Did you know that you could make a full-time living by investing in real estate? Here is your ultimate guide to real estate investing for beginners (by an expert real estate investor).
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How to Start a Real Estate Investing Business
Did you know that you could make a full-time living by investing in real estate?
You might have considered buying a rental property at some point, but the truth is that real estate investing provides much greater opportunities than just a few hundred dollars of cash flow each month.
The most successful real estate investors have built businesses and portfolios that provide enough income to comfortably support their lifestyles.
And it goes further than that. The extra income from a real estate investing business can be used for things you wish you had the money for, such as vacations or giving generously.
People that have built successful businesses are no different than anyone else, except that they found a business model that works and developed the skills and systems required to be successful.
Starting a real estate investing business certainly takes many unique skills. However, some of them might not be what you’re thinking.
When most people think about real estate investing for beginners, they think they need to be handy or have a knack for picking out materials and color schemes. But the most valuable skills in real estate have to do with communication.
This article covers the skills necessary to start a real estate investing business and several tips for success.
Keep reading to learn more about real estate basics for beginners and beyond!
Real Estate Investing for Beginners: Why Real Estate Investing?
There’s a reason why the majority of millionaires in the United States are heavily invested in real estate.
Actually, there are many reasons.
Some of the most common reasons why so many people make real estate their focus is the stability during tough economic times, the ability to leverage money, and the tax benefits that owning real estate offers.
Price Stability of Real Estate
Because everyone needs a place to live, real estate is generally one of the safest asset classes.
We can’t ignore the 2008 financial crisis that caused many areas to see dramatic drops in home values. But historically, real estate has remained a solid investment even in down economies.
That’s why so many investors choose to buy real estate. The amount that a house is worth trends upward nearly every year, and provides very stable growth.
Related reading: How Much Money Should You Save For An Emergency Fund?
Leverage in the financial world means using other people’s money instead of your own. Real estate is likely the easiest type of investment to buy with leverage.
Not only do banks allow landlords to buy rental properties while only making a 20% down payment, but savvy investors know how to utilize the money of private individuals to fund their purchases.
It is even possible to buy a property with no money out of pocket!
Related reading: Good Debt vs Bad Debt – What’s the Difference and Why it Matters.
Tax Benefits of Real Estate Investing for Beginners
Even though home values generally appreciate over time, the IRS allows landlords to act like their rental properties are going down in value and write down that depreciation as a “loss” on their tax returns.
This is how many wealthy people get away without paying any taxes.
The paper losses they can claim completely offset their income, meaning they own no money in taxes.
Crazy, right? But the good part is that you can benefit from this too!
How to Become a Real Estate Investor: Decide What You Want to Do
One of the trickiest parts of starting a real estate investing business is that there are so many directions to choose from!
Although it’s great to know every investing strategy, that’s not feasible for a beginner.
Instead, it is best to choose the best path for your skills and situation and focus on that until you master it. After that, you can continue adding other strategies to your arsenal.
Here are some of the most common real estate investment strategies for beginners to get started with.
Wholesaling Real Estate
Wholesaling is a way to make money from real estate without actually owning it. It sounds crazy, but people do it every day.
Wholesaling involves finding a discounted property (typically needing repairs), forming a purchase agreement with the owner, and selling your rights in that agreement to another investor for a fee. Doing this allows the other investor to step in and buy the house.
Your job as a wholesaler is to market to find discounted properties and negotiate prices that will work for other investors (with your fee added on top, of course).
The great part about wholesaling real estate is that it requires very little money upfront. All you need is the money to fund your marketing campaigns and the earnest money deposits for the deals you find.
However, wholesaling is the most common strategy for new real estate investors, so the competition is extremely high. Also, this strategy can be viewed as a “hamster wheel” because the income stops as soon as you stop working.
Even still, wholesaling real estate is a great strategy to know, and many people have built incredible businesses with it.
Related reading: Epic Tips You Need to Get Your Mortgage Paid Off Faster.
Real Estate Investing for Beginners: Flipping
Thanks to HGTV, nearly everyone knows what flipping is. It involves buying a house that needs work, renovating it to raise its value, and selling it for a profit.
As you can imagine, flipping a house is not always as glamorous as TV shows make it out to be.
There are nearly always setbacks along the way. However, house flippers often make some serious profits.
Here are some of the key things you’ll need to be a successful real estate flipper:
- Access to money: To buy houses and pay for renovations, you’ll either need cash, access to people with money, or the ability to get loans on distressed homes.
- Contractors: Many people get into flipping thinking they will do all or most of the work themselves. However, a team of contractors is a must if you want to build a business out of it.
- Real estate agent: A good real estate agent can help you the entire way. They can evaluate what a house will be worth once fixed up and help you get the most for it when it’s ready to sell.
If you put all the pieces together, flipping houses can be a highly profitable way of real estate investing for beginners.
In fact, it is the fastest way to build a real estate investing business that provides enough income to support your lifestyle.
However, flipping houses is a lot of work, so make sure to consider that when you are evaluating your options.
Related reading: How to Start Saving Money (So You Can Afford the Life You Want).
Rentals as Real Estate Investing for Beginners
When most people think about real estate investing, the first thing that comes to mind is buying a house and renting it out to tenants.
And in reality, this can be a great investing strategy. Not only does it provide monthly cash flow, but you also benefit from long-term appreciation.
However, if you want to make a business out of owning rental properties, there are some things you must consider.
While it is possible to self-manage one or two rental properties, it becomes unfeasible once you’ve accumulated a sizeable portfolio.
Once you have several rental properties, finding a good property management company is essential.
Finding a good property management company is not a step that should be taken lightly.
The right company will allow you to be completely hands-off, but the wrong one can cause even more headaches than if you just managed the properties yourself.
If you set out to accumulate a portfolio of rental properties, you’ll eventually run into the wall of insufficient money.
Even by leveraging bank financing, the 20% down payments will ultimately drain your bank account.
This is why many landlords love the BRRRR method, because it allows them to recycle their capital on multiple houses.
Related post: 10 Creative Ways to Save Electricity and Money At Home.
Real Estate Investing: Develop Your Lead Generation Plan
Unless you plan to stick solely to working with a real estate agent to find deals, you will need to develop a robust marketing plan.
It is highly recommended to do this because it is usually challenging to find a profitable deal by looking on the MLS (Multiple Listing Service) with an agent.
By generating your own leads, you will be talking directly with homeowners.
This is where the best deals often come from since the sellers will save money on agent commissions and are sometimes willing to sell at a discount because their situation precludes them from listing the house on the market.
Here are some of the most common marketing strategies real estate investors use to find houses to buy:
Direct Mail for Your Real Estate Investing Business
Sending direct mail is one of the easiest ways to start marketing for real estate deals. It involves sending mail, usually a postcard, to homeowners to let them know you’re interested in buying their properties.
A direct mail campaign begins with pulling a list of people that are potentially motivated to sell their homes soon.
You can use a service such as Propstream to filter houses in your area based on property metrics and qualifiers indicating the owners will be looking to sell soon.
Here are a few filters that you can use to generate a mailing list:
- Vacant Properties
- Out-of-State Owners
While a direct mail campaign requires waiting for people to call you, a cold calling campaign immediately gets people on the phone.
Cold calling starts the same way as direct mail in that you pull a list of properties to market to. However, cold calling requires you to take it a step further and skip trace the homeowners to get phone numbers.
Once you do that, you can begin calling your list. It is important to have a general script to follow when you are starting out. However, do not rely too heavily on a script since that will make you sound robotic instead of conversational.
When running a cold calling campaign, it is also a good idea to use a real estate CRM (customer relationship management system). A CRM will consolidate all your contacts and track your history with each one.
It will also enable you to set up automated text message campaigns to stay in touch with people you’ve talked to.
Real Estate Investing for Beginners SEO (Search Engine Optimization)
Search engine optimization involves developing your website to show up at the top of Google when people search for terms related to your business. For real estate investing, these terms include things like “sell my house [your city]” and “we buy houses [your city].”
To get your website to rank on the top of Google, there are two main categories you must focus on: content and links.
A good content strategy involves designing your pages and writing copy in a way that resonates with your traffic and keeps them interested. Google can tell how much time people spend on your website. If they typically stay on your site for a while, this shows Google that you are providing value, and you will be rewarded for it.
Building links involves getting other websites to link to yours within their content. Link-building is a whole topic on its own that could span several articles, but one of the best ways to do this is to write guest articles for other websites within and related to the real estate industry.
While direct mail and cold calling can generate leads almost instantly, SEO is more of a long game.
It can take months or even a year’s worth of work to begin generating leads. However, it is an excellent strategy for building a sustainable real estate investing business.
Related post: How to Increase Blog Traffic Fast – 3 Proven Ways.
Keys to Success in Real Estate Investing for Beginners
We’ve talked about some of the most common real estate investing strategies for beginners and beyond, and how to find good deals through marketing, but many skills must be developed to run a successful real estate investing business.
Here are a few essential skills you will need:
When talking to homeowners about buying their homes, you must learn to connect with them much deeper than just surface level.
After all, a house is often someone’s most valuable possession.
Couple that with the memories and emotional attachments, and it becomes obvious that someone typically will not just sell their home to anyone.
Especially at a discount!
However, once you learn how to connect with people and ask the right questions, you will find yourself structuring deals that are profitable for you and tremendously help out the homeowners.
We can’t sugarcoat it.
Real estate investing can be tough.
You will undoubtedly face many trials along the way.
Not to mention the rejection you may feel when people are rude to you in response to your marketing campaigns.
But it’s the people that refuse to give up and continue adapting until they find out what works that build the most successful businesses.
Not every deal you come across will be a good one. Sometimes spotting a bad deal can be just as important as finding a good one.
Every deal that comes across your plate must be evaluated to determine if it fits your criteria and if the numbers work for you. This involves checking comparable sales and thinking about what you will do with the property.
This is a skill you can learn along the way, but it is vital for success in real estate.
Beyond knowing how to crunch numbers, some people have an innate ability to spot an opportunity.
Every deal is different, so having this business skill is a huge benefit.
Start a Real Estate Investing Business to Make Extra Money
A real estate investing business can be highly lucrative.
It is entirely possible to replace your income and support your lifestyle by investing in real estate.
We’ve given you the tools to get started here. If this interests you, we recommend digging into the topics and strategies we discussed to find your niche within your market.
If you determine the investing strategy that fits your goals, develop a marketing plan to generate leads, and build the skills necessary to close deals, you will be well on your way to financial freedom!
And if you’d rather work from home, check out 18 Best Work from Home Jobs that Pay Well in 2023.