Updated July 16th, 2019
Fun fact: 90% of the world's millionaires earned their wealth through real estate. Surprised? Don't be. Real estate has proven itself year after year to be one of the best investments for savvy financiers looking to turn thousands into millions, and millions into... well, you get the idea.
Real Estate Investing for Beginners
But the market is ruthless. You won't walk into the first open house you find, drop a down payment on the table, and fly off to Mexico to sip sangrias on the beach while your investment turns lead into gold for you.
Far from it. To be a successful investor, you need grit, drive, and more than a little market know-how. You need to get your hands dirty fixing up rundown properties yourself on your first few house flips and be motivated enough that you'll get back up even when it looks like all is lost.
You must work with experienced professionals you can learn from. Pick their brains. Ask them to show you the ropes so one day you can get on their level.
Real estate isn't easy. If it were, it wouldn't be any fun. In this guide, we will tell you how to think like an investor and take yourself to heights you never dreamed of.
This isn't your average investing guide. We're not going to tell you how to price a property or redo a bathroom, time the market, or negotiate a deal. You can find that info anywhere.
This guide will be different. We'll let you in on something much less tangible, but much more valuable: how to think like an investor. We'll focus on the internal because once that's set, the rest will come naturally.
Step 1: Use Fear As Fuel
If you look at the lives of many of the greatest real estate investors, you'll notice one thing they have in common: humble beginnings. They come from families with precarious finances, never knowing where the next meal would come from or when the little money they kept under the bed would run out.
As children, they feared they'd live their whole lives check to check and vowed to break the cycle. They took the boulder of fear that would have crushed a weaker person and learned not only to lift it up, but to carry it up the hill on their aching backs.
As adults, these entrepreneurs ignited the fear and let it course their souls to drive them harder.
Don't lose that fear. Use it to push you further and succeed greater and faster than your peers, but don't let it consume you in the process.
Step 2: Get the Education You Need
Not all lessons come in a textbook. Not all classes can be taught within the confines of four walls. If you want to be an investor, you need to accept that half the struggle is figuring out what you need to learn, and the other half is finding out how to learn it.
Find a mentor and see what wisdom they can impart. Surround yourself with investors of all levels: those who are worse off than you, on your level, and better than you. Learn from their failures and successes.
The internet makes it easy to find the information you need, but nothing is a substitute for getting out there and putting yourself in the thick of things. Go to open houses, chat with real estate agents, and absorb everything you can. Don't be afraid to make mistakes. The lessons you need to learn will present themselves if you keep your eyes peeled.
Step 3: Research, Research, Research!
Letting your fear drive you doesn't mean making risky investments to scare yourself into shape like you would to get rid of a bad case of the hiccups. You need to be discerning and look deeply into every property you're considering.
Don't just look at the property, look at the surroundings: look up local earnings and income reports to get a better idea of the financial demographics. Look at similar properties, prices, and marketing techniques. Get into the heads of the local residents and see what they value, and what they don't.
Speak with a local real estate agent to see what types of properties are selling, and which aren't. Research what the pros research, and you'll be set for success.
Step 4: Get Creative
Real estate investing is a business, and you will not rise to the top by doing the same thing everyone else. There's no roadmap for an investor. You must figure out what makes your investment strategy unique, and what gives you an edge over the market.
In the beginning, you must get creative to raise money for down payments on new properties. Eventually, you must come up with new ways to fix up your properties and give them a flair that can't be found elsewhere. Find your voice in real estate, take calculated risks, and success will follow.
Step 5: The Key
Beyond all else, you need to drive to succeed as a real estate investor. Money, research, skills — they'll all come if you have the drive to carry on even when the going gets tough. You must learn from your mistakes and view them as case studies, not as failures.
The market is ruthless. It will knock you down time and time again, leaving you battered and bruised. If you want to succeed, you need to be ready to stand back up. Each and every time.
Do you have what it takes?
Ready to invest in a property? Clever Partner Agents offer a $1,000 Home Buyer Rebate to help cover closing costs in 40 states. When you're ready to sell, our Partner Agents will list your home for just $3,000 if it sells for less than $350,000, and only 1% if it sells for more. Get in touch with us to schedule a free, no-obligation consultation with one of our experienced agents.
FAQs About Real Estate Investing
How much money do you need to get started in real estate?
There's no set minimum, but investors need to have enough capital to pay for a 20% down payment. On a $200,000 property, that's $40,000. It's possible to use an FHA loan, which only requires a 3.5% down payment, to purchase an investment property, but you'd need to live there as your primary residence.
Alternatively, you can investigate seller financing, leasing the property, and partnering with other investors to lower the amount you need to get started. However, these methods are far less common.
How do I start investing in real estate with no money?
Unless you're partnering with another investor, it's impossible to invest in real estate with absolutely no financial investment. That said, there are a few non-traditional routes you can take if you have limited finances.
Some sellers may be open to giving you seller financing. This means the seller will give you a loan and allow you to make high monthly payments instead of a down payment. You can also investigate leasing the property, also referred to as renting to own. Here, your monthly payments would contribute to the purchase price. However, both avenues run the risk of eating into your profits.
What is the minimum down payment on an investment property?
20% is the generally accepted minimum down payment for investment properties. Sometimes, it's possible to put down as little as 15%. For larger properties, the minimum may rise to 25%. It's technically possible to buy a property with an FHA loan, which has a 3.5% minimum down payment, but you'd have to live in the property full time.
Where can I find investment properties?
All properties are investments, even if not purchased expressly for that purpose, so you can find them anywhere. Drive around your city, look at online listings, have your agent check the MLS, and attend foreclosure auctions. Anytime you see an open house or for sale sign, stop by and see if the property fits your needs.
What is the average rate of return on real estate investments?
Residential and diversified real estate investments average a 10.6% annual return. Rental property returns, however, can be greater, with some estimates saying they can be as high as 15% on average. The average rate of return for your investments will largely depend on the type of investments you make.
Is it a good time to invest in real estate 2019?
As a whole, the US housing market remains hot in 2019, according to Zillow. The median home value increased by 5.4% over the past year and is projected to continue rising another 2.5% this year. There are certain parts of the country where the market is rapidly cooling off, like Brooklyn, so make sure you research the local markets before making any investments.