Introduction: Understanding the Basics of Real Estate Investing
Real estate investing has long been a favored route to wealth creation, and for good reason. With a value exceeding $230 trillion globally, real estate stands as the largest asset class, offering a blend of long-term passive income, positive returns, and favorable tax advantages. For beginners, the allure of entering this asset class is strong, but it’s essential to approach it with a blend of enthusiasm and prudence.
Real Estate Investing Entry Points
There are more options than ever for self-directed investors to get into real estate investing. What are the most accessible types of real estate investing for beginners?
- Real Estate Investing Platforms: Often referred to as “real estate crowdfunding.”
- Traded and Non-Traded REITs: Real Estate Investment Trusts.
- House Flipping: Buying, renovating, and selling homes for a profit.
Note that all investments, including real estate investments, entail risk. While it’s now possible to invest passively in complex commercial real estate (CRE) projects, it’s important to understand the risks and educate yourself on the basics.
A Get-Started Checklist
Whether you should invest in real estate, and what channel to go through, comes down to a simple set of factors:
- Traditional Portfolio: Ensure you are maxing out your 401k and allocating to a basket of public market securities before venturing into real estate.
- Time Horizon: If you are just getting started in real estate investing, consider higher-potential-upside, higher-risk equity investments. Closer to retirement, you may want fixed-income real estate investments with more protections.
- Time, Capital, and Due Diligence: Accredited investors with enough knowledge to review risk factors may consider private-market real estate. Beginners might start with private or public REITs.
Real Estate Investing for Beginners: The Basic Toolbox
There are different channels for getting started in real estate investing. We’ll get to those in a moment. First, a few fundamental things to understand about real estate investing if you are considering the sector:
- Return Potential and Risks: Different from other major asset classes like stocks and bonds.
- Tax Implications: Different from those of publicly traded assets. Consult with a tax advisor.
- Asset Classes within Real Estate: Single-family homes are just the tip of the iceberg.
The Path to Real Estate Investment
Investing in real estate differs from working in the sector. As an investor, you’re committing your capital with the expectation of future profit, whether through property appreciation, rental income, or both. It’s a field that requires patience, as significant returns can take time to materialize.
Key Concepts to Understand
- Risk Factors: Understand the types of risk any given real estate investment may entail and how those risks may impact you as a passive investor.
- Hold Period: Understand how long your capital will be locked up for.
- Investor Protections: Know your position in the capital stack and payment priority.
- Promote Structure: Understand how profits will be distributed to you and other equity investors.
Starting with REITs
For those new to real estate, Real Estate Investment Trusts (REITs) offer a straightforward entry point. REITs are companies that own income-generating real estate and are known for paying out high dividends. They’re an excellent way for beginners to gain exposure to real estate without owning physical properties. Publicly traded REITs are accessible through brokerage firms and can be a smart addition to a diversified investment portfolio.
Online Real Estate Platforms
Platforms like The Stream Group connect investors with real estate developers, offering opportunities to finance projects through debt or equity. These platforms are ideal for accredited investors looking to engage in real estate without the hands-on management of properties.
Example: An investor could use The Stream Group to invest passively in real estate for as little as $5k, diversifying across multiple investments, real estate markets, and property types.
Direct Property Investment
Purchasing rental properties is another avenue for real estate investment. The key is to find properties with expenses lower than potential rental income. Property management companies can be a valuable resource for those not keen on the day-to-day responsibilities of being a landlord.
Flipping Properties
House flipping involves buying underpriced homes in need of renovation and selling them for a profit. This requires a deep understanding of renovation costs and market dynamics. Partnering with experienced contractors or investors can mitigate some of the risks involved.
Real Estate Investing for Beginners — The Basic Toolbox
Successful real estate investing hinges on several key skills:
- Understanding Real Estate Terminology: Familiarity with industry jargon is essential for effective communication and informed decision-making.
- Long-Term Planning: Real estate is typically a long-term investment, requiring thorough research and strategic planning.
- Networking: Building relationships with other investors and industry professionals can lead to opportunities and valuable insights.
- Soft Skills: Strong communication, negotiation, and problem-solving abilities are crucial in managing relationships and navigating challenges.
- Education: Taking courses or earning certifications can deepen your understanding of the market and investment strategies.
Is Real Estate Investing Right for You in 2024?
In 2024 and beyond, real estate investment remains an attractive option for those seeking to diversify their portfolios and build long-term wealth. With careful planning and a willingness to learn, real estate can offer substantial rewards. Consider whether hands-on forms of real estate investing suit you, or if a more passive, diversified approach is a better place to start.
Real Estate Investing for Beginners — The Bottom Line
Real estate investing offers a path to financial growth and portfolio diversification. For beginners, starting with REITs or online platforms can provide a foundation for understanding the market. Direct property investment, flipping, and offline syndications are more hands-on approaches that require a deeper commitment but can yield higher returns. Regardless of the strategy, success in real estate investing requires knowledge, planning, and the right skills.
FAQs from New Real Estate Investors
Q: Is real estate investing a good way to build wealth? A: Yes, real estate investing can be a powerful way to build wealth, offering potential for passive income, appreciation, and tax benefits. Like any other asset class, real estate investing entails risks which should be carefully considered.
Q: How much money do I need to start investing in real estate? A: The amount required can vary widely depending on the investment strategy. REITs can be a low-cost entry point, while direct property investment typically requires more capital.
Q: Can I invest in real estate if I don’t want to be a landlord? A: Absolutely. Options like REITs and online real estate platforms allow you to invest without the responsibilities of property management.
Q: Is flipping houses still profitable? A: Flipping can be profitable, but it requires a thorough understanding of renovation costs and market trends. It’s also riskier and more capital-intensive than other strategies.
Q: How can I learn more about real estate investing? A: Consider taking courses, reading books on real estate investing, and networking with experienced investors to gain knowledge and insights.
Q: I want to get started, which real estate deal is right for me? A: Diversification is key. Within The Stream Group platform, consider investing the minimum in several opportunities across different pillars.
Ready to embark on your real estate investment journey? The Stream Group is here to guide you through every step, offering a platform that simplifies the process and connects you with vetted opportunities. Start building your real estate portfolio today and unlock the potential for long-term wealth.
Timothy Shaw
Timothy Shaw is a Founding Partner at The Stream Group. Leveraging his broad experience in real estate, he provides strategic guidance and advisory support. His background includes multifamily syndications, distressed asset acquisition, and serving as a licensed real estate salesperson in Ohio. At The Stream Group, Tim focuses on ownership and investment strategies, ensuring the firm’s long-term growth and vision.
Before his real estate career, Tim served as a lieutenant in the fire department. His career in public safety allowed him the opportunity to serve in many roles, including: firefighter, flight paramedic, hazardous materials technician, and certified fire safety inspector. This background instilled a deep commitment to service and integrity, values he brings to his work with investors, tenants, and team members.
A graduate of the University of Cincinnati with a degree in Fire Science Engineering, Tim is dedicated to creating an environment where systems and data drive success. He admires Warren Buffett’s investment philosophy: “When others are greedy be scared, when others are scared be greedy.”
Tim is married with two children and enjoys traveling with his wife. They spend their free time at their second home on Amelia Island.