Getting into real estate sales is the perfect first step for someone who wants to learn how to invest in real estate.
If you’ve had your license for some time, chances are you’ve learned a great deal, and your experience and knowledge will come in handy as you grow your own portfolio and invest in real estate properties.
If you want to learn how to get started in real estate investment, you’re in the right place.
Buying and owning real estate properties is an investment strategy that is both satisfying and lucrative. Unlike stock and bond investors, real estate owners must leverage a sizable amount of capital in order to purchase a property. There are also many factors that an investor must consider when analyzing a property for its potential profitability, and a wrong judgment could cause you to lose your cash. While this can make real estate seem trickier to get into, with the right knowledge and tools, it’s not as difficult as you might think.
Your biggest advantage is being an expert in real estate. You will benefit from your knowledge and experience with real estate sales compared to most first-time investors who’ve never assisted in purchasing real estate before.
In this article, we are covering exactly how to get into real estate investment as a real estate agent, from the strategies you can choose from to the steps you need to take to become a real estate investor. Also, be sure to check out our other articles on real estate investing for beginners.
How To Invest In Real Estate: Real Estate Investing Strategies To Try as a Real Estate Agent
Investing in real estate can take on many forms for realtors. Owning rental properties can be a great opportunity for people with renovation and property maintenance skills and time to manage tenants.
This strategy does require substantial capital to finance the costs of maintenance and cover vacant months. But by choosing to invest in rental properties, you will produce a recurring income, and property appreciation will build your wealth over time.
Real Estate Investment Group
If you’re wondering how to invest in real estate with less capital, this might be your ideal strategy. Real estate investment groups are great for people that want to own the rental real estate without the struggles of running it.
The Real Estate Investment Groups are like small mutual funds that invest in properties that are out for rent. In a typical REIG, a company purchases or builds apartments or condos then allows the investors to buy them using the company, hence joining the group.
A single investor may own one or many units of self-contained living space but the whole company operating the investment group will collectively manage all of these units, advertise vacancies, handle maintenance, and interview tenants. And in exchange for carrying out the management tasks, the company then takes some percentage from the monthly rent.
House flipping is a lucrative strategy for people with significant experience in real estate marketing, valuation, and renovation.
This is a slightly riskier option than buying and holding, but the potential for short term profits is much higher.
It requires a high level of real estate research and analysis to pull off correctly. It may also involve a team of contractors and expensive construction materials, which means that not only will you need to put up the cost of down payment, but you’ll also need to pay for renovations upfront.
Related: How to Succeed as a Young Real Estate Agent
How To Invest In Real Estate: Step By Step Guide For Real Estate Agents
Analyze The Local Market
The initial step to invest in rental properties is carrying out a thorough real estate market analysis.
The idea is to look at the property price values, trends, and available listings. First, it is important to establish if your local market is a buyer’s market or a seller’s market in order to understand the competition you can expect.
If you’re planning on buying a rental property, you’ll need to collect information on occupancy rates, average rental income, and expenses. These metrics will help you calculate your estimated cash flow and cash on cash return. Studying neighborhood data can also help you determine if a short term rental strategy or a long term rental strategy would be optimal in a given area.
Get Pre-Approved For a Mortgage
The next step in how to invest in real estate is getting a pre-approved mortgage. Being a real estate agent, you know how crucial this is. Buyers that have been pre-approved are always in the best position to make a move on the right property fast. This is especially critical in a hot seller’s market where competition is high.
If you can’t qualify for a traditional loan, there’s still a possibility to get financing. If you’re wondering how to invest in real estate with little money, you’re not alone. Even without a 20% down payment, you can obtain a loan through private or hard money lenders. Explore your options and make sure you have enough money handy to jump on the right investment property fast.
Look for Properties For Sale
After you’ve secured a financing method and located the right market, you can begin sifting through property listings and thinking about buying rental property or your first flip.
At this point, you should have a good idea of your budget and needs in terms of the type of property you’re looking for. It could be a duplex, a three-unit, or more. Even single family homes can make good investments, but multi-families tend to have the highest cash flow potential.
Once you begin your property search and start to look at home prices, you’ll probably start to wonder, “how much money do you need to invest in real estate?”
It can be tempting to strictly go after the cheap real estate, but looking at the numbers and getting a thorough inspection is crucial. What appears to be a steal on the surface might be a money pit upon closer consideration. As a part of your property search, make sure you bring along a trusted home inspector to evaluate any properties you are strongly considering.
Evaluate The Investment Property
Once you have picked out a few properties to consider, you must perform your rental property analysis. The goal is to determine the return on investment you can reasonably expect based on projected rental income minus expenses.
Just because you found positive trends at a neighborhood level does not mean you can assume that every rental property within that neighborhood will be a good investment. You must perform analysis on both levels to ensure the greatest chance of success.
Metrics to calculate include:
- Cash flow
- Cash on cash return
- Cap rate
Analyzing the rental demand and supply in this area will inform you of whether traditional rentals or short-term rental properties will bring a higher return rate. This will assist you in picking the optimal rental strategy for a given property, as not every property will perform well as a long term rental.
If you are analyzing a flip, you’ll want to look for slightly different metrics as a way of analyzing profitability. You’ll need to look carefully at rental comps and perform a CMA, or comparative market analysis, which should be very familiar as an agent.
However, you’ll also need to look at ARV, or after repair value. This number indicates how much you can get for a property in a particular market after you’ve renovated it. This is how most flippers determine whether an investment will be a worthwhile flip.
Related: How Do You Evaluate a Real Estate Market?
How To Invest In Real Estate The Smart Way
If you’re a realtor looking to start a real estate business as an investor, you now have all the foundational knowledge for how to invest in real estate. The last step is getting the right tools and software to make your job easier.
You know that time is limited and that the buyers who act fast get the best properties. You also know that purchasing an income property is about the numbers, and conducting an investment property analysis can be a time-consuming process.
That’s where real estate investment tools come in. We provide real estate investors with fast, accurate software that assists you in buying investment property and growing your wealth. We also provide the tools needed to find off market properties.