In this guide I’m going to share my best tips for getting started as a new real estate investor. Things that I’ve learned from investing in real estate myself for 10+ years. I’ve done it all. I’ve bought homes to flip, and I currently own several rental properties. I’ve self managed properties and I’ve had help from property managers to free up my stress and time.

Let’s dive in.

Tips for Becoming a Real Estate Investor

#1: Pick Your Strategy

The first step to getting started investing in real estate is deciding which types of real estate investing you’re looking to do. What is your end goal that you have in mind?

Are you looking to build passive income where you’re just collecting monthly income from rental properties? Or are you looking to be more active where you’re fixing up houses, flipping houses?

Or are you looking to do wholesaling where you would be getting the property under contract and then flipping that contract to another investor who buys it from you for a wholesaling fee.

Marketing is where you’ll spend most of your time, looking for investment deals, so you have to figure out what type of investing you are looking to do so you can game plan marketing strategies.

#2: Pick Your Niche

Once you know your strategy (flips, rentals, wholesale), then you can start determining your property niche that you want to get into.

Do you want to get into single family houses?

Are you looking to get into like apartment complexes or condominiums?

What niche is successful to be in, in your local real estate market?

For example, people that live in Florida, have tons and tons of condominiums for sale as well as houses for sale. There’s not as many apartment complexes for sale anymore because they’ve turned them into condominium communities.

In other markets, like the suburbs of Houston and other Texas cities, they’re building all kinds of new apartment complexes that are nice A-class buildings that are going to have high rents.

For most investors, single family homes are a great niche to get your feet wet before scaling up to larger properties like apartment complexes.

#3: Quality Level of the Area & Property Condition

Figure out next, what quality of property are you going after? A, B C, or D class properties?

What are A, B, C, and D Rated Properties?

An A rating is a great property and in a great location. Think new construction projects in nice areas of town.

B class is a decent property and a decent location. This could be your average neighborhood around town that’s been around for 20-30 years and has steady price appreciation. You can buy a C property in a B location. Once you fix it up, you know the location’s decent and that the house is worth a decent amount on the resale value so you should have a healthy profit..

C location homes are going to be the homes that the value never really goes up very high due to the poor location of them.

In the C class level, you’re basically just trying to buy the home at a huge discount and make a little bit of profit off it on the resale. Or you’re buying them cheap and using them as cheap rental properties for the cash flow.

These properties are the ones that you can buy and hopefully see the rents continue to go up over time to increase your return on investment since you won’t get as big of a return on the appreciation side of the property value.

D class areas are really bad quality areas where there are high crime rates, poverty, and very little home value appreciation. You’ll notice lots of vacant homes and the values of these homes have barely risen or been flat price wise over many years.

So think about A, B, C, and D class locations in your market as well as A, B, C, and D class properties based on how new they are, the amount of work they need to fix up, etc.

A fire burned property, for example, would be a D quality home that needs tons of work and require an experienced investor. A-level quality would be new construction that’s turn key and ready to go.

Hopefully you target locations where lots of people want to live so that the demand continually increases your rent prices and you’ll be able to keep increasing your net income over time.

Once you’ve determined your goals, your property niche, and what quality level you’re looking at, then the next step is to start analyzing your finances.

#4: How Will You Afford to Purchase these Properties

Next, think about and answer the question “how are you actually going to buy these properties?”

Do you have the cash to just buy it outright in all cash? Or are you planning on getting a loan?

If you’re going to get a loan, what kind of loan?

Are you going to put a little money down using an insured conventional loan? Or will you use an FHA loan, where you could put a little money down like 3.5%? But then you’re going to have to live in the property for at least a year due to the rules of the FHA loan.

If you don’t put 20% down on a property, then you’ll need to

There’s also other types of loans out there, like private loans, seller financing, etc. that offer you some different ways that you can get creative with money if you don’t qualify for bank financing.

Most beginner investors who don’t qualify for a traditional bank loan, usually fail to qualify as a result of too low income or too low credit score.

Plan ahead what price level you can afford to go after based on your debt to income ratio and access to funds from the various finacing methods mentioned.

#5: What’s the Plan to Scale the Business

How quickly do you want to scale your business and start buying multiple properties or multi-unit properties?

For example, when I first got started, I put a little bit of money down, and took out a loan on a single family house. I ended up flipping that house a couple of years later. But I held on to it as a rental for a couple of years and then sold it for a nice big $75,000 profit.

On the sale of the property I decided to do seller financing with the buyer, earning additional interest acting as the lender on the deal until the buyer finally qualified for a loan and paid me off.

While I was earning interest on the seller financing deal, I took the down payment that the buyer gave and used that money to buy a three unit apartment building in cash.

This second property ended up being affordable because of its condition. So I was able to buy a really cheap three unit apartment building all cash and fix it up to build additional equity.

The goal is to then cash out refinance your property after its fixed up to get that equity money out of the deal. This places a mortgage on the property and now the tenants will be paying off the mortgage for you.

In the meantime, you’ve refinanced out the profits so you can use the funds to go acquire the next property you find to invest in.

This is how you scale your real estate portfolio and acquire multiple properties overtime. It starts out slower when you have limited capital but then you leverage the profits of each property to help speed up and afford the next properties.

As your income grows from the business, banks will then lend you more money and you can use bank financing to scale further!

Recap Summary

Initially you need to figure out your goals, your property type, what kind of condition properties and locations you’re going after, how your financing situation is.

Then decide your ultimate strategy to employ in your business.

If you’re buying a house to flip, then you need to put together a team. Find contractors that can come in and do the work, depending on what work you already know how to do yourself. Outsource the rest to get the flip completed fast so you can sell it, cash out for profit, and move on to the next deal.

If you decide to go the rental property route, then you’ll need to decide if you’re going to hire a property manager. Or are you going to do everything yourself to save money?

Once that property’s renovated and ready for renting out, you could hire a property manager to come in and lease it out for you. Then have them manage it for you so you can be more hands off and focus on finding more deals and growing the business.

Overall, think about what your expected returns are, what your goal is as far as income you’re trying to earn from these properties, and you’ll be able to map out a strategy on paper.

My final tip is to map everything out and use it to write up a formal business plan. This will help guide you and give you clear headspace on what you need to do to be successful when days get foggy and you feel stuck.

Thanks for reading

Realtor Nick Foy

realtor nick foy elkhart

RE/MAX Oak Crest Realty Elkhart

Northern Indiana Real Estate Agent