One of the most common questions we get when speaking to others about what we do is: “What’s the best way to get started investing in real estate?”

Well make no mistake, there are near countless ways to invest in real estate; and thinking about just how to get started can certainly be overwhelming.

After being on our own journey for many years and doing massive amounts of research, learning and networking, we decided to put together this quick guide that will help you understand your situation, uncover what you’re looking to achieve and explore the best way to get started.

In this guide, we’ll explore:

• Your 50,000 foot View of Where You Are
• Your “Why”
• Just How Hands-on You Want To Be
• Your Risk Tolerance
• The Amount You Want To Invest
• Which Type of Real Estate Investor You Are
  
  

Step 1: Get a Bird’s-eye View of Your Current Situation.

Prior to investing a sizeable amount of money or time into real estate, it’s critical to have a clear-eyed view of your situation – where you’ve come from and where you are currently – in order to build an expectation of where you want to be and how best to get there.

Life stages are significant and impactful factors in our lives.  You could be a young adult, just getting out on your own; a new graduate starting out in the workforce; mid-career with a growing family; or getting ready to retire.

Think about your goals and available resources. What is your financial situation and what are you seeking from your investments? Perhaps you’re looking for a large, one-time payout, or maybe you’re interested in smaller, ongoing interest income. Do you have any amounts in mind like how much you want to invest, how much you’d like to earn, or what your financial freedom number is?

Getting a 50,000 foot view of your current situation and answering these potentially tough questions about yourself will help you assess the amount of risk you’re willing to face, how aggressive your investment strategy should be, and the timeframe in which you need to see returns.

Step 2: Know Your Why!

There are potentially thousands of ways you can get involved in real estate investing (house hacking, mobile home parks, syndications, Airbnb’s, corporate housing, and vacant land, just to name a few). In almost every opportunity, you have the potential to make some money.

Shiny object syndrome is real and can have you frantically leaping from one opportunity to the next, only to discover that this one takes too long, that one is too hands-on, and the one before that was too passive.

This is why it’s so important to drill in to your personal reasons for investing – your WHY. Take some time to really understand your motivations; be clear on what you want to do with the returns you’ll make; ID your personal and financial goals; and identify what you’re looking to get through investing.

Do you want to create steady cash flow so you can quit your job and spend more time with your spouse and kids? Are you interested in becoming a landlord and managing property full time? Are the tax benefits of real estate most attractive to you? What do you really want?

Becoming firm in your reasoning and goals before investing will help you avoid shiny object syndrome and the stress it causes down the road.

Step 3: Decide How Hands-on You Want to Be

I won’t believe you if you tell me you haven’t seen those HGTV shows where they take a broken-down junker of a house with mold and rotted floors and then, wa-lah!, they turn it into a magazine cover-worthy, gotta-have-it hot property with irresistible curb appeal.

If you’re vying to be the one busting drywall and exploring the crawl spaces, you are perhaps a more hands-on investor. It’s physically tough, yet gratifying work.

If meeting unexpected critters and wearing goggles while sloshing dirty toilet water on your shoes makes you cringe, thankfully, the world of real estate investing has passive, hands-off investment options for you.

This is a pivotal decision in the process, so take your time and really determine just how hands-on you prefer to be when it comes to your real estate investments. Be sure to consider your current situation, your why, the time you have on hand, and your financial goals.

Step 4: Assess Your Risk Tolerance

All investments – stocks, mutual funds, real estate, and even gold – come with risk. Along these same lines, every bit of risk correlates with the potential reward. The adage is that high-risk investments come with higher potential payouts, and low-risk investments tend to have a lower opportunity for profit.

In our experience, there is a third possibility – finding investments with asymmetrical returns – those where the returns far outweigh the risk. This is the holy grail of the investing world!

As an example, a new construction high-rise in a transitioning area may be riskier while an existing apartment building with current tenants might present lower risk. Most traditional real estate investment components include physical assets and tenants, along with many other moving parts, and there are often ways to mitigate risk. But, there is always the risk of a total loss.

Vacant land, on the other hand, doesn’t come with structures or tenants and has WAY fewer moving parts. That’s not to say there aren’t any risks at all. There are certainly events that devalue land, like a fire, but nowhere near the amount and type that there are with other types of real estate.

So if the idea of potential or total losses makes you wince, you should consider beginning with smaller amounts of money or particular types of investments (asset classes) to minimize your risk and also to learn the ropes and gain confidence.

Step 5: Determine the Amount You Want to Investment

Now that you clearly understand your current life situation, level of desired activity and the risks you’re willing to take, you can begin to think about just how much money you’re ready to invest.

Hopefully I don’t have to explain why you shouldn’t plop your entire life savings at any single investment opportunity (I know someone who did and it didn’t go so well). Nonetheless, I will point out that you should begin with an amount you’re comfortable with and that you can do without for the period of your investment hold…or even in the worst case, lose.

Your finances should be set up so that all your current living expenses are entirely covered and you have separate savings for emergencies and/or six months covered if your income stops. When you begin to review investment deals, you’ll also want to pay attention to the investment’s exit strategies, just in case you need to get your money out sooner than expected.

Step 6: Decide Which Type of Real Estate Investor You Are

Finally, here’s where we get to put it all together. At this point, you’ve evaluated where you are, how hands-on you want to be, how risky you want to play, and how much money you’re willing to invest. With this information, you can narrow the types of investments that best fit your lifestyle and goals.

Most likely, you fit into one of these groups:

• The Lots of Money / Little Time / Hands-off Investor
• The Little Money / Little Time / Hands-off Investor
• The Little Money / Time to Spend / Hands-on Investor
• The Lots of Money / Time to Spend / Hands-on Investor

Within each of these groups, you might pursue a narrowed-down handful of opportunities that will allow you to best use the assets at your disposal – your time and your money. For example, hands-on investors with lots of time can invest in Fix and Flips, wholesales, house-hacks, or even leading their own syndication deal. In contrast, hands-off investors without much time are more suited for passively investing in commercial real estate syndications and crowdfunding investment sites.

Land flipping is a super-flexible asset class that can be set up to work across all of these investor types.

Conclusion

Investing in real estate is as big of an endeavor and as exciting as you thought it was, which means it can also be overwhelming. But is also hands-down one of, if not the best ways to generate incredible wealth. As you can see, there are many ways to begin investing in real estate. It will be easiest for you to determine your own, personalized approach by clearly answering the questions presented above, step-by-step.

We’ve also pulled together more about the investor group types and the investment opportunities that fit each investor’s category here: (link to The Beginner’s Guide to Investing in Real Estate pt.2)

You can begin investing in real estate with just a few hundred or a few thousand dollars, learning along the way, and slowly building up your knowledge about real estate investments and your capital. Don’t be afraid to fail, though, because even the most successful real estate investors have lost money somewhere. They are “successful” now, though, because they kept going.