How to Become a Real Estate Investor

Becoming a real estate investor can be a part-time hobby to build your portfolio or a full-time job. How to become a real estate investor involves education and research, but if you're interested in building your knowledge, it can be a lucrative career. Whether you plan to work as an investor for clients or yourself, consider real estate investment strategies and opportunities carefully. Below, you'll find a breakdown of the steps to build and execute your business plan and create a real estate investment business. 

Is Real Estate Investing a Good Career?

A career in real estate investing can be lucrative and historically stable. Real estate investment trusts (REITs) generate an average annual return of 11.8%, residential properties average 10.6%, and commercial properties average 9.5%. With research and careful planning, seeing similar returns while building a business can lead to rapid growth. 

In addition, a career in real estate investing allows you to combine it with other commitments. You can start building your real estate business while working full-time. Real estate investing offers the flexibility to set your own schedule and the potential for long-term success. As your business grows, it can offer multiple passive income streams from each property, giving you the possibility of greater time freedom.

Real estate is a part of many diversified investment portfolios because real estate markets aren't directly tied to stock market fluctuations. Depending on the type of investment, you can further diversify your rate of return. For example, you can get a steady monthly income from rental properties or a good one-time ROI with house flipping. 

Steps for How to Become a Property Investor

Organizing your time and resources to identify target markets and investment strategies is essential if you want to become a property investor. As your business grows, you'll also need to determine whether you will act as a property manager or hire a property manager for your investments. Below is an overview of key considerations to ensure your real estate investments are on solid footing for long-term growth. 

Get Educated on Real Estate Investing

There's a saying in construction, "Measure twice, cut once." A similar philosophy applies to real estate investing. Before making a real estate purchase, educating yourself on the markets and investment opportunities is essential. Good starting points to understand markets and investment strategies include:

• Books: You can ask other investors for recommendations or choose top sellers at your favorite bookstore. Choose books focused on the specific real estate investment strategy you want to focus on first, such as house flipping, residential rentals, wholesaling or commercial real estate. 
• Workshops and seminars: You can find online and in-person real estate investor workshops, courses, lectures and seminars to build your knowledge and learn from the expertise of others.
• Online networking groups: Joining Facebook groups or other real estate investor networking forums can help build your network and gain valuable insight. 
• Realtors: Real estate agents and realtors are a valuable resource for information on your target markets, finding comparable properties and neighborhood trends.
• Investment clubs: You can find investment clubs online or locally that may have a subchapter for real estate investment to tap into networking opportunities. 
• Other investors: If you know other investors or meet them at workshops, you can gain valuable insights from their experience.
• Real estate schools: If you want to act as your own real estate agent, attending a real estate school and gaining licensure can help you better understand markets and save on agent fees. 

Learn Investment Strategies

Different investment strategies in real estate include active, mostly passive and passive options. Active real estate investment strategies include house flipping and wholesaling. Buying and leasing rental properties is a mostly passive income stream, while fully passive options involve investing through others, such as in REITs or real estate partnerships. Here is how each of these works:

• Rental properties: You'll buy residential or commercial real estate and rent it to long-term tenants. A property manager or property management company can make rental properties nearly passive. 
• Vacation rentals: These are short-term rentals on properties you own. You can use a property manager to make this a passive option or manage the property yourself.
• Wholesaling: The process of locating under-market-value commercial properties and signing the purchase contract before assigning it to the final buyer. In the case of wholesaling, you act as a broker who matches the seller with a buyer for a fee.
• House flipping: With house flipping, you buy distressed properties with deferred maintenance under market value and renovate them before reselling for a property. Despite impressions on popular reality TV shows, house flipping carries significant risks without in-depth, careful research. 
• REITs: Real estate investment trusts are a passive real-estate investment option in which you own a fraction of a real estate portfolio. Shares of REITs can be bought and sold on major exchanges, giving you maximum liquidity. 

Research Optimal Locations

When researching locations, you want to look at key factors based on your investment strategy. For long-term rental properties, you'll want to look at the proximity to places of employment, schools, hospitals, public transport, parks and other infrastructure. For vacation rentals, you'll want to consider seasonality and proximity to a major tourist draw. 

Factors to consider for all types of property include:

• What is the current market demand? Is the demand greater than the supply for your chosen property type and location?
• What can you expect in rental or ROI, based on the rental or sales prices of similar properties, called comps?
• Are local government policies conducive to your plan? 
• What is the zoning of the property? For example, a residential property zoned as commercial could command higher rental prices in certain prime locations. 
• Is the target market expected to grow? Look at overall housing trends and whether the market is currently under or overvalued. An experienced local real estate agent can help you with this. 

Determine Your Role as a Property Manager

The various roles and responsibilities of a property manager are diverse, so it's important to decide whether you have time to dedicate to these activities or whether you want to outsource property management. Property manager responsibilities include:

• Marketing properties
• Interviewing and screening prospective tenants 
• Collecting deposits and rent
• Handling maintenance requests efficiently
• Overseeing general property maintenance
• Checking on properties regularly
• Responding to other tenant requests or inquiries

Develop a Professional Investing Plan

If you want to make a real estate investment business, a business plan is essential.  Key steps to developing a professional investing plan for real estate include:

• Creating a vision and mission for your business
• Setting clear goals and metrics of success
• Conducting market research to make realistic cash-flow projections
• Evaluating financing options and opportunities to build faster with leverage
• Analyzing potential investment risks 
• Creating an investment timeline based on real estate investment strategy, goals, budget, financing and cash flow projections 

Secure Financing

Successful real estate investors are skilled at securing financing from various sources. Various financing options are available for securing investment properties including:

• Cash
• Conventional financing (mortgages)
• Seller financing
• Private loans
• Hard money loans
• Partnerships with other investors

To grow your business faster and secure the financing you need, it's important to connect with a mortgage broker or lender who understands your investment objectives. They can assist in finding the best financing options for your circumstances and suggest loan opportunities. As you build a reputation with the lender, you may be able to secure more competitive rates or larger loans. 

Make Your Purchase

When purchasing a real estate investment, the first step is to find a suitable property in your target market that meets the metrics you've set for ROI. While searching for a property, getting preapproved for a mortgage is a good idea if you plan to use conventional financing. If you're looking into private loans or partnerships, building those relationships and discussing realistic budgets can better prepare you to quickly make an offer on a property.

Consider working with a real estate agent to search the MLS and help you locate investment opportunities.  

Once you've signed a purchase and sale agreement, you'll need to take the steps outlined in the contingencies, including conducting inspections and finalizing financing before closing on the property. 

Execute Your Investing Strategy

As soon as you close on the property, it's time to start on the next steps. Depending on your investment strategy, this can include finding tenants for either commercial or residential rentals or commencing renovations for flipping the property. Refer to your business plan, financial projections and strategy for the next steps in your specific strategy. 

If you've invested in REITs, there's nothing to do but decide how long you want to hold them and collect dividends each year. 

What Do Real Estate Investors Do?

Real estate investors are involved in a variety of investment opportunities that involve physical properties, buildings or land. Here is an overview of common types of real estate investing. 

• Real estate crowdfunding: Real estate crowdfunding allows investors to raise money online for real estate acquisitions. By opening the investment to a large group of investors, you can secure financing without a traditional mortgage. Alternatively, you can participate in real estate crowdfunding as a passive investment with the potential for high ROI. 
• Renting properties: Renting properties involves buying and holding a property while renting it out to tenants, either long-term or short-term. This process includes all the responsibilities of being a landlord, although you could work with a property management company to outsource those responsibilities. Property management companies usually take either a flat monthly fee or a percentage of rental income. The desired benefit in either case is in property appreciation plus long-term rental income.
• Flipping homes: House flipping is the process of locating undervalued properties, usually with deferred maintenance, making the necessary repairs and renovations and re-selling or renting them. To house flip successfully, you'll need to calculate total expenses, time and ROI. The benefit, if done well, is earning a substantial ROI. 
• Investing in REITs: REITs are passive real estate investing options that require only a small buy-in. The benefits include an attractive tax profile and the ability to hold shares for an extended period without incurring capital gains taxes.
• Investing in established REIGs: Real estate investment groups (REIGs) are another passive real estate investment option. REIGs operate as small mutual funds that purchase and manage rental properties, provide income through pooling of rent and require a capital cushion and access to financing. The benefit includes long-term gains and passive participation. 

Should You Become a Real Estate Investor?

Real estate investing offers historically high returns but only if done with significant research and understanding of target markets. Work with a trusted real estate agent and leverage your network while learning from experienced real estate investors to increase the possibility of strong long-term returns. 

Frequently Asked Questions