Beginner, Intermediate, & Expert Types of Real Estate Investing

From buying your first property to investing in real estate investment trusts, this article will walk you through various types of real estate investing you can pursue at different stages of your investing career.

Investing in Real Estate as a Beginner

Beginner real estate investing can seem like a daunting task without previous experience, but everyone has to start somewhere. When investing in real estate as a beginner, look into the following options:

1. Your first home – Typically, the first real estate investment that one would make would be to buy their first home. That could be an apartment, condo, home, or even van down by the river if you’ve really been saving up. Whether or not you buy a remodeled home or a fixer-upper with the intent to flip it, you’ll want to make sure you invest wisely with this purchase. The advice here hasn’t changed over the years – location, location, location.
2. Renting out a room – Now that you’ve got your first home or apartment, should the space be available, it may make sense to rent out a room to help offset the cost of the mortgage along with the many other costs of home ownership that will undoubtedly hit your wallet. This is also be a great source of income to help pay for any renovations or upgrades your place may need.
3. Rental property – Once you’ve got your first property in place with the mortgage and your finances in a healthy place, rental properties become an option. Rental properties have the advantage of (hopefully) growing in value over the course of your ownership while also providing a source of income to pay the mortgage. Outside of the initial down payment and maintenance upkeeps, you can essentially have someone else pay off your mortgage over time. Of course, it can be challenging to find renters and that’s why some folks who own multiple rental properties choose to utilize a property management company who take a small fee to handle all different aspects of the rental.
4. Buying REITs (Real Estate Investment Trusts) – REITs are arguably the easiest way for you to invest in real estate without purchasing a property. They are similar to mutual funds where you are essentially investing in companies that own commercial real estate like office and retail spaces, multi-family properties like apartments, or even hospitality locations like hotels and motels.

Intermediate Real Estate Investing Options

As we move into the more intermediate types of real estate investing, we’ll see that these options typically require more risk, money, and/or effort, although not always!

1. Flipping houses – Buying, renovating, and re-selling homes can be a risky and difficult process but can ultimately be profitable with the right amount of effort and luck. Made popular by countless HGTV shows demonstrating the process, it’s possible to find plenty of resources that can teach you the ins and outs of it. The biggest hurdle is typically having the skills to be handy and do the renovations by yourself as paying for outside contractors can quickly eat up any potential profit.
2. Hold and sell – This option is for the person who thinks the real estate market a home or property is located in will go up, but doesn’t want to flip the house – or maybe it’s already renovated! This is a simpler strategy of buying the home and just holding it until the value increases to where you can sell at a profit. It is a bit riskier for a few reasons:
   1. Without tenants, you’ll be paying the cost of the mortgage so you’ll need to make sure you can budget that in.
   2. Paying realtor fees on both ends of the transaction could wipe out most of the profits. If you’re experienced and can act as your own realtor, this becomes less of an issue.
   3. If the market drops, you could be stuck holding the property for a longer period of time than anticipated tying up your funds that you could be investing elsewhere. Should it stay low and you later need the funds, you would then be forced to sell at a loss.
3. Real estate crowdfunding – Traditional crowdfunding is when a project, venture, or business is financed by many individuals investing small amounts of money. Real estate crowdfunding follows a similar format. For many individuals, buying an entire apartment or home is out of their financial reach. Yet, through crowdfunding, they can team up with other similar investors and become a shareholder in a real estate project. Often times, these projects are organized and managed by a company who will take a cut of the profits alongside the shareholders. Some of these real estate crowdfunding investment opportunities start for as little as $1k. That’s a far lower amount than buying a home outright for any of the investing options listed above.

Expert Real Estate Investing

Expert levels of investing is typically reserved for high-net-worth individuals or those who can meet the accredited investor requirements.

The Securities and Exchange Commission (SEC) defines an accredited investor if they meet any of the following criteria:

• an individual or couple who have an annual income exceeding $200,000 or $300,000, respectively, each of the last two years
• have a net worth of over $1 million, not including the value of the primary residence

Let’s take a look at some of these types of investments:

1. Investing in commercial real estate – Instead of investing in residential property, some individuals choose to invest in commercial real estate like office buildings, malls, grocery stores, industrial estates, manufacturing shops, and more. These properties are often much more expensive than residential properties and can be much more difficult to manage as there may be multiple tenants and the real estate may require more expensive upkeep.
2. Real estate syndication – This type of investing is often compared to real estate crowdfunding as on the surface they seem to be very, very similar. The key difference is that real estate syndication is a specific partnership between the sponsor and the investors where the sponsor is the primary owner of the real estate property. Thus, crowdfunding is sometimes syndication, but not all crowdfunding investments are set up this way. For example, a crowdfunding platform may own 0% of the property with the collective investors owning 100%. Thus, the crowdfunding organizer takes profit without taking on any of the risk. Syndication offers an advantage here as the sponsor (think organizer and manager) is invested in making sure that the project succeeds. One downside of real estate syndication is that it is usually only available to accredited investors, as previously defined.

Real estate has shown to be a smart investment over the years and with a housing shortage in the US predicted through 2031, the sooner you can take advantage of its possibilities, the better off you will be! Investing in real estate as a beginner can seem daunting, but with patience, saving money every day, a well-thought-out plan, and smart investing your money will begin to work for you quickly.