How to Get Started in Real Estate Investments

By Peter A. Elwell, CFA | April 15, 2024

Side of large city building.

Real estate investments can be a rewarding way to build long-term wealth and diversify your investment portfolios. Understanding this market’s key aspects and nuances is crucial in pursuit of success. Whether you are considering rental properties, real estate investment trusts (REITs), or flipping houses, it is essential to have a well-informed approach that embraces opportunities for continuous learning.

Understanding Real Estate Investments

To get started in real estate investing, you first need to understand why you might want to undertake this investment. Real estate investments involve purchasing, owning, managing, renting, or selling properties to generate income. You can create this income in the following ways:

  • Appreciation: Real estate investments create a potential for capital appreciation, leading to wealth accumulation as property values increase over time.
  • Rental income: Renting out a property can help produce a steady stream of passive income from monthly rent payments.
  • Leverage: You can use the equity in your properties to finance other investments, boosting returns to increase your potential profits.

Additionally, adding real estate to your investment portfolio offers opportunities to diversify. Real estate often has a low or even negative correlation with other asset classes and equity markets. Diversifying your portfolio can mitigate risk so your losses aren’t as large as if your whole portfolio consisted of one type of asset.

Types of Real Estate Investments

You can start investing in real estate in various ways, each with a different risk-return profile. Your choice depends on your financial goals, expertise in the real estate market, and risk tolerance, keeping in mind that you can diversify across the various types of investments here:

  • Non-traded REITs: This investment vehicle allows you to invest in properties without taking ownership. Unlike publicly traded REITs, which act similarly to a stock, non-traded REITs are not listed on stock exchanges. The lack of public listing may affect their liquidity and pricing. However, they still offer diversification and income potential.
  • Rental properties: A rental property like multi-family housing or an industrial building can provide consistent cash flow through rental income from tenants, and these properties can appreciate over time.
  • Flipping houses: Real estate flippers purchase properties, renovate them, and sell them for profit. This type of investment requires a decent insight into the real estate market, potential resale values, and technical knowledge regarding construction and renovation.
  • Real estate syndicationsYou can collaborate with an entity that exists to buy and hold a portfolio of properties. Real estate syndications allow you to pool resources to invest in larger projects or properties. 
  • Real estate syndications: Real estate syndications involve pooling multiple investors’ funds to collectively invest in larger real estate projects. Investors can benefit from shared ownership, potential returns, and professional property management.

Setting Goals and Strategizing

Real estate investing for beginners and experienced investors starts with setting clear goals and following a strategy for prosperity. Success in real estate investments requires diligence, a commitment to continuous learning, and patience. Starting with realistic goals, a clear plan, and a stable financial foundation is essential.

Clear Investment Goals

Start by defining your financial objectives, such as passive income, long-term investment, or portfolio diversification. Next, set specific, measurable, achievable, relevant, and time-bound (SMART) goals to meet your objectives. For example, if you need clarification on acquiring a specific number of properties in a set timeframe, speak with a specialist or financial advisor.

Assess Your Financial Readiness

Work with your financial advisor to review your ability to take on this investment, basing your financial readiness on your: credit score, Income, Expenses, & Savings

Work with your financial advisor to review your ability to take on investments, basing your financial readiness on your credit score, income, expenses, and savings. This process will determine how much capital you can allocate to your investment while maintaining financial stability.

Be sure you understand all your financing options to choose one that best suits your financial circumstances, basing the final decision on the terms, interest rates, potential risks, and down payment requirements.

Develop a Strategy

During the strategy development phase, consider how factors like location, market conditions, and property type will align with your investment goals. This strategy should consider your risk tolerance, available resources, and objectives. Outline the following criteria in your plan:

  • Investment plan: Include property types, financing options, target areas, and exit strategies in your investment plan. Specify the criteria for property selection, like price range, maintenance costs, and appreciation prospects.
  • Scale up: If you are new to real estate investments, start with a manageable investment and scale up over time. This approach will give you the experience and knowledge to grow your portfolio to meet your initial investment goals and beyond.

Research Potential Investment Opportunities

Strategic real estate investments can offer a decent return on investment (ROI). When you find a property that aligns with your investment goals and the criteria set out in your strategy, start an appraisal based on the following:

  • Property analysis: Evaluate the property’s location, condition, expenses, the likelihood for appreciation, and potential rental income you can generate. Determine this potential income by analyzing comparable properties in the area.
  • Financing options: Common options include cash purchases, traditional mortgages, hard money loans like short-term loans, and seller financing that bypasses traditional lenders.
  • Due diligence: Hire a professional to conduct a thorough property inspection to assess the property’s condition. Do title checks, research zoning regulations, and get an insurance quote to plan for unexpected expenses.

Manage Investments and Maximize Returns

Maximizing the returns of your property investment results from effective property management, cash flow management, and making the most of the tax benefits at your disposal.

  • Effective property management: Reliable tenants will help ensure your property produces a steady rental income. Keep track of rental income and expenses, and budget adequately for regular maintenance and repairs.
  • Evaluating cash flow and returns: Calculate monthly expenses and compare them to your rental income to confirm a positive cash flow. Your ROI comes from property appreciation, rental income, and potential tax benefits.
  • Strategies to maximize returns: Buying a property, diversifying your real estate portfolio, and finding opportunities to add value to the property through renovations can help boost your ROI.
  • Tax considerations: When selling the investment property, some real estate investors use a 1031 exchange. This allows you to defer your capital gains taxes as you reinvest proceeds from your investment property into a similar property with no immediate tax consequences.

Register for an Investor Account

Starting the journey into real estate investments requires diligent research, strategic planning, and a good understanding of market dynamics. Maintaining and renovating the property and leveraging tax considerations like 1031 exchanges can help you see a significant return on your investment, paving the way for new real estate investment opportunities.

Whether you are just starting your journey in real estate investments or are a seasoned investor, the knowledgeable team at 1031 Crowdfunding is ready to assist with your real estate investments. Our team has helped investors complete over $3.4 billion in real estate transactions, showing they excel in various investment structures. Register for an investor account to learn more about tax deferrals using 1031 exchanges and alternative investment vehicles.

Register for an Investor Account

This material does not constitute an offer to sell or a solicitation of an offer to buy any security. An offer can only be made by a prospectus that contains more complete information on risks, management fees and other expenses. This literature must be accompanied by, and read in conjunction with, a prospectus or private placement memorandum to fully understand the implications and risks of the offering of securities to which it relates. As with all investing, investing in private placements is speculative in nature and involves a degree of risk, including loss of your principal. Past performance is not necessarily indicative of future results and forward-looking statements and projections are not guaranteed to achieve the results described and your actual returns may vary significantly. Investments in private placements are illiquid in nature and there may be no secondary market or ability to sell the investment should the need for liquidity arise. This material should not be construed as tax advice and you should consult with your tax advisor as individual tax situations will vary. Securities offered through Capulent, LLC Member FINRA, SIPC.

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