Introduction: Why investing in Real Estate?

Real estate investing is a great way to build wealth and generate passive income. It involves the purchase, ownership, management and sale of real estate investment property for profit. With the right knowledge and guidance, anyone can become a successful real estate investor.

Real estate investing can be an attractive option for investors because it tends to be less volatile than other assets such as stocks and cryptocurrency. Additionally, it provides access to a diverse range of financing options that are not available with other types of investments so investors able to use more financial leverage for asset appreciation. Ultimately, besides long-term property appreciation, real estate also provide investors rental income and tax benefits. 

By taking the time to understand the basics of real estate investing, investors can start building a real estate portfolio and begin generating passive income in no time. In this article, we’ll explain specific, actionable steps for first-time real estate investors, making the first deal more approachable.

Step 1 – Learn About Real Estate Investing & Develop a Plan

Educating oneself about the principles and strategies of real estate investing is the essential, first step of the journey. It is also an ongoing process as the investor mature. Some of the best ways to learn about real estate investing include: reading real estate books, listening to real estate podcasts such as Bigger Pockets, joining and networking with local REIA, and attending real estate investor events & conferences.  Once first-time investors gain some knowledge about different real estate investment strategies, they can then go on to develop a concrete plan based on their strategy and implement the following steps.

Step 2 – Research Financing Options & Get Pre-approved

Researching financing options and getting pre-approved for a loan is a crucial step for first-time investors. It is important to understand the purchasing power they have when researching investment properties. First, investors can learn about the different types of loans available for them, as well as the mortgage rates and terms. Traditional loans such as 30-year fixed term and FHA loans are the most common options, but there are also creative financing options available such as hard money loans and seller financing. In addition, it is vital to get pre-approved by a lender so that investors are able to seize the opportunity immediately when they find the right deal. 

Step 3 – Define Search Criteria & Identify Leads

After getting pre-approved for a loan, investors can now decide on specific search criteria based on their budget and strategies. For example, if an investor wants to house hack for his or her first property, he or she can narrow the property type to multifamily (duplex, triplex, or fourplex). If an investor wants to be in a specific upcoming neighborhood, he or she can focus on searching in that geographic area. Typically, the most common places for investors to search for properties are websites such as Zillow or Redfin that pull listings from MLS (Multiple Listing Service). But there are also off-market opportunities that offer greater price advantages despite their scarcity. 

Step 4 – Analyze Property Deals

Once investors have identified a few potential leads, the next step is to analyze the deals. For buy-and-hold rental properties, investors shall look at these 5 important investment ratios when evaluating the potential profitability of their deals. For fix-and-flip properties, investors often consider ARV (After Repair Value), total profit, and ROI (Return on Investment) of the properties as well as the cost of time. Luckily, investors can utilize a wide range of property analysis tools that are free and accessible online. Here are our picks of 6 Best Property Analysis Tools for Real Estate Investors.

Step 5 – Send offers, Negotiate & Acquire the Property

If an investor thinks the numbers behind the deal make sense, he or she can then send an offer to the seller or the seller’s agent. As a buyer (or seller), an investor can hire an investor-friendly agent who are familiar with the process to facilitate the negotiation and signing of the purchase agreement. Once the seller and the buyer agree on all terms and sign the contract, and all contingencies have been met, the acquisition process is complete.

Step 6 – Rehab the Property 

Closing the deal is a new beginning of the real estate investing journey. If an investor chooses to flip the property and sells for a profit, then time is of the essence because there are carrying costs associated with holding the property such as property taxes and home insurance. In this case, the investor should carry out the necessary renovation work as soon as possible.

If an investor decides to keep the property and rent it out, he or she can do a complete upgrade or some cosmetic changes to make it a more attractive property for renters. Real estate investors always want to keep a good network of contractors, plumbers, and cleaners, etc. because all of their work contribute to the success of the investment property. 

Step 7 – Sell or Manage (Rent Out) the Property

For flippers, here comes the time to finally sell the fruit of their labor! Hiring an agent or networking with other real estate investors are great ways to quickly sell the investment property. How soon investors can sell their property also depends on real estate market cycles and the general economic environment. When the market slows down, an investor can always choose to rent it out for a period of time before selling it in a more liquid market.

For long-term rental property investors, property management is key to the success of their rental properties. First-time real estate investors can choose to manage the property themselves or hire a property manager to oversee the whole process. Both options offer excellent opportunities in which investors can learn the ropes of managing tenants and maintaining the property. 

Last Words

Buying an investment property is a daunting experience for first-time investors as it involves many pieces of information and a lot of decision-making. The first investment property might not guarantee financial freedom at all but it gives the investor the momentum and the knowledge that are valuable for the long-term game of real estate investing.