How to Invest in Real Estate

Daniel Penzing
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Investing in real estate doesn't have to be complicated.

It's easy, in fact. Just follow these simple rules!

Take the emotion out of it. Real estate investing, like any business venture, can make you money if you do it right. But you need to analyze each investment independently, taking emotion out of the equation. Focus on numbers and facts over emotions and opinions.

Buy where people want to live. Any given area of real estate may be in a transitional period, and not all properties will be good investments. It's important to factor in your own opinion, of course, but you can do a lot of research on an area before you buy. You should buy properties in areas where jobs are being added, crime rates are low, schools consistently rank well and the residents have a high percentage of disposable income.

Do your due diligence because that's the only way to be confident you're investing in the right property. If the numbers don't work, walk away.

Diversify your portfolio. Over the long term, you will be more successful if you buy several properties in different areas. When trying to find good properties, avoid properties that are in poor condition. Also, when you find a good property, buy it. Good properties don't stay available for long, and you'll be kicking yourself if someone else buys it before you can.

How to Invest in Real Estate?

Real estate investment offers a great way jto build wealth and can provide security, income, and freedom.

However, there are many people who avoid real estate investing. They say it is too difficult or too time consuming. I think the reality could be different. It could be that it is possible to understand the real estate investment process, but people who say it is difficult or time consuming might have the wrong idea about how to invest in real estate.

Here is a simple podcast where I share how easy it is to get started and how fast you can do it. All you need is a few hours of work one day.

Click this link if you want to start now.

Line Up Your Cash and Financing Options

So you are interested in investing in real estate. First, you need to set yourself up with a sizable down payment for the property your going to be investing in. This is the first rule and a rule that will stand true for both buying a house or an investment property. Real estate investors that do not have a big down payment never make any money. This down payment needs to be put together one way or another. If you can borrow these funds from a bank or family members you have a great advantage over the other amateur investors.

But, if you do not have a lot of money sitting around to invest in real estate, you still have options. The marketing of the past few decades has made most people think that you have to have a lot of money to invest in real estate, but this is not the case. In fact, if you were to put together a business plan and start up costs for a small real estate firm you would be surprised at how little it takes to get a real estate business up and running.

But, if you still need some help identifying how you can invest in real estate I have set up this helpful little flow chart to help you out.

Start Slow with Passive Investing in Real Estate

Real estate investment does not have to be complicated. Begin with renting, not buying.

Each time you are to enter into an investment in real estate, always approach it as a business, not a luxury or get rich quick scheme. This will allow you to have a plan of action each time you enter into any real estate venture, so you will not become over-whelmed.

Know your money and arrive at a realistic cost basis. Consider the risk, and know that the majority of taxpayers in the United States own their own homes. This will help you to keep your expectations in check.

Know your exit strategy. Tell yourself you will be out in five years. This will prevent you from being an absentee landlord and give you a deadline that will keep you in check. In addition, when you have this plan, you will feel more comfortable approaching the idea of business ownership as opposed to real estate investment, which will help you to see opportunities, build a plan of action, and move forward.

Know your numbers, facts, and figures. This will allow you to work with realtors and contractors in a more informed fashion, and it will help you to keep your expectations in check.

Take a class in real estate investing, as this will help you to keep your expectations realistic.

Invest in a REIT (real estate investment trust)

Investing in a REIT has become one of the most common ways for people to get into real estate investing.

You can easily buy shares of a REIT through your broker or your advisor, just like you would buy shares of any stock.

These companies then invest the money you give them in real estate properties (typically by buying the properties, leasing them out, and then making money off of rents).

Like any investment, REITs come with their pros and cons. Before you jump in, be sure your understand the potential risks involved.

Invest in Real Estate Mutual Funds

Many investors like the idea of investing in real estate but don’t have the time to do the research needed to find a good deal on a property. If you fall into this category, a real estate mutual fund might be the right investment for you.

These funds are a type of professionally managed fund that trades properties for investors. The fund’s managers identify potential investments and analyze their potential returns based on the current and future market demand. Then, they buy and sell properties as they see fit, using your money.

Pros and Cons of Real Estate Mutual Funds

You may be wondering what the benefit is to investing in a real estate mutual fund over, say, investing in individual properties yourself. There are several advantages, but here’s a rundown of the major pros and cons of real estate mutual funds.


It allows you to diversify your investments.

Quality real estate investment funds manage a number of properties at once and spread your money over these properties. This gives you a diversified portfolio that’s based on actual properties.

Some funds invest primarily in real estate, while others invest in other types of investments like bonds and stocks. For example, TFS Market Neutral Real Estate Fund invests in real estate but also invests in stocks and bonds to reduce risk.

It lets you invest in a variety of properties.

Invest in Properties via Real Estate Crowdfunding

Real estate crowdfunding is the process of earning a passive income from someone else’s property. In that sense, you are buying shares of their project, are entitled to a portion of their profit and may also have the potential to reap a significant return on your investment.

To buy shares of a real estate company, you must cross-fund your money through a hard money or private money lender. For that purpose, you must fill out some paperwork and provide the lender with some evidence of your earning potential.

The lender will hold your money until it satisfies that the project is close to completion. Once the project is done, the lender pays you back and you earn a portion of the project’s profit.

Traditional crowdfunding and real estate crowdfunding have a lot of similarities. If you invest in a regular crowdfunding campaign, then you will receive rewards for taking part. In a real estate crowdfunding campaign, you will receive a part of the profit from the project.

You also get to choose the amount that you want to invest and the length of time you want to commit to it before eliminating all of your risk.

Each case is different, so talk to your lender to make sure that you’re getting the best deal for your money. Real estate crowdfunding is often a great investment option for people who:

Purchase Pre-Vetted Rental Properties

One great way to invest profitably, and have something to show for it in the end, is buying rental property. However, one of the problems with this is getting the property.

The problem is usually in the shortage of good deals. Marketers often try to get buyers to buy "flipped" rental properties. While it is possible to get a good deal, it is more likely that you will end up with a property that is just OK compared to others.

Instead, buy pre-owned rentals. These are properties that someone has already bought, fixed up, and put on the rental market. Often, they are close to being ready to turn a good profit. You can get them at a discount.

This is an attractive option because it actually gives you true returns on your investment. You can buy a property, put some sweat equity into it, and then turn a nice profit.

This way, you can successfully invest in rental properties and build wealth.

Invest in Real Estate Limited Partnerships


Like most investments, this requires studying and knowledge to truly succeed. However, the great thing about REITs is that they are much easier to get into (generally) than buying your own shares of real estate, which requires a lot more capital than REITs, but pay dividends. There are drawbacks and advantages to REITs, a lot of which are similar to real estate. For example, REITs can be affected by interest rates, tenant rent, property values, and vacancy. However, if you invest in REITs, a pretty large portion of the risk can be mitigated through research and knowledge.

You should also take a look at the fund’s advisor. They will have a pretty good idea of what they are doing and how well they are managing the fund. Ideally, this person should have a few years of experience and have been in the industry for a few years. If they haven’t, maybe they should be working for the firm rather than managing the fund.

Join Real Estate Investment Groups

Getting involved in groups on social media can help you get a better understanding of how real estate can be a profitable investment and how you can get started. There are lots of investment groups on Facebook, and many of them post helpful information and real estate tips.

However, if it’s your first time buying property, it’s a good idea to learn about the process of buying it before asking for advice and opinions online. When you’re more familiar with how things work, then you can start getting advice from experienced investors.

Make sure that you have all the information you need about your chosen real estate markets before jumping into the conversation. For instance, if you have lots of questions about basic home prices in the area, there’s no point in asking about more sophisticated market properties like vacant land and duplexes.

Take an Active Role with Active Real Estate Investing

As is true with most things in life, real estate is not a do-it-yourself (DIY) endeavor. It should be approached as a professional would – professionally. If you want to make money with real estate, you need to be active in the game, and real estate investing is no exception.

To do this, first you need to fill your portfolio with real estate that is going to cash flow. Typically, this is going to require more than one property. After all, there is a lot of overhead to keep a property going and paying off, and in most cases, you want a property that has at least a few months of positive cash flow.

Move up to Adding Value

Once you have a few properties in your portfolio (maybe even a few years of positive cash flow already!) you can start looking into step two. At this point, you can start looking into ways to upgrade your properties to add value … just as you would in many other sectors in life. An easy way to start is to knock off a few walls and combine two units into one, or buy out another renter so you can take on significantly more units in one unit.

The point here is to keep adding value.

Buy and hold for Rental Income

This is probably the oldest way to invest in real estate. Typically, you find a property (or properties) that you think have potential. You then buy them with the intent of holding them for a while and renting them out.

With this strategy, your profit comes from the rent you collect from tenants. If you choose your property wisely, this will provide you with a source of consistent income.

You buy under market value, hold it for a while, and rent it out for more than what you paid for it. This is why buy and hold is often the preferred strategy for real investors.

Fix and flip

Fixing and flipping is perhaps the easiest way to get started investing in real estate. It doesn’t necessarily take that much upfront capital. If done in the right market, it can be very lucrative.

I got into flipping when I was younger for a couple of reasons.

I didn’t have a lot of funds but still wanted to start investing in real estate.

I thought it would be very easy, a lot of people were doing it, and it seemed very profitable.

I thought the process of buying a property, doing some fixing up, and then reselling it for a profit would be very simple.

My reasons for buying property specifically to fix up and flip were not very wise. In fact, to be honest, I was doing just fine renting single family homes for cashflow and buying multifamily properties but I wanted to…

Earn the Equity in My Property Rather than Paying Someone Else My Hard-Earned Cash

Also, I didn’t want to have someone else manage my cashflow for me.

Wholesale properties

This is a very risky kind of transaction but if you want to earn a huge amount of money at one shot, then this is the kind of property to go for. This is because it has a huge profit potential and this is an opportunity that you will not get any of the time.

With the development of the internet these days, things have changed. This is because you can easily get information about different types of properties that are on sale. This will ensure that you make the right kind of investment that will turn out well for you.

You can also use the internet to find a good banker in the area that you want to put your money in. This will ensure that you invest your money in the right way and you know that it will provide you the returns that you may be looking for.

Become a Real Estate Expert

To become a successful real estate investor, you need to know everything about real estate, which won’t happen overnight. But here are some things you can do to get started on the right foot.

Hire a Real Estate Assistant

You can find real estate assistants on websites like oDesk and Elance. When hiring an assistant, some of the things you will want to consider include hourly pay, experience, and where exactly they are. Pay by the hour to ensure that you are getting what you pay for. The more experienced the assistant, the more efficient and effective they will be.

Use a Team Approach

The more people you have working on your real estate deals, the bigger they will be. Real estate is a team sport, so if you are going to make money, you need to have a team backing you up.

Find a Mentor

Before you even begin investing in real estate, you need to find a mentor. While they can’t walk you through every step of the process, they can guide you in the right direction.

Study the Past

To get a better understanding of real estate, you need to look at past trends. Current events will give you an idea of where the market is headed. You need to understand history to understand the present.

Connect with Other Real Estate Investors to Dast-Track your Learning

You may be able to find some reputable websites on the internet. Surprisingly, there are a lot of great real estate forums that you can find on the internet. Test different websites and find out which ones are the best for your learning style.

You can also check out Facebook groups and join the one with the best members. You will find plenty of great real estate investors and you will also get a chance to interact with them.

It is amazing that you can find amazing mentors on these kinds of websites. You can look for a real estate investor that has already done the best that you wish to achieve, and you can ask them for advice and direction.

These are two ways that will help you increase your learning stars. Don’t expect to be an expert after you read a couple of articles. Just joining forums, you will have the chance to increase your learning stars significantly.

Another great way that will help you increase your learning star is by attending conferences and seminars. This will allow you to meet other experienced investors. You should ask questions, share your experience and listen to what other experts have to say. These are all good learning techniques for you and you should take advantage of each of them.

Know the Risks in Real Estate

Before deciding if real estate is a good investment for your portfolio, you need to thoroughly analyze all the factors. Some of the most important ones are:

Risk of Loss

Real estate investments generally carry risk. The worst case scenario would be losing the property to foreclosure, which is a reality for a lot of investors. Make sure you have enough funds in the bank to cover the payments if cash flow gets tight.

Costlier Than Mutual Funds

Real estate investments cost a lot more than investing in a mutual fund. In the end, your returns will potentially be higher with real estate, but it will take you much longer to see a significant gain.

Capital Gains Tax

If you sell the property for a gain, you’ll owe capital gains tax on 50% of the profit.

Real Estate Downturns

As a cyclical market, real estate is prone to downturns just like any other market. It’s up to you to decide if you’re willing to accept this risk for earning greater returns.

Despite the above risks, real estate still remains a good asset class. But investing in real estate requires specialized knowledge and experience. Investors need to know the fundamentals of real estate investment and possess a deep understanding of the process.

Real Estate Investing is Hard Work

Or at least it can be. It’s certainly not for the faint of heart. If you’re looking for an investment with a minimal amount of time commitment, then Real Estate probably isn’t your best option. Those early mornings and the late nights can certainly get in the way of a comfortable life.

However, that’s also one of the things that makes real estate investing so unique. It can require a significant time commitment. But, many of us have too many things vying for our time…a job, spending time with family, friends, hobbies, television, social media, etc.

The annoyance of the news being filled with stories about the lack of inventory and how prices are soaring might be just the push we need to rethink our priorities.

Real estate investing provides investors with long term returns, both financially and personally by trading the investment of our time to do something that many consider fulfilling.

Of course, it’s not all positive. Real Estate is also an indirect way of getting involved with the market and can be hard to manage. Some Real Estate names in the news are no longer household names.

Taking a step back to look at the big picture can go a long way in helping you to navigate the investing path of Real Estate.