The Complete Guide to Real Estate Investing for Beginners (with PDF)

Real estate investing is one of the popular forms of investment that can help you generate income and secure both your current and future life. For some, it is considered one of the simplest and easiest forms of investment as it is perceived as an exchange of property between two owners. The property is afterward rented out and the rent keeps on coming securing a stable income every month. The truth, however, is that property investment is much more complicated than that. If you are a beginner, we strongly recommend that you get familiar with the process prior to putting your money in the property market. You need to understand the basic factors of investment, what is the possible risk and the overall economic situation at the moment.

Basically, in order to be a successful real estate investor, the profit that you make should be higher than the taxes you pay and the overall maintenance cost of owning the property. You need to know what are the different types of properties that you can invest in, how you can make money from your investment and what are the common pitfalls that you need to avoid. The guide that we have compiled below will help you understand the basics of real estate investing and make it easier, to begin with, this undertaking.

Real estate investing basics

Real estate investing is a broad term that features several elements. While many people associate it primarily with renting out properties, it actually includes a great range of activities. Some of the most common ones are flipping houses and residential property conversions. Becoming a real estate agent can also be considered a form of real estate investment, as this is a job that you can do along with another occupation. Here are the basics of the three most common types of property investment.

  • Rental property

The main idea of rental property is to generate income through cash flow and potential appreciation. Your main profit comes from the rent that you receive on a monthly basis once you pay all the relevant expenses, such as taxes, repairs, insurance, maintenance costs, allowances for vacancies and the mortgage. If you have managed to buy the property below the market value you can also make money from its appreciation.

Note that some of the properties may need a lot more work on them before you can rent them out, because of poor management by their previous owners.

You can rent out both residential and commercial property. While the process between the two types is different, residential property rentals are more suitable for beginners. If you are interested in commercial real estate, make sure to get professional advice and support.

  • Flipping houses

While the term flipping is used in real estate investment primarily in the USA, it is also one of the popular types of real estate investment. The basic idea is to buy a property, fix it and then resell it for profit. In order to be successful in this type of investment, you first need to find properties that are cheap but attractive enough for this move. You need to take into account all the associated costs – how are you going to finance the deal, how much will the repair cost, what are the taxes and insurance that you need to pay, etc. You need to consider the market situation as well and see if it is suitable for this type of investment. You can find properties that can be used for flipping on auctions, through direct marketing or such that are put for sale by the owners.

  • Property conversions

Commercial property to residential conversions are one of the most popular type of real estate investments in the UK. The secret of successful conversions lies in getting familiar with the rules and regulations governing the type of conversion. The main benefit of this type of investment is that it generates good ROI in a relatively short-term. Commercial properties are usually cheaper than residential ones and hence they are attractive for investment. With the changes in the legislation in the UK, conversions have become an easier option, which is now preferred by many property investors. They are worth being included in your property investment portfolio.

The best approach to property investment is diversity. It is always good to invest in different types of property so that you can rest assured that if one of the deals is not that successful the other can compensate for the loss.

Types of real estate property

There are different types of real estate investments based on the type of property that you choose for your undertaking. We can divide the properties into several main categories and there can be subdivisions in each category. Here are the basic types of property that you need to be aware of if you are considering to become a property investor:

  • Residential properties – these include houses, both single-family homes, and HMOs, apartment buildings, townhouses, condos, vacation homes. A person or family pays you a rent to live in your property. You sign a lease agreement with them, which is for a different duration. Vacation properties are a popular source if higher rental income but it depends on the season. Within residential properties, there is a special division for college rentals. These are properties that are in a university or college area and are primarily rented out to students.
  • Commercial properties – they include mainly office buildings and skyscrapers. You lease the offices to companies or business owners who pay a rent to use the property. Usually, the lease contracts are signed for several years, which has both its pros and cons. On the one hand, your income is secured over a long period of time and in case the rental rates decline, your income is still protected. On the other hand, however, if the rents go up you are not able to increase your income since it has to follow the concluded agreement.
  • Industrial properties comprise of warehouses, storage units, car washes or another special purpose real estate. These are leased to companies and businesses for a given period of time.
  • Retail properties are shopping malls, strip malls, and other retail places. Quite often the landlord may also receive a percentage of the sales generated by the store in addition to the rent.
  • Land also offers the option to generate income by purchasing and reselling it.
  • Mobile homes – this type of investment is perhaps more popular in the USA. Basically, if you invest in owning a mobile homes park you own the land and/or the mobile homes. Thus, you receive rent for both the land and the homes.

It is a good idea to include different types of property in your portfolio. If you are a beginner, it is better to start with residential properties as the investment in the other types is more complicated and you will benefit from having a bit of experience in the field prior to trying it out.

How to make money from your real estate investments?

There are several ways that you can make money out of your real estate investment. Some are pretty obvious but there is also a suggestion that might not have crossed your mind. Here are four suggestions on how you can profit from a real estate:

  • Cash flow income

Cash flow income is actually the rent that you collect from tenants who use your property for a certain period of time. In this case, you buy real estate property and rent it out. Most often rent is collected from residential properties but the object of your investment can be storage units, office buildings, car wash, etc.

  • Real estate appreciation

The aim of this investment is to buy cheap property, if possible below the market value, and resell it at a higher price as a result of the change in the real estate market. This may be due to the fact that the land around your property becomes scarcer or there is a major infrastructure improvement in the region – a new shopping mall, school, road. Often you make some upgrades to the property that make it more attractive (the so-called flipping) and you sell it for a profit. This type of investment is riskier than investing in rental property and is not the best option for beginners in the field of real estate investing.

  • Real estate related income

This type of income is for people who work as specialists in the real estate industry. It is not a direct result of real estate investing. Real estate related income is for brokers or management companies who offer services in the field. Real estate brokers earn their income from commissions from buying and selling property. Real estate managing companies are in charge of the maintenance, repairs and other everyday operations of properties that are rented out. As a result, they receive a percentage of the rent.

  • Ancillary income

You can generate more income from your property by installing vending machines in office buildings or running laundry facilities in low-rent apartments. This source of income is often referred to as ancillary real estate investment income. You can perceive it as a mini-business opportunity within the larger property investment that can generate additional regular income.

Common real estate investment pitfalls to avoid

As any type of investment, real estate also has certain risks. While some are difficult to predict, there are also common pitfalls that you can easily avoid if you are aware of them. Here are three very important points that you need to keep in mind while researching the options for real estate investment:

  • Do not be tempted by the highest yield

It is true that the utmost goal of each investor is to make a profit. If you are a novice in the field, though, you might be tempted by the possibility of quick profit and high yields. There are properties that offer a high yield, however, they are usually associated with the highest risks. Consider very well the cost of repairs, the tenant turnover or the vacancies that may come with this type of properties and assess whether the investment is actually as attractive as it seems. In most cases, it is better to opt for properties that offer lower but secure yields over time.

  • Consider all costs

When you calculate your anticipated returns, make sure to consider all the costs associated with purchasing and owning a real estate. The price that you have paid for the property is just one part of all that you need to invest as time and money. Some other typical expenses include taxes, insurance, repairs, vacancies and the like. Take all this into account when choosing the property for your investment.

  • Do not limit your location

As a beginner in real estate investment, you might be tempted to look for properties in your area. While this seems logical and convenient this is not the wisest decision from an investment point of view. Quite often areas outside your current location may offer properties at a better price and greater opportunity for high return on investment. Always look for the best property investment opportunity even if it is in another region.

If you are in doubt whether a given property is a good investment or not, you can always consult a financial expert in the field who can give you proper advice on how to proceed.

Who can help you with your real estate investments

Learning the basics of real estate investment does not make you an expert in the field. Even if you are an experienced investor, though, you still need to work with other people who help you with the overall execution of the deal. Some of the experts that you need to collaborate with include contractors, property managers, real estate brokers, etc.

If you are a novice in the field of property investment, working with a trusted partner is of a paramount importance. Seed Property Consultants is a leading property consulting firm that is dedicated to helping its clients succeed in their property investments. They will help you with research and analysis of the property market and direct you through the road of the successful investment.

As a beginner in real estate investing you will be happy to receive a customized, one-stop approach that will result in achieving your ultimate goal – a great property investment portfolio that answers your needs. Contact us now and start your journey in property investment having the most reliable back up.

Download this Guide in PDF here

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