Real Estate Investing for Beginners

by | Mar 4, 2024 | blog

Consistent value appreciation and general demand for housing make real estate one of the most viable and attractive options for new investors. Data shows that the real estate market is projected to surpass $142 trillion in the US by 2028. This is up from the current projected value of $113 trillion in 2023.
There are several factors that influence how to be a real estate investor. They may include your location, level of knowledge about the real estate industry, and your initial investment capital. The choice of investment assets is virtually limitless and is equally matched by the options of investment strategy. But before we get into the strategies, let’s look at the steps you should take before putting your money in real estate.

How to Be a Real Estate Investor: Getting Started

Getting Started on Real Estate Investing

Prior to investing in the real estate market, or placing an investment using any vehicle, consult a financial advisor.

I. Evaluate Your Financial Capability and Determine Your Investment Goals

The first step towards investing is analyzing your financial position. Consult a financial advisor to review your debt, income, and credit score. How much of your savings can be channeled to investments? Do you have leverage for a mortgage or investment loan? Does your initial investment capital suffice to start your investment journey or do you need to explore other financing options from lenders? The beginning of an investment journey is a volatile time that can either make or break you financially.

Understanding your financial capability ensures you don’t overextend yourself. Your financial capability will in turn help you establish your investment goals. Are you looking for monthly income from a rental property? Or are you more interested in buying properties, enhancing them, and selling them for a profit? Are you an investor who desires passive income and a hands-off approach to investing or do you prefer putting in the work by yourself? Your goals will shape the type of real estate investment strategies you pursue.

II. Research the Local Market to Gain Insight About Investment Property

Real estate investors understand the importance of location and the nuances of the local market. A strong grasp of the market helps you pinpoint which investment property offers the best return on your money. It also arms you with the knowledge that can be beneficial during negotiations.

However, not all investment strategies require knowledge of the local market. Alternative real estate investment examples like mortgage note funds do not necessarily require knowledge of the market because their performance is not tied to local markets. This attribute can shield such investment strategies from market downturns and is the reason why new investors prefer alternative investments.

III. Look for an Experienced Investment Partner

Look for a professional who has a track record and experience of how to successfully invest in real estate. If you would like to invest in commercial real estate, look for an experienced agent with a strong portfolio. A syndication deal, for example, will require an investor or investment company with real estate experience but also strong management skills.

Don’t become vulnerable to professionals who have no experience or track record of success. Do your research and due diligence. Set up appointments with them to gauge their level of understanding of what you would like to invest in. An investment partner’s goals, values, and ambitions should align with yours. Their real estate business should be streamlined to make you a successful investor.

Common Real Estate Investing Strategies for Beginners

Real Estate Investing Strategies for Beginners

To be a successful real estate investor, you have to consider at all your options. Read and research as much as you can about the risks and rewards of investment options. It is also advisable to consult with an investment or financial expert to guide you as you begin your investment journey. You can also propose to be an understudy of experienced real estate investors so that you can have first-hand experience on how to effectively invest your capital. Let’s break down some popular strategies to help you make better decisions in the real estate business.

Alternative Real Estate Investing

Alternative real estate investments refer to non-traditional ways of investing in the sector. These strategies allow investors to gain exposure to real estate assets without directly owning physical property. They typically provide options for diversification, liquidity, and the potential for passive income making them attractive to new investors. Here are a few examples:

  • Mortgage note funds: These funds aim to buy distressed notes at discounted prices and restructure the mortgage payments with their borrowers. Investors of the fund are likely to receive income from the profits of the restructured payments. If you would like to know more about investing in a mortgage note fund, talk to a CWS Investment consultant today.
  • Syndication deals: Syndications pool investment capital from business partners to buy properties that they couldn’t afford individually. However, ensure you understand the legal ramifications and your role in the investment. Consult a financial advisor prior to investing.
  • REITs (Real Estate Investment Trusts): These are like mutual funds for real estate. A real estate investment trust lets you invest in various properties without buying them. It’s another viable strategy to get into the real estate market. Consult a financial advisor prior to investing to ensure your investment aligns with your financial goals.

Buy and Hold Strategy

You buy properties aiming for value appreciation or generating rental income. This strategy requires effective property management. Having a reliable property manager can help you manage tenants and maintain the property.

House Hacking

House hacking is an excellent strategy for new investors. You live in one unit of a multi-family property that you own and rent out the others. This can offset your mortgage and other management fees for your investment property.

Fix and Flip Strategy

Purchase properties below real estate values, renovate, and sell them for a profit. House flipping can be lucrative but repair costs and unexpected expenses can eat into your profit margin. It’s important to have a solid plan and possibly collaborate with experienced investors for the best results.

Wholesaling Properties

Wholesaling properties make you an investment middleman. It involves creating contracts with sellers and then selling those contracts to buyers. You don’t necessarily need a college degree to understand wholesaling but you need some insight about the real estate industry, networking, and the trends in the local market.

Real Estate Crowdfunding

Online platforms allow multiple investors to pool funds and invest in properties. Governed by the Securities and Exchange Commission, crowd-funding can be an accessible entry for new investors. However, ensure you’re well-versed with the platform’s terms and the investment opportunities presented.

Mortgage Note Fund Investing for Beginner Investors?

A mortgage note is a promise to repay a loan. When someone buys a property and takes out a mortgage, they sign a note stating they owe the lender a certain amount of money, and it outlines the repayment terms, interest rate, and other related details.

Therefore, a mortgage note fund is an investment vehicle that obtains multiple mortgage notes in hopes to refinance with borrowers under profitable terms or sells retained mortgage notes for profit. Investors are providing capital for the purchase of the assets which are pooled together for potential return. As an investor in such a fund, your returns lie in the profitability of the restructured installment payments by the borrower. CWS Investments runs a mortgage note fund with a portfolio in all major US markets. For more information about investing in our mortgage note fund, speak with a member of the CWS team today.

5 Benefits of Investing in a Mortgage Note Fund

1. Diversification of Portfolio

Diversification helps to manage investment risk. A mortgage note fund usually buys mortgage notes for diverse properties in different markets. CWS Investments, for instance, has a mortgage note portfolio that spans across 40 US markets. This aims to shield investment capital from unexpected events in one local market. Additionally, as an alternative investment, a mortgage note fund often has a low correlation with financial markets which have in recent years become extremely volatile.

2. Consistent Cash Flow

A primary attraction for real estate investors is the potential for positive cash flow. Mortgage note funds can offer a passive income stream. As borrowers repay their loans, investors may receive a portion of the interest providing cash flow without the management challenges of the actual property. CWS Investments provides its investors with the opportunity to earn an aimed 8 – 10% return on their investment, which is distributed monthly as dividends.

3. Professional Management

Mortgage note funds are managed by professionals. They handle the day-to-day operations, leaving you with more time to focus on other aspects of your real estate investing journey.

5. Flexibility in Investment Choices

Different funds focus on various types of notes—ranging from prime residential loans to riskier non-performing notes. This flexibility ensures that, as a real estate investor, you can choose a fund that aligns with your risk tolerance and investment objectives.

Start Your Real Estate Investment Journey with CWS’ Mortgage Note Fund

If you are new to investing, capital preservation and a consistent income stream should guide you on how to be a real estate investor. Capital preservation will let you have peace of mind as your money works for you. Ideally, an investment strategy that is founded on capital preservation shields your capital against unexpected loss due to market fluctuations or localized events.

Successful real estate investors understand that a consistent stream of income can catalyze your investment success. You can use the income to put in other investment properties or leverage it for more investment capital from lenders.

CWS’ mortgage note fund is founded on these two principles. We aim to provide investors with an annualized return of 8 – 10% thanks to our meticulous due diligence process of the mortgage, the borrower, and the note itself. Speak with a CWS Investments team member about investing in our mortgage note fund today.

Frequently Asked Questions about Becoming a Real Estate Investor

1. Do you need a license to be a real estate investor?

No, you do not need a license to become a real estate investor. A license is generally required for activities like representing buyers and sellers or managing rental properties for others. However, if you’re purchasing investment properties for your portfolio or handling your rental property, a license isn’t mandatory.

2. How many properties does an average investor own?

The number of properties an investor owns can vary based on their real estate investment strategy. Some investors might only own a single rental property, while others have extensive portfolios with multiple residential or commercial real estate holdings. On average, investors start with one or two properties and expand their portfolios as they gain experience and capital.

3. How to become a real estate investor with no money?

While capital can expedite your real estate investing strategy, it’s possible to start with minimal funds. Some tactics include partnering with other investors or securing seller financing.

4. What are three real estate investing tips for beginners?

First, educate yourself thoroughly about real estate investments and the local market. Secondly, start small; consider beginning with a single rental property and scaling up as you learn. Lastly, build a network or like-minded investors. Connect with experienced investors, join real estate clubs, and consider a mentor program to guide your journey. Always consult a financial advisor prior to investing.

5. What is the best book to learn about real estate?

Many books offer insights into real estate; however, one widely recommended read is “How to Be a Real Estate Investor” by Phil Pustejovsky. The book provides foundational investment wisdom for those starting out in real estate.