How to Get Started in Real Estate Investing

Real estate has made many of the world's richest people, so there are a lot of reasons to believe it is a solid investment. However, experts agree that, like with any investment, it's best to educate yourself before committing hundreds of thousands of dollars.

If you've ever had a landlord, chances are you don't want to be one yourself: Receiving calls about giant bugs, and overflowing toilets isn't glamorous. While real estate investing may not be showy, it can be very profitable if done correctly. It's a good way to diversify your current financial portfolio while also providing an additional source of income. And there are investment options that don't require you to attend to a tenant's every whim.

The problem is that new investors are often clueless about how to begin their real estate investment journey. Here are our tips to get you started.

Figure Out If You Have What It Takes to Be a Landlord

You can make money in real estate by being a landlord, but it's neither simple nor fun. It's not just about finding the right property, preparing the unit, and finding good tenants. There are always maintenance issues and inconveniences to deal with.

How good are you with a toolbox? What about repairing drywall? Unclogging a toilet? At this point, you may be thinking that it's ok if it's not really your area of expertise because you can have someone do it for you. You're right, but that will reduce your revenue. Those who own just one or two properties are more likely to handle their own repairs in order to save money.

Of course, this changes when your portfolio grows, and you can afford to assemble a solid team of handymen and cleaners.

Consider Buying REITs

A real estate investment trust (REIT) is an excellent alternative for first-time investors because it eliminates the need for active property acquisition and management. They allow you to invest in real estate without owning any physical property. REITs are companies that own and/or run income-producing properties on behalf of a broad group of investors. They are often compared to mutual funds. Individual investors can purchase and sell real estate assets on an exchange, just like stocks or ETFs. Plus, you earn dividends.

In fact, REITs typically provide substantial dividends, making them a popular retirement investment. Investors who don't need or want monthly income can reinvest dividends to develop their portfolios. A safe, high-liquidity investment with decent diversification and possible high returns, REITs are a solid choice.

New investors who don't have a lot of money saved, don't want to deal with property management, or don't want to put all their funds into one property can get started this way. You can invest as little as $1,000 in certain REITs.

Look for REITs with a strong track record, as evidenced by competent management, profit growth, and a high level of investor satisfaction. You should do your research and ask for references before you buy something. Be wary of deals that appear too good to be true, as they often are.

Location, Location, Location

You hear this mantra a lot when you work in real estate: "Location, location, location." And it's sound advice. The only problem is that most people don't really understand what it means.

The rationale becomes obvious when we consider what we are buying when we buy property. When you buy an apartment or a house, you're also investing in the plot of land it sits on. Let's say you buy a house. You can always renovate it, have it remodeled, or even tear it down and replace it with condos. But there's nothing you can do about the location of the plot of land under it.

There is nothing worse than being stuck with a rental property in an area where prices are going down rather than up. Investing in a city or neighborhood where the population is increasing and a revitalization plan is in progress is a good strategy.

Choosing a rental property that will make money isn't easy. You want to look for a place that has low property taxes, a good school district, and a lot of amenities, like restaurants, coffee shops, and parks. Other things to think about are whether the neighborhood is safe, provides easy access to public transit, and has an expanding job market which will result in a wider pool of prospective renters.

There are a number of approaches to picking the right location. For example, the people who live there are a great source of information. Drive around the neighborhood to get a sense of the vibe, and then stop at a local coffee shop. Mentioning to someone there that you're thinking about buying property in the area can elicit a wealth of information.

As a side note, you'll probably want to drive there in a nice-looking car with everything it needs, including a recent wash. First impressions matter. There's a reason why real estate agents always drive nice-looking cars. You don't want locals exaggerating the downsides because they're worried you'll become their neighbor.

Speaking of real estate agents, it can be a good idea to set up viewings with a few in the area, even if you have no intention of using their services. As industry pros, they will be able to direct you to the most attractive and profitable places in the area. Of course, they will claim that their properties are all in fantastic locations, so remember to take their advice with a grain of salt.

The only way to be sure about a property or location once you've reduced it down to a few options is through research. Find out which schools serve the area, how close the local supermarket is, and how far away the nearest office district is. Take careful note of everything, and only then will you be able to make an informed decision.

It's also worth considering how far away the property is from where you live. Many first-time investors don't think about this, but if you plan on renting the property and managing everything yourself – including repairs – you don't want to have to drive for an hour or more whenever you get a call from your tenants.