Investing for Beginners

Investing for Beginners: How to Invest in Real Estate

If you are considering the opportunities for investing in real estate in place like North Dallas or Plano, it is a great time to do so. Financial experts have identified these areas as the top and hottest spots for real estate investments in 2017. Of course, there are many types of real estate investments, and those in the Dallas and Plano areas are both rental and rehab and flip types.

As a beginner or novice investor, it is helpful to understand the ways that investing in real estate can be done.

Real Estate Investment 101

So, investing in real estate is identical to investing in anything else. You use the capital or money you have right now towards a method that allows it to grow and increase over time. This growth is the return on the investment or the ROI. The return must be adequate to cover such issues as taxes, the costs of actually owning the real estate over the long or short term, and to cover the risks you have taken in the investment.

Now, that sounds complex, but it is not. Essentially, it is saying that your choices in real estate investment have to generate profits that are higher than all of the expenses associated with making that investment. If it were something like a paper investment, such as stocks, you would look at the price of the shares, the fees associated with making the purchase and/or future sales, and the tax issues associated with that investment. If, after doing the math, that investment generated the earnings you hoped to make, it is a sound investment.

This is precisely the same with real estate. You have to do a bit of unique research or due diligence, and work with totally different professionals and experts, the overall process and outcome is identical. And, just as traditional investment models have risk and even loss, so too do real estate investments. This is why you will need to really commit yourself to a learning process and to doing adequate research prior to investing.

How to Earn

How do you invest in real estate? There are four typical approaches to earning money on your investments. These are through appreciation of the property. For instance, you may find a chance at a multi-family property, you purchase and update it, add a coin-op laundry room (creating another income stream) and when you sell, it will be worth much more than when you purchased.

Investors also earn by cash flow methods. In other words, they purchase buildings with the intention of earning regular income from it. This could be rental payments, but not always residential rent. You can invest in storage, office buildings, and commercial property.

You can also earn related income through things like commissions off of buying, managing and selling real estate. Real estate related income can also result from ancillary investments, such as being a firm that operates coin-op laundries in an apartment complex or who manage the vending machines throughout a large business complex.

Most investors opt for the appreciation (buy low, sell high) or the cash flow (purchase and rent) approaches. Naturally, within this spectrum there exists a wide array of real estate investment options, and your choices come down to some basic issues:

  • Your available income
  • Your experience level

If you are eager to get involved in real estate investment in hot markets like North Dallas and Plano (both cited as top areas for 2017), you need to be realistic about your income and experience. Some experts insist that you must have a certain level of financial fitness before you invest in real estate, or that you at least have excellent credit. Many also say that a good tip for investors just getting started in real estate investment is to make your first investment in real estate that you will actually inhabit and/or rent before selling at a profit. Alternately, this can be your first investment that you rehab and then use for rental income in years to follow.

Where experience is concerned, the one thing that all professionals agree on is this: Fall in love with reading. The more you know about the process, the better you will be. Nothing can beat a solid understanding of real estate investing as a key to initial success.