by Having a Portfolio of Investment Properties
Your first real estate investment is an exciting step in your investment journey, but you don’t get rich from one house. Real estate is a long-term business and not a get-rich-quick scheme. Building your real estate portfolio up will take time, money, patience, and the courage to keep trying after the occasional setback.
Investors build real wealth by reinvesting the profits from each investment into the next investment. Eventually, this strategy can create a large, diversified portfolio that reliably generates income and withstands fluctuations in the market.
To learn more about other investing strategies, check out these articles: