Real estate investments, collectively valued at over $230 trillion, represent the world’s largest asset class and a highly entrepreneurial field. They consistently draw individuals with the promise of predictable, long-term passive income, positive returns on investment, and advantageous tax benefits.
Because real estate is often perceived as a low-risk investment, many are eager to enter the market with expectations of rapid profits. Popular television programs showcasing investment property purchases and house flipping further perpetuate the idea that real estate investing is both enjoyable and effortless.
However, it’s crucial to understand that not all real estate investments carry low risk. Some demand specialized real estate expertise, and many require significant patience and time to achieve a positive return on investment.
If you’re considering a career as a real estate investor and entrepreneur, this guide offers an overview of real estate investing for beginners, alongside an exploration of the five essential skills required for a successful real estate investment career.
Understanding Property Types in Real Estate
Not all real estate is uniform; properties are typically designated for specific uses through zoning. Before you step into the role of an investor, it’s vital to grasp the various categories of real estate and common zoning regulations. This knowledge will help you strategically build your investment portfolio.
- Residential Real Estate: This category encompasses properties specifically zoned for human habitation. It includes single-family homes, multi-family residences, and apartment complexes.
- Commercial Property: Commercial real estate is land and buildings zoned for business activities, usually industrial or retail. Examples include shopping malls, office buildings, warehouses, and manufacturing facilities.
- Land: Land refers to the earth’s surface and extends both beneath the ground and into the airspace above. It includes any permanent structures, water bodies, plant life, or minerals found on the land. Land can also be zoned for various uses such as residential, commercial, industrial, agricultural, or other localized designations. Developers frequently petition local governments to alter zoning laws for land they own or intend to purchase.
Potential Career Paths in Real Estate
The real estate industry offers a diverse range of career paths. However, before diving in, it’s important to distinguish between investing in real estate and working in real estate. When you work in real estate, you typically don’t commit your own capital to properties. Instead, you might facilitate property sales for owners, real estate development firms, or investment groups; manage properties; or contribute to property financing.
- Real Estate Agent: A proficient real estate agent is indispensable for successful property transactions. As licensed professionals, agents are engaged by individuals or business entities looking to buy or sell properties, guiding them through complex real estate dealings. They are generally compensated on commission. If you choose to become a real estate agent, your responsibilities would include:
- Understanding the Local Market: Leveraging your knowledge of the local market to help clients set appropriate asking prices tailored to their specific needs.
- Marketing Properties: Advising clients on how to enhance property appeal (e.g., staging homes, suggesting cosmetic upgrades) and possessing the necessary tools, experience, and contacts to market properties to a broad audience.
- Handling Paperwork: Navigating the intricate documentation involved in real estate transactions, knowing required forms, and often drafting contracts.
- Negotiating Price: Facilitating negotiations between buyers and sellers to reach mutually agreeable terms.
- Property Manager: Property managers are hired by owners to oversee the daily operations of their properties. As a property manager, your duties might include:
- Locating suitable prospective renters.
- Collecting security deposits and monthly rent payments.
- Addressing maintenance requests from tenants.
- Inspecting properties, particularly if owners reside elsewhere.
- Real Estate Investor: Real estate investors commit their own capital to properties with the expectation of selling that investment for a profit at a later date. As a real estate investor, you could own one or multiple properties directly, or you might pool your capital with other investors into a fund that holds several properties. You generate income when properties within the fund are sold, and you may also earn revenue from rental income while holding the asset. As an investor, you might simultaneously hold a full-time job in a different industry or invest in other types of businesses.
Generating Income as a Real Estate Investor
Real estate investors can generate income in the market even during periods of rising interest rates. Your chosen investment approach will depend on your risk tolerance and available investment funds. There are several primary methods for earning money through real estate investment:
- Property Appreciation: Real estate typically increases in value over time. Your profit is realized by selling a property for more than its purchase price. Savvy investors acquire properties in emerging neighborhoods, aiming for higher rates of long-term appreciation. Property appreciation is generally a long-term investment, yielding a one-time payout upon sale.
- Rental Income: For predictable, consistent cash flow and passive income, you can acquire properties specifically for rent—either via long-term leases or as short-term vacation rentals. Opting for this strategy means becoming a landlord, which entails responsibilities like collecting rent and arranging emergency repairs. Alternatively, you can partner with property management companies to oversee your rental investment property.
- Property Flipping: House flipping has surged in popularity, often depicted as easy and highly profitable on television. To earn money by flipping houses, you would typically purchase rundown or outdated properties at a low price relative to the local market, then quickly renovate them for a higher resale price. While flipping can generate substantial profits, it helps to possess knowledge of repairs and renovations, or to cultivate strong relationships with contractors who can provide accurate cost estimates and perform work at reasonable rates.
- Real Estate Investment Trusts (REITs): If you wish to profit from the lucrative real estate market without direct property ownership, you can invest in Real Estate Investment Trusts (REITs). These function similarly to mutual funds but focus on commercial real estate. Typically, a REIT is a company that owns or finances commercial property. You and other individuals invest in the REIT, which is publicly traded, making it akin to investing in the stock market. If the REIT generates profit, you receive dividends, which you can either cash out or reinvest. The advantage of REITs is their relatively low upfront investment requirement and the potential for regular dividends. However, you won’t benefit from direct property appreciation, and your dividends will be subject to taxation upon payout.
Essential Skills for Real Estate Investment Success
While anyone can invest in real estate, possessing certain fundamental skills and knowledge is highly beneficial for achieving success and profitability. For beginner investors, here are five crucial skills that can contribute to success in real estate investment:
- Familiarity with Real Estate Terminology: Like most industries, real estate employs specialized terminology. Understanding these terms is crucial when you decide to become an investor. This guide has already explained many common terms, including REITs, appreciation, and flipping. Here are a few more terms you should know in real estate investing:
- Cash Flow: Calculated as the money generated by a property minus its operating costs and expenses.
- Due Diligence: The essential research conducted on a property—including reviewing documents, estimating operating expenses, and evaluating risks—before making a large investment.
- HOA (Homeowners Association): An organization that oversees the physical appearance and rules of many neighborhoods and condominiums. If you purchase an investment property in an HOA community, you are bound by its rules, which could impact your ability to rent or renovate the property. You may also need to incorporate HOA requirements (e.g., lawn maintenance) into your rental agreement.
- Turnkey Property: A property that is immediately ready for occupancy or use.
- Inspection Contingency: A clause in a contract allowing the buyer or investor to have the home inspected and review the report prior to the sale, with the option to renegotiate the price based on inspection findings.
If you plan to purchase a property as part of your investment strategy, you should also understand different types of home mortgages, such as adjustable-rate, interest-only, and fixed-rate mortgages.
- The Willingness to Make Long-Term, Calculated Decisions: According to Forbes, real estate investment is considered one of the safest investment types. However, these are generally long-term investments that require thorough research into both the properties and their locations. Performing due diligence before investing is paramount, as is having a clear, long-term strategy for realizing your return on investment.
- A Strong Social Media Presence: Real estate investing is a highly competitive field, necessitating quick action on opportunities. A robust social media presence can facilitate networking with other investors, rapid discovery of investment property opportunities, staying current with industry news, marketing your rental property, and facilitating sales when you’re ready.
- Soft Skills: Given that real estate investors frequently interact with various individuals, possessing certain soft skills in addition to industry knowledge is beneficial. These include excellent written and verbal communication skills for maintaining relationships. You should also cultivate strong negotiation, problem-solving, and organizational abilities. A willingness to learn will be invaluable early in your investment career, alongside the capacity to adapt to evolving market conditions.
- Valuable Credentials: If you’re serious about starting in real estate investing, pursuing relevant classes or enrolling in a certificate program is a wise step. Such programs can enhance your understanding of the industry and market forces, teach you how to construct an effective investment strategy, and demystify the financial aspects of real estate investing. Certificate program classes are generally accessible to anyone, regardless of age, background, or current profession, and are often scheduled to accommodate busy working professionals.
Your Next Step Towards Becoming a Successful Real Estate Investor
If you’re prepared to become a real estate investor, Harvard DCE Professional & Executive Development offers “Real Estate Investments: Assets, Markets, and Current Trends”—a two-day program designed to teach you the fundamentals of real estate assets, how to develop investment strategies, methods for raising capital, and more.
You can also pursue a Real Estate Investment Graduate Certificate from Harvard Extension School. This program consists of four courses that cover various real estate investment opportunities, the forces driving property values, and the life cycle of buildings and neighborhoods. It provides hands-on experience in creating financial models, analyzing cash flows, and measuring returns on investments.
There is significant money to be made in real estate with the right investment approach, tailored to your specific situation and goals. Develop tactical, real-world knowledge and skills for real estate investing by earning a real estate investment certificate.
Enroll today to begin your journey in real estate investing!