Real estate investing is a proven method of achieving financial freedom and even building generational wealth. But real estate investing can be intimidating for beginners. Even if you’ve been a long-time investor in the stock market, transitioning some of your portfolio to real estate feels like a big move.
Expanding into real estate investing creates many questions, like:
What property types should you invest in?
How will you choose a specific property?
How can you maximize returns while minimizing risk?
We want to help you answer these questions and move into real estate investing with confidence. This guide to real estate investing for beginners will give you:
A simple five-step plan to start investing in real estate,
Seven quick tips for new real estate investors, and
Answers to the real estate investing questions most commonly asked by beginners.
Consider this your crash course on real estate investing for beginners!
How to Become a Real Estate Investor in 5 Steps
Step 1. Explore Your Options
Purchasing a property to fill with rent-paying tenants is a classic real estate investment model. And, while investing in rental properties is a sound move for many investors, it’s not your only option. Before you jump into real estate investing, consider some of the alternative ways to go about it, including:
Fix and flips. Purchasing a distressed property, renovating it, and reselling it can be highly lucrative. If you have renovation experience or a partner who can handle the hands-on work, you can make a lot of money flipping houses.
Short-term vacation rentals. Rather than finding tenants to sign a one-year lease, you might decide to purchase a property you can rent by the week (or even by the night). Short-term vacation rentals perform well in areas that are frequented by tourists. Just make sure you review the pros and cons of vacation rentalsbefore purchasing a property for this purpose.
Build-to-rent (BTR). Build-to-rent homes are on the rise. These homes are being constructed with the express intent of becoming long-term rentals for the many would-be buyers who have been priced out of the housing market.
Multi-family development. If you’re interested in the development side of real estate investing, you might consider building multi-family structures. You could sell the property immediately upon completion for a quick return or you could lease up the structure and collect passive rental income for years to come.
Commercial/Industrial development. Similarly, you could develop commercial or industrial properties. Storefronts, restaurants, medical office suites, self-storage warehouses…is there a need for a specific property type in your local market that you can fill?
Real estate investment trusts (REITs). REITs are a good option for beginner real estate investors because they don’t require as much hands-on management or upfront funds as the other options on this list. REITs are companies that invest in income-producing real estate and then pass some of the profits along to investors in the form of dividends.
Real estate crowdfunding and syndication. Like REITs, you can invest in crowdfunding and syndicationwithout a high upfront amount or any prior experience. Crowdfunding and syndication pool funds from multiple investors to finance a specific real estate project. The project could be almost anything, including the rentals, fix-and-flips, and developments we’ve just discussed. Crowdfunding and syndication are typically grouped together because the models are so similar, but there are a few subtle differences between syndication and crowdfunding to be aware of before investing.
Step 2. Set Your Priorities and Expectations
What are you looking to get from your real estate investing?
How much diversification do you need? Are you comfortable putting all your eggs in one basket? Or would you prefer to spread the inherent risk of investing across multiple properties?
And what kind of risk/reward balance are you interested in? Are you willing to take more risk for higher yields? Or would you rather play it safe?
Clarifying your goals for your investment will help you make decisions that move you closer to where you want to be financially.
Step 3. Choose an Investment Model that Aligns with Your Goals
Now that you know your options and your goals, you can pick an investment model that suits your goals.
If you’re looking for automatic diversification, REITs might be a good fit for you since each REIT invests in multiple properties. Syndication can also provide diversification potential; since the investment minimums are much lower than the cost of buying a property on your own, you can spread your capital among multiple syndicated projects.
If you want to generate passive rental income, rental properties are the clear winner. Short-term rentals offer higher nightly rents, but they come with higher vacancy rates and more active management requirements than long-term rentals. Alternatively, you could invest in a syndicated rental project if you don’t have the funds to buy a whole property on your own or the time to manage it yourself.
If you want to benefit from both short-term value-add and long-term rental income/appreciation, consider developing and then holding a multi-family rental property. Developing a multi-family structure from the ground up forces appreciation. Once the property is stabilized with long-term renters, you might even be able to refinance it to recover your initial investment. Then you’ll be able to collect rental income for years and profit from the property when you’re ready to sell in the future. You can even find syndication versions of this multi-family build-to-rent model!
Step 4. Conduct Your Due Diligence on Individual Investments
With your chosen investment model in mind, you can narrow your search to individual investments within that model.
For example, if you’ve decided to buy a second home as an investment property, you can start searching for the right property. When you’re looking to acquire a property on your own, it’s always a good idea to get a knowledgeable local real estate agent involved early in the process. A good buyer’s agent can help you find new listings, evaluate properties, and negotiate favorable terms on the purchase. If you’ll be using financing to complete the purchase, you’ll also want to get pre-approved for a loan with a mortgage lender.
If you’re interested in REIT investing, there are many REITs available to choose from. You can typically review prospectuses online before placing an investment. You might want to consult with a financial advisor for assistance in evaluating different REITs.
If you’re interested in crowdfunding or syndication, it’s important to research individual crowdfunding services. Since the project will be professionally managed by the crowdfunding service (also called a real estate sponsor), you need to be able to trust the team managing the project. Consider key factors when choosing a crowdfunding service, including track record, transparency, and communication with investors.
Step 5. Take the Leap!
You can think, plan, and prepare for years. But you’re not a real estate investor until you take the leap and place your first investment!
7 Quick Tips for Beginner Real Estate Investors
1. Leverage Professional Expertise
There is a learning curve to real estate investing. And mistakes can be costly. So get help from the professionals who have the skills and knowledge that come from years of experience in real estate investing.
Lean on local REALTORS, inspectors, appraisers, and real estate sponsors. And learn everything you can from them.
2. Build Your Network
In addition to the professionals you count on to advise you in your real estate investments, you should continue to expand your network of contacts in the market.
You might need an electrician at some point. Or a tax accountant. And you could benefit from professional relationships with people who work in your local Assessor’s Office or Department of Building and Permits. Additionally, you can learn from other investors who have done what you want to do.
For example, you’ll typically pay transfer taxes when you sell a property as well as annual property taxes based on the assessed value of the property. You’ll need to keep track of the income and expenses for your investment property so you can report accurate figures on your tax returns.
4. Read Up on Local Laws
If you’re planning to build or buy a property to be used as a rental, you’ll need to understand local landlord-tenant laws. Many local jurisdictions also have specific rules governing short-term rentals, so you’ll want to pay close attention to those before deciding to invest in a vacation rental.
5. Watch for New Opportunities
You never know where your next deal might come from! Keep your eyes peeled for new opportunities. You might ask your real estate agent to continually watch the market for new listings that meet your chosen criteria. Or you might sign up with a real estate syndication platform so you can be notified of new projects as they come.
6. Learn About Profitability Metrics
Because there are different ways to make money in real estate investing, there are multiple formulas for measuring the financial success of a real estate investment. Read up on the 10 most important metrics for real estate investing to learn how to calculate the financial performance of your chosen real estate investing model(s).
7. Track Performance
Tracking the performance of your real estate investments will help you decide when to stay the course, double down, or implement your exit strategy. If you’re happy with an investment’s performance, you might decide to move more of your money into that investment type. If you find you can get better returns elsewhere, you may decide to liquidate your current investments and move that capital into the higher-yield vehicle.
Real Estate Investing for Beginners — FAQs
Is it realistic to become a millionaire through real estate investing?
Absolutely! In fact, we have an article outlining a simple three-step process for becoming a millionaire through real estate investing. One of the tricks to becoming a millionaire through real estate investing is to reinvest your profits to grow your portfolio quickly.
How does real estate compare to other investment types?
Real estate investing is a broad category, so it’s difficult to speak in absolutes. But here’s what we know: as of Q1 2024, stocks were returning 12% on average while bonds were at 6.4% and CDs were at 2.6%. By comparison, the syndicated real estate projects managed by Gatsby Investment were returning 23% on average! Learn more about investing in real estate vs. the stock market.
How much money do I need to start investing in real estate?
The amount required varies widely based on your investment strategy. REITs, for example, might only require a few thousand dollars. You can often buy into crowdfunded and syndicated projects with $10,000-$20,000. Buying a property on your own can potentially cost $50,000-$200,000 out of pocket, depending on prices in your local market.
I have $100,000 to invest in real estate. What should I invest in?
This is such a common question that we wrote an entire article dedicated to the answer! Check out How to Invest $100K in Real Estate for specific tips.
Our Education Center is full of useful articles, written by industry experts, to help you learn more about real estate investing. If you’re interested in learning more about real estate crowdfunding and syndication specifically, check out our quick start guide to investing in syndication.
Get Started Today!
Gatsby Investment makes it easy for beginners to start investing in real estate. As a real estate syndication company, Gatsby handles every detail of your real estate investments from start to finish. Investors who leverage our expertise earn average annualized returns of over 20%.
