How to Get Started Investing in Real Estate

Real estate investing can be a great way to build wealth and create passive income, but it's important to research and take the necessary steps to ensure success. Here are some recommendations to help you begin.

7 Tips for Getting Started in Real Estate

What type of property to buy

First, decide what you're looking for in a property. Determine the location and type of property that you're interested in. Are you looking for a single-family home or a multi-unit property like a duplex or triplex?

Once you have a good idea of what you're looking for, set up alerts on Zillow to keep an eye on properties that fit your criteria. Talk to a real estate agent and let them know what you're looking for.

Get pre-qualified

Before you start seriously looking for a property, get pre-qualified for a loan so you know how much you can afford. This will help you narrow down your search and make sure you're only looking at properties that fit within your budget.

Loan Types

If you don’t have a lot of cash for a conventional mortgage down payment, consider looking into FHA Loans, which can help you buy a property with as little as 3% down. Note that FHA Loans can be used to buy multi-unit properties like duplexes.

Learn more about Conventional Mortgages vs. FHA Loans

There are also down payment assistance programs available for first-time homebuyers, which can allow you to purchase a house with very little money down. If you’re a veteran, you may qualify for a VA loan which requires no money down.

House hacking

Another option is to buy a duplex and live on one side while renting out the other. This strategy, known as "house hacking," can be a great way to build equity in your home while also generating rental income. The rent from one side of the duplex can cover most, if not all, of your mortgage payment, allowing you to live essentially for free.

Move-in ready vs Fixer-uppers

If you have the skills to make improvements yourself, consider distressed properties. If you don't have the ability to make improvements yourself but have enough cash, you can hire someone. However, be careful you don't get taken advantage of. Dealing with contractors can be difficult when you're inexperienced.

Buy off-market properties

Properties that you see on Zillow or ones that your real estate agent can show you are all listed on the MLS or "Multiple Listing Service". This is just the public database of properties for sale.

But, there are other options for buying properties if you're savvy.

Tax sales and sheriff sales can be a good way to purchase properties below market price. A tax sale happens when the property owner doesn't pay their property taxes. The way tax sales work varies by state so do your own research. Often tax sale properties are in very bad condition, require complicated legal work to clear the title, and sometimes you can accidentally purchase a property with a lien for more than the property is worth. Very bad!

Sheriff sales are for foreclosed properties. If someone doesn't pay their mortgage the property will end up on the sheriff sale. The bank that owns the mortgage will typically bid up to the amount they’re owed. However, if a property is worth more than the loan amount you can potentially buy it for less than it would sell on the open market.

Last, look into local real estate auctions. Properties are sometimes auctioned if they need to be sold quickly - for example, to settle an estate or during a divorce.

Educate yourself

If you're serious about investing in real estate, learn as much as possible first. There’s a ton of information out there. Take a couple of months to read several books and articles online. Twitter is also a great resource as well as talking to people who already own property. Networking is the best way to learn.

Good luck!

Alan Reed

April 20, 2023 (Updated April 22, 2024)