What is the best way to start investing in real estate if you have no experience?

Question

I want to buy a condo to live in as a starter home but want to begin renting it out at some point after I buy it, presumably when I have enough money to buy a larger home, as opposed to just selling it. I want my first property to be a real estate investment, not simply a place to live. I want to be able to earn enough monthly rental income to at least cover the mortgage and insurance, and maybe even make a small profit. I would eventually like to grow my investments in real estate to a portfolio of investment properties.

How would I start investing in real estate if I didn't have any previous real estate knowledge or investing experience? How would I determine what would be a good property to eventually rent out to ensure I at least break even on the mortgage payments?

Answer 1

Sarcasm on: not do it. Not now - unless you have a good grip on something in rural areas, I would expect housing prices to be seriously problematic within the next 2-3 years. Problematic like going DOWN HARD. I am quite happy that I managed to sell some of my properties in the last 12 months - right now I would not find a buyer for a decent price. At all.

In many jurisdictions the best way is to start by buying something to live in. It may make no sense from a pure financial point of view - but you are often eligible for government funds as a first time home buyer and those totally turn the table. Also you do KNOW what you pay as rent, which then goes into a mortgage - and you will take care of your property. The usual "renter risks" disappear. And those are serious for small investors because you are really "losing all" when you get a bad apple.

How would I determine what would be a good property to eventually rent out to ensure I at least break even on the mortgage payments?

And this is where you need to realize that asking this question on an internet forum makes no sense at all. This is where experience comes in and this is EXTREMELY locale depending. You generally do that by estimating how the situation is and will be in the next 5 years or so - and that is a game that DOES take experience. For anyone small, a real estate fund may be a better idea. Among other hings: buying A property (as in: singular) totally opens you up to a serious risk for a bad renter ruining it. Once you own 5+ properties, you likely can handle one bad apple, but one squatter not paying rent for half a year sets one property back for 10 years before you break even.

Answer 2

In my opinion the best way to start any business is to boot strap it, that is relying on income from another source until you learn the business well enough to where you can make progressively larger leaps. On the surface, it would seem, that real estate is a massive leap but there can be smaller steps to help you learn the business.

One of the least risk ways to do so is to work for a property management company. This can either be part or full time. If part time, the pay may be far below what your normal rate is, but that is okay you are learning the business.

Another almost risk less ways to get started is to buy your first property with the intention of renting part of it out. You mentioned a condo, so you may look at condos that have two master suites. Many homes have basement or attic apartments which is another option. This become almost risk free if you can afford the property without a tenant.

Until you can take one of those steps you should read blogs about the rental real estate business and decide what kind of investor you want to be. Commercial or residential? Highly leveraged or cash only? High end, low end, or somewhere in between? What kind of returns do you expect and how do you evaluate a property for potential?

Those are really good questions to answer before you get started.

My own examination of the business is that I will stick with REITs for now.

Answer 3

The only way to get into investing is by starting to invest - everyone starts somewhere. Make sure you allocate your risks and really do the math without bias or desire. You mentioned that you want to cover at least your mortgage, its not worth it if you're covering just the mortgage. Make sure you have positive cashflow just in case you have any unplanned expenses in the future. Dont pay for others to live in your home. Unless you have tons of money, be selective when choosing a rental property since thats the only one you'll have for some time.

Choose a decent neighborhood, find a good property with a decent floor plan, do the math (dont forget to calculate landlord insurance, property taxes, HOA's, garbage/sewer, etc), and if positive cashflow (lets say $400-800/month), go for it.

Not sure what area you are in, but in California the market is HOT! Homes selling for record prices and sell quick. Please dont listen to fortune tellers for we live in crazy times and can expect the unexpected.

Good luck. At the end of the day if math works out, pull the trigger and you will benefit years to come.

Answer 4

"What is the best way to start investing in real estate ...

Really the best way is to buy some real estate.

There are a number of specific advantages, so best is to get started as early as possible.

"How would I determine what would be a good property ...

For long-term life investment, it makes little difference, just buy.

With the current covid economic effects, it's possible prices will knock up or down for a year or two. You only buy real estate for the very long-term, so that's irrelevant, ignore it.