The ultimate guide to getting started in real-estate investing — according to entrepreneurs who built multimillion-dollar empires from scratch
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Real-estate investing is the practice of buying, selling, managing, flipping, or renting property for profit.The most successful investors are highly adaptable. Jacob Blackett, the CEO of Holdfolio and founder of SyndicationPro, lost $70,000 on his first deal. Today he has a portfolio with 1,000 units.
They're also rigorous about choosing the right strategy, methodology, and location for their investments.To aid your decision-making, we've centralized months of reporting into real-estate investing trends in the guide below..Real-estate investing is a path to passive income, financial independence, and the possibility of securing generational wealth.
In the US, the allure of real estate hasn't let up. In a recent, of the 1,012 US adults polled, 35% said that real-estate was the best way to build long-term wealth.And in the past several years, real estate has created returns comparable to other investment assets.
According to theNational Council of Real Estate Investment Fiduciaries, expected annual total returns on apartment investments have fluctuated between 6% and 15% since 2012. Over the same period, the S&P 500 had an annualized return of about 10%.To help you get going, we've collected insights into mistakes to avoid, how to scale your business, and what it takes to nail the
managementLet's begin with the basicsReal-estate investing is the practice of buying, selling, managing, flipping, or renting property for profit.Some people make real-estate investing their full-time job, but for many it's a side hustle.
Investors come from a variety of backgrounds, including servers, advertising executives, and musicians. The key is to pick the strategy that's right for your resources and goals.Goals for real-estate investing can vary widely. For example, a "fix-and-flipper" is just looking for a few big pay days, while the passive-income specialists desire consistent cash flow.
Start building around a strategyThere also many real-estate investing strategies. Each possesses a mix of upfront costs, renovation work on properties, ownership, and exit strategies.The processes have varying timeframes and can result in any number of outcomes, with each resulting in strong cash flow — if successfully executed.
There are three main strategies focused on turning properties around as quickly as possible, usually in a year or less.Fix-and-flip:purchasing a distressed property, fixing it up, and selling it for (hopefully) a hefty profit. Takes about three to six months.
Wholesaling:contracting a property — usually a distressed one — with a seller, then assigning it to an end buyer. This approach doesn't involve the actual purchase or sale of real estate.BRRRR:buy, rehab, rent, refinance, repeat. A slightly longer-term and more labor-intensive version of fixing and flipping, with more steps in place. Life cycle is about six months to one year.
Detailed below are three other strategies conducted on a longer time horizon:Multifamily investing:purchasing properties with more than one residence. This one's longer-term, so expect to buy and hold if cash flow is your goal.House hack:leveraging extra rooms or units of your primary residence to cover expenses. This can begin as soon as your purchase the property and find tenants.
Syndication:pooling capital from several people to invest in properties that would otherwise be unaffordable. Expected investment is about five to seven years.The strategy you choose should reflect you and your goals. House hacking makes sense if you don't mind living with other people, but wholesaling is the path to profits without a large initial cash outlay. It's about fit.
That's why Joe Fairless, a founder and partner at Ashcroft Capital, thinks it's paramount that an investor align their investment strategy with their personality. For him, there's no universal cookie-cutter solution."Really it depends on the person's skillset," he said. "If you double down on what you're really good at, then good things are going to happen and you'll enjoy yourself."
Develop your methodThe method you use is really a decision tree off the strategy you employ.You need to take a scientific approach.For example, the house hacker typically invests in multifamily rental properties, sometimes living in one of their own rental units while collecting rent from the others until it's time to move on to the next property.
For real-estate wholesaling — a match-making approach where the investor contracts a property with a seller, then finds an end buyer, all without ever buying or selling themselves — speed is crucial. That's because the middleman wants to find a buyer before the initial contract with the seller closes.
To that end, it's crucial for a successful wholesaler to preemptively develop a network of builders who may be interested in buying.It's also advisable to have a process in place for tapping resources such as geographic mapping — which can provide crucial structural detail around a property — and a local register of deeds, which can save time when dealing with clerical issues.
So depending on the strategy you choose, you need to have the contingencies of success mapped out.And, of course, your location.Deploying your strategy reallya matter of location, location, locationJust like your strategy should fit your personality, it should also fit your location.
Location is the initial determiner of your investment goals, so strategizing how much money you can spend on location is all the more important.The more money you can spend on location now, the more you can likely collect when it comes time to see returns.
For the sake of brevity, let's go over two strategies and how they fit into markets: long-term investing, like landlording, and the shorter-term option of house flipping.At Business Insider, we spend much of our time digesting market trends.Industry data suggests that nationally, according to Redfin, the top four largest markets that saw the biggest year-over-year
decreasein median sale price in June were Baton Rouge, Louisiana; Charleston, South Carolina; Youngstown, Ohio; and Urban Honolulu, Hawaii.In addition to a drop in sale prices, Redfin found that all four markets still hold a fair affordability ratio, making them potentially ideal markets for first-time investors looking to learn the ropes.
Keeping it local helps.Mike Hills, who has an extensive property portfolio valued at over $8 million, emphasizes that a smart investor's strategy is to stay relatively close to their investments geographically, since that allows for property managers to keep a close eye on projects while maintaining work-life balance.
That said, he and his firm are focused on investments in cities such as Denver, Austin, Boise, Phoenix, Colorado Springs, and Charlotte, all of which, Hills says, are hot markets investors should keep in mind.What Hills looks for in deals is the "20-year picture," he told us. What's most important is a property's long-term positive cash flow, net value appreciation, and overall profitability.
In other words, as long as the property pays for itself and then some, while appreciating in value long term, an investor should be in a position to profit.But not everyone is looking for long-term investments. And you have to choose your market accordingly.
Consider house flipping. It surged in popularity through the mid-2000s and 2010s as a result of cheap property values and a surge of reality-TV shows. But the practice has had a rough time in 2020.In the first quarter, the house flipping ratehit a 14 year high, while flippingRead more: Business Insider »
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