Are you new to investing in real estate? While it can be daunting, in the long run, real estate can really pay off if you are able to use the right strategies and work with the right property management team.
There are many ways to get started when it comes to generating a profit in real estate. Whether you’re looking to invest in your first rental property, or just dip your toes in the market by managing a rental home, there is an endless list of beginner-friendly tools to help you thrive.
Not sure where to start? We understand! It can be tough navigating the world of real estate. Below, we have provided a list of different methods that you can take if you’re ready to start investing in real estate.
Rental Property Investing for Beginners
Single-Family Homes
One of the most common beginner strategies for new real estate investors is purchasing a single-family rental home. At the end of the day, people will always need a place to live, so a single-family home is usually a safe bet as far as investments go.
While multi-family homes tend to generate a higher level of rental property income, they can also come with more work and they tend to require more capital at the start. As a new landlord, this can be difficult to achieve. Single-family rental homes will usually be easier to purchase, as they sell at a lower cost.
Single-family homes will also have lower tax rates, in addition to fewer costs overall. Other kinds of rental properties, including commercial properties, will have higher property taxes. Single-family rental properties also require less overall maintenance and management.
This is a huge aspect to consider if you are a first-time investor. Are you prepared to pay for a new furnace, or spend time inspecting the rental property when a new tenant moves in? While a single-family home still requires a high level of organization and maintenance, it is much easier to keep up with one tenant than many.
Plus, if you spend the time searching for a high-quality tenant who treats your investment property well, you will spend even less on maintenance and repairs. Overall, single-family homes provide rental property investors with a higher cash flow, especially since you will be able to charge your tenants utility costs, which you may not always be able to do with multi-family properties.
When it comes to the resale value of a single-family home, you will usually find a positive outcome. While this can also be affected by factors such as location and the state of the home, a single-family property will usually appreciate in value at a higher rate than other kinds of properties.
Plus, it will usually be much easier when it comes time to sell your property. This is because there will always be a demand for single-family homes, and you should have no trouble finding a buyer.
Lastly, single-family homes are an excellent investment due to their overall appeal among tenants. These homes are in high demand, as they provide tenants with a higher level of privacy, more space, and often come with other benefits like a backyard or garden.
For these reasons, single-family homes usually have higher occupancy rates than other rental properties, so if you choose to invest in one, we’re sure that you will have no trouble finding a new tenant.
Multi-Family Properties
While it’s easy to make a strong case for single-family homes when it comes to early investment strategies, you may not want to write off multi-family complexes quite yet!
Whether it is an apartment building, a duplex, triplex, or even a townhome, owning a rental property with multiple units can generate a profit that is well worth the investment. While they may be more costly upfront, multi-family homes are easier to finance through a bank.
Additionally, if you’re an investor who is looking to expand your portfolio at a faster rate, then multi-family properties may be your best course of action.
After all, if you succeed in getting a loan from a bank to purchase an investment property, it’s more efficient to buy a rental property with multiple units rather than purchasing multiple single-family homes at a time, all using separate loans.
While multi-family properties may involve a larger amount of work for the owner, this can be solved by hiring a trusted rental property manager to take on these responsibilities on your behalf, meaning you get to sit back and enjoy the passive income from the investment property.
Short-Term Rental Properties
A short-term rental property, also known as a vacation rental property or an Airbnb, can be a great way for new investors to get started in real estate. Unlike traditional long-term rental homes, a short-term rental would be rented out on a nightly basis.
With an Airbnb rental, you are able to make a larger amount of profit in a shorter amount of time. Statistically, vacation rental properties have a higher return on investment than long-term ones!
Further, if you are looking to truly maximize your income as a rental property owner, you can apply a more flexible pricing model to your short-term rental. For example, you could charge a higher rate for the rental property during the area’s peak tourist season and lower the cost during the less busy seasons.
By staying up to date on your local events and popular tourist seasons, you’ll be able to optimize your vacancy rate and earn more in the long run.
The demand for short-term vacation rentals over traditional hotel rooms has only increased since the Airbnb platform first launched in 2008. You can especially benefit from owning a short-term rental if your rental property is in a popular tourist area.
While not every city is Airbnb-friendly, it’s worth looking into if you are trying to get started in real estate, but don’t feel drawn to long-term rental properties.
Buy-and-Hold
This is one of the most popular investment strategies for beginners. The buy-and-hold strategy essentially means that the investor would purchase a property and hold onto it long-term until the home has adequately appreciated in property value. Then, the investor would sell the home for profit.
The key to gaining real success with this strategy is to purchase a rental property for a lower cost than its market property value. Doing this will help you to see that appreciation at a faster rate and allow you to sell the property sooner.
While this strategy has the potential to earn money, it is important to note that it is a long-term investment that may take time to truly pay off. For a maximum return on your interest, we suggest renting out your buy-and-hold property, whether it is a traditional long-term rental or a vacation rental.
Fixing and Flipping
While many of the strategies on this list are ways for investors to gain a passive income, this option requires a much more active approach. The fix-and-flip strategy involves an investor purchasing a property that is in poor condition, making the necessary repairs and upgrades, and then selling the property for a profit.
In order to make a tangible profit, the investor would need to sell the property for a price that is higher than the cost of the property and its repairs.
The biggest advantage of this strategy is that you don’t have to own the property for an extended amount of time. You only need to own it for as long as it takes to make the necessary repairs and upgrades! So if you’re looking for a way to get started in real estate without a long-term commitment, this can be a great place to start.
Further, flipping houses does not require you to handle tenants or manage a property, allowing you to skip the responsibilities that can come with managing a rental property with tenants occupying the space. However, it’s important to be careful and use a solid strategy with this approach, or you could end up losing money in the end.
Turnkey Investment Properties
Purchasing a turnkey property refers to when an investor buys the home from a company that has already completed any necessary renovations and upgrades, making it ready to rent as soon as possible.
In many cases, this company also offers management services to the new owner of the property. If you have little capital and a good credit score, this could be a good route for you to take if you are a first-time investor.
Turnkey properties are very popular among first-time investors. They tend to be easier to finance and manage while giving the investor the ability to begin making money fairly quickly.
This method is mainly popular due to the lack of time and money needed to put into the property, therefore making it a prime way to start generating some passive income.
House Hacking
While it may not seem like the most obvious choice, house hacking is one of the best ways for a new real estate investor to gain early success. But what exactly is it, and how does it work?
House hacking is when you purchase a rental property that has multiple units, such as a duplex or a triplex, with the intention of living in one of the units. Then, you can rent out the other units in the rental property. This is a great way to earn a passive income, as your other tenants will be essentially covering both your rent and your mortgage payments.
Further, this approach offers you the ability to manage the rental property on your own, as you will be living on-site. With this method, you won’t have to worry about property management fees or unhappy tenants. You will be able to handle any problems quickly and effectively on your own due to your proximity to the property.
Rental Property Management
So, you want to get into the rental property business, but you’re not quite ready to start owning your own rental properties? You may want to look into becoming a professional property manager.
Many rental property owners struggle with the day-to-day tasks that come with owning rental properties. Whether they just don’t have the time or they don’t live in the same city as their rental properties, many property owners are in need of a property manager to take on these responsibilities. This is where you come in!
These rental property owners are usually willing to pay a fair amount of money to have someone they can trust take these tasks off of their hands. This means that property management has the potential to be a lucrative business.
Whether it means handling maintenance projects, screening tenants, marketing a rental property, or organizing finances, if you are able to do these tasks effectively, you could end up making a decent profit.
Become a Lender
Another way to make an income in the real estate industry without actually owning any property is to become a lender. This approach requires you to have some capital to begin with.
While this may not be the first strategy that comes to mind when you think of real estate investing, it can be a worthwhile one. Hard money lenders essentially provide loans to rental real estate investors who are unable to qualify for a mortgage from the bank. Doing this can help you grow your professional network and generate an excellent return on investment.
Rental Property Investing: Bottom Line
While real estate investment can seem like an overwhelming task at the beginning, there are a few approachable methods that can get you started on the right path toward generating a steady profit for you and your real estate business. Although the barrier to entry is higher than stocks, real estate can get you a higher ROI.
Whether you choose to own a rental property yourself or become a property manager, dipping your toes into real estate and rental property investing is a worthwhile investment that will always stand the test of time.
