Step 1: Understand the basics of real estate
You have to learn the different types of property investments that are available. For example, you can buy a house and rent it out, or you can buy a house and fix it up and sell it for a profit. These are called “flipping” properties, but there’s more to investing in real estate than just this. You also need to know about “buy-and-hold” properties where you buy a house at today’s price and hope that its value will go up over time so you can sell it for more money in the future. There’s also investment real estate that has nothing to do with buying houses – some people invest in apartments or office buildings! Since this is an introductory post on how to get started with real estate investing I won’t go into detail about all of these things – they’re better explained elsewhere – but I wanted to make sure I covered them at least briefly so you understood what was possible with this kind of investment strategy.
Step 2: Learn about different types of loans available for investing in real estate
Now we’ve talked about what kinds of properties there are, but not how they get financed (except as far as saying your own funds may be used). There are many different loan programs available depending on what kind of property you’re looking at buying/building/developing/etc. The new highway will drive down property values! The new highway will increase property values! (It’s the same highway, but depending on whether you’re selling or buying it can be a great thing or a terrible thing!) Some loans require that you put down 20% of the price of the property, some require 25%, and some don’t require any down payment. There are also different interest rates and different terms (30-year fixed vs. 15-year fixed vs. adjustable rate mortgages). You need to do your homework to find out what kind of loan is right for you – this isn’t something I’m going to go into detail about in this post so please don’t ask me questions about it!
Step 3: Learn how real estate works as an investment
Real estate isn’t just about mortgage payments – there are other costs associated with owning real estate that have nothing to do with money. Have you ever gone outside at night and seen all those lights? Electricity costs money! The same goes for water if your house uses more than just a little bit every month. Insurance is another cost that most people tend not to think much about when they buy their first house but becomes increasingly important over time as things break/need fixing/get stolen/etc. Then there are repairs – things always break! You’ll have to pay someone to fix them. There are also upkeep costs that will have to be paid once in a while, either for new things you want or just to keep everything looking nice. Look at it this way: people don’t buy cars without considering gas, insurance, and the cost of maintenance over time – why do so many people forget about these same costs when it comes time to buy their first home? I’m not saying you shouldn’t buy a house, but you should definitely consider these things before making your decision!
Step 4: Understand the risks involved with real estate investing
I had several friends who bought houses on the outskirts of town that they could barely afford because they wanted “the good school district”. They were told by their realtor that prices would rise and they’d make money off the investment. Well, guess what happened? Their area was rezoned for more commercial development (thanks in part to some lobbying from wealthy business owners downtown), which drove down property values because now those houses weren’t located near anything businesses wanted anymore. But my friends couldn’t sell them because nobody wanted them! They had made a bad investment decision even though their only mistake was listening to someone else rather than doing research themselves.
You need to do your homework so you know what you’re doing before you start investing in real estate. I think real estate can be an excellent investment if done correctly, but it’s so easy to make mistakes!