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How to Become a Real Estate Investor

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As an investor, you may already have a financial portfolio that is brimming with stocks and bonds. Take it further and amplify your returns within a few years by investing in real estate. 

Start with our guide to make an informed transition to real estate investment. 

Choose a Real Estate Investment Location

When it comes to real estate investing, location has the biggest impact on your returns. Resist the urge to settle on properties around your immediate vicinity. Research the property price, rental rates and occupancy rates before investing. Make sure you also go through the price of the property over the last few years to determine its appreciation in the market.

These facts and figures can help you assess the value of your real estate investments. Do your due diligence and pick a strategic location that’s profitable. 

Plan an Investment Strategy

There are 2 general categories of real estate investment – active and passive. Depending on your financial needs, you can invest in real estate properties accordingly.

Passive Real Estate Investing

If you are new to investing in properties, passive real estate investing may be a better choice for you. Passive real estate investing involves buying small units of real estate properties. These shares give you a fixed rate of return on your investment.

Based on your financial goals, you can consider these methods of investing. 

  • REITs: Many companies finance and manage real estate investment trusts (REITs). REITs are low-cost investments that can boost your stock portfolio. You can own shares of multimillion-dollar residential and commercial real estate properties through REITs. These companies have full control over which properties to invest in. You can’t pick specific properties to invest in yourself.

    The rent collected from these high-profile properties goes into paying dividends to investors. These payments are usually done at the end of a month or a quarter. You can check out our guide on how to invest in REITs for more information. 


Source – FINRA.org

  • Crowdfunding: Crowdfunding companies are online businesses that pool money from people to invest in real estate. These online platforms allow you to directly invest in properties. These platforms have a limited number of properties to choose from. You can go through these websites to find specific information on the properties. These details include the location, rental agreements and rate of return.

    Most popular among the crowdfunding platforms are Fundrise, CrowdStreet and DiversyFund. To sign up for an account on these crowdfunding platforms, you may need to deposit a small amount of money as minimum balance. 
Commissions
No management fees
Account Minimum
$500
Get started securely through Diversyfund’s website
Commissions
No management fees
Account Minimum
$500
1 Minute Review

DiversyFund isn’t your average crowdfunding platform. You’ll find that the company puts a twist on the traditional everyday crowdfunding platform, beyond anything you can find online with a simple Google search. You only have to look under DiversyFund’s skin one layer to surmise that DiversyFund is a conscientious developer and sponsor and helps hedge risk through improved vetting.

DiversyFund offers a multifamily real estate investment trust, the DiversyFund Growth REIT, and its main goals are to increase cash flow and resale value. It’ll automatically give you access to multi-million dollar real estate assets.

Best For
  • Those looking for an alternative investment beyond stocks and bonds
  • Individuals who aren’t sure they want to be landlords in the traditional sense
  • Investors who aren’t accredited
Pros
  • Only need to pony up $500 to get started
  • Open to investors all over the world
  • No expensive broker fees
Cons
  • You’ll only be able to access “blind pool” investments, which means that you can’t opt out of specific properties
  • There’s only one real investment option, the DiversyFund Growth REIT
Commissions
$99 for first Investment and then 0.50% setup fee after
Account Minimum
$5,000
Get started securely through Roofstock’s website
Commissions
$99 for first Investment and then 0.50% setup fee after
Account Minimum
$5,000
1 Minute Review

Roofstock is a registered real estate broker and marketplace specializing in single-family rental properties. Unlike its competitors, Roofstock isn’t selling shares of properties through trusts or LLCs — they’re connecting buyers and sellers directly. Roofstock properties are carefully vetted by a qualified home inspector and come with a rental income guarantee. That’s right, Roofstock will pay you rent even if your property stays vacant.

Financial data on each property is available even to those who are not clients and nonaccredited investors are welcome to join free of charge. Cash and financing options are available when making a purchase, but Roofstock will tack on their own fees in addition to closing costs.

As the solitary owner of your property, you’ll be expected to fund repairs out of your own pocket. Still, Roofstock is a great way to get a foot in the door of the real estate industry and their fees are much lower than most of the competition.

Best For
  • Nonaccredited investors
  • Real estate investors with limited capital
  • Investors looking for income through rental properties
Pros
  • Free to sign up
  • No investment minimum
  • Ownership of real assets
  • Low fees 30-day money back guarantee
Cons
  • Single-family homes only
  • Need to finance repairs yourself
  • Requires down payments
Commissions
1% – 1.75%
Account Minimum
$10,000
Get started securely through CrowdStreet’s website
Commissions
1% – 1.75%
Account Minimum
$10,000
1 Minute Review

CrowdStreet is a commercial real estate investing platform where people can invest directly in commercial projects. Unlike a brokerage firm, CrowdStreet isn’t a middleman. Instead, the platform acts as a marketplace where investors can pick and choose the best deals for their time horizon and strategy.

Available investments range from family living spaces to office buildings to storage facilities and investors can sign up for a free membership. Your investment options are limited to what’s live on the Marketplace and you’ll need capital to build a diverse real estate portfolio. Only accredited investors can access deals through CrowdStreet.

Best For
  • Investors looking for diversification away from stocks
  • Real estate investors interested in new opportunities
  • Accredited investors with lots of capital at their disposal
Pros
  • Unique opportunities available
  • Makes real estate accessible and understandable
  • Investors can devote capital to both debt and equity offerings
  • Offers quality education materials and answers to FAQs
Cons
  • Real estate is highly illiquid
  • Most properties require a minimum $25,000 investment
  • You’re limited to what’s on the CrowdStreet Marketplace

Active Real Estate Investing

If you’re a professional investor, active real estate investing can provide better results. With considerable capital and time at your disposal, you can make huge profits. This type of investing involves a hands-on approach. You must increase its value by upgrading facilities before selling it at a higher price. 

This can be highly-volatile due to maintenance costs and unforeseen expenses. Based on your risk profile, you can consider these methods of investing.

  • Property ownership: You can outright buy a property and manage it by yourself. Although this sounds appealing to an investor, it’s not the most workable option. To begin with, you will have to find low-cost properties in prime locations. These locations should have high occupancy rates.

    Property ownership also means more responsibility. Be prepared to take time out of your busy schedule for routine upkeep and repairs.
  • House flipping: In real estate investing, house flipping is a common strategy. It involves buying a property for a low cost, refurbishing it and selling it at a higher price.

    A successful house flip can earn you profits in less than 6 months or a year. Be careful while calculating your expenses for renovating the house. These expenses can accumulate and eat away at your profit margin after the sale.
  • Wholesaling: Wholesaling involves buying distressed houses and selling them to house flippers. This method is less of a hassle compared to house flipping. Unlike house flipping, you are only responsible for selling the house. The house is then refurbished and resold for a higher profit margin.

    Having a well-connected network of real estate agents is crucial to wholesaling. The biggest challenge with this technique is finding people who are willing to sell a house below the market price of the property. 

Pick an Investment Property

The real estate industry is diverse. It offers many different types of properties to invest in such as:

  • Residential properties: These properties include single-family homes, multi-family housing, apartments and condominiums. In some cases, it can also include villas and vacation homes. After you have secured the funding, you can find suitable tenants to occupy it. Regular rents can be the easiest sources of income. But the managerial costs of the house during vacant periods can turn into a financial strain.
  • Commercial properties: These properties include malls, hotels, retail stores, office spaces and restaurants. Occupied by businesses and organizations, commercial properties tend to generate a much higher income through rent. These rental agreements can last for years, solidifying your long-term returns.
  • Industrial properties: These properties include research centers, warehouses, storage facilities and manufacturing facilities. Industrial areas need the least maintenance and involve no construction costs as an investment.
  • Agricultural properties: These properties are generally vacant lands used for farming and livestock. Many investors buy farms for cultivating cash crops such as coffee, corn and rice. 

Manage Your Investment

Once you have decided on the property type, management is your next biggest concern. These tasks can range from screening tenants, collecting rent, security, maintenance and roofing. 

Some investors hire property management companies to take care of these needs. But doing so will mean an added managerial fee to your real estate expenses. 

Earn Income from Real Estate

Take advantage of the amazing capacity of real estate investments to produce income. Regular rents can beat the performance of traditional real estate stocks. Don’t miss your chance to expose your portfolio to real estate earnings. 

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