The following is an excerpt from The Book on Rental Property Investing by Heather and Brandon Turner, available at BiggerPockets Bookstore. When I started investing in real estate, I fell in love with real estate books. The summer after deciding that real estate was going to be my future, I read more than 100 real estate books, averaging almost one per day. I didn't pay for most of them, because I just went to my local library every week and reserved a handful of titles that I wanted to read.
Perhaps the newest educational medium on this list, podcasts are audio programs that you can listen to online or on your smartphone. When I decided to take a more active role at BiggerPockets, the first thing I urged Josh (our CEO) was that we start a podcast, largely because I was addicted to listening to other podcasts, and I knew the power they had to help and inform people. Podcasts are free and you can listen to them while driving, while working, while folding clothes. You can listen with your spouse, with your children, or alone.
You can even listen at twice the speed to include more programs in your busy schedule. I often talk about the power of the people you spend your time with and the influence they can have on your success. So why not spend a few hours a week watching a real estate podcast and learning from other investors? Podcasts have an incredible way of making you feel like you know the host or the guest, as if you were actually sitting with them for coffee. Books are incredible sources of information, and blog posts can offer great insight, but both sources are “one-way”.
In other words, you only receive information. Engaging in a conversation with either is difficult, if not impossible. Therefore, for this aspect of your education, I recommend participating in an online real estate investment forum. If you invest in rental properties, you become a landlord, so you should consider whether you'll be comfortable in that role.
As a landlord, you will be responsible for things like paying the mortgage, property taxes and insurance, maintaining the property, finding renters, and resolving any issues. A real estate investment trust (REIT) is created when a corporation (or trust) is formed to use investors' money to buy, operate, and sell income-generating properties. REITs are bought and sold on major exchanges, as are stocks and exchange-traded funds (ETFs). To qualify as a REIT, the entity must pay 90% of its taxable profits in the form of dividends to shareholders.
By doing this, REITs avoid paying corporate income tax, while a regular company would pay taxes on its profits, which would affect the profits it could distribute to its shareholders. Like stocks that pay regular dividends, REITs are appropriate for investors who want regular income, but they also offer the opportunity for appreciation. REITs invest in a variety of properties, such as shopping malls (about a quarter of all REITs specialize in them), healthcare facilities, mortgages, and office buildings. Compared to other types of real estate investments, REITs have the advantage of being highly liquid.
Real estate investment groups (REIGs) are something like small mutual funds for rental properties. If you want to own a rental property but don't want the hassle of owning, a real estate investment group may be the solution for you. Real estate mutual funds invest mainly in REITs and real estate operating companies. They provide the possibility of obtaining diversified exposure to real estate with a relatively small amount of capital.
Depending on their diversification strategy and objectives, they offer investors a much wider selection of assets than can be achieved by purchasing individual REITs. Like REITs, these funds are quite liquid. Another significant advantage for retail investors is the analytical and research information provided by the fund. This may include details on the assets acquired and management's perspective on the viability and performance of specific real estate investments and as an asset class.
The most speculative investors can invest in a family of real estate mutual funds, tactically outperforming certain types of properties or regions to maximize returns. Because they are backed by bricks and mortars, direct real estate also entails fewer conflicts between principal and agent, or the extent to which the investor's interest depends on the integrity and competence of managers and debtors. Even the most indirect forms of investment carry some protection. REITs, for example, require that a minimum percentage of profits (90%) be paid as dividends.
Unlike a stock or bond transaction, which can be completed in seconds, a real estate transaction can take months to close. Even with the help of a broker, finding the right counterpart can be a couple of weeks of work. Of course, REITs and real estate mutual funds offer better liquidity and market prices. But they come at the price of higher volatility and lower diversification benefits, since they have a much greater correlation with the general stock market than direct real estate investments.
Take a Real Estate Class or Seminar. Community colleges and local real estate schools offer classes and seminars throughout the year. See what's available in your neighborhood. You can also study on your own by simply purchasing a textbook from the university bookstore, online, or at a local school.
You may find that you like real estate so much that you want to get a license as a real estate broker. The license would certainly help you learn about real estate. Real estate broker associations tend to offer a wide range of free training materials, as well as maps, statistical data, neighborhood reports and much more. So, follow the steps, take notes, and participate in each of the steps so that you can start (or restart) with real estate investing soon.
I love that you said that I first need to identify my financial statement, choose a real estate strategy, build my team, create a plan to find deals and more. I do this locally in my Real Estate Investors Association (REIA) or in other business groups such as the Chamber of Commerce. Another popular strategy for investing in real estate is to buy a single-family rental home (SFR). Real estate investment trusts (REITs) are companies that purchase, own, and operate different types of real estate, including residential rental homes, student housing, commercial properties, and special-purpose real estate, such as mobile phone towers.
This is particularly true during periods of intense volatility in the housing market, even more recently during the COVID-19 pandemic. Many real estate agents believe that once they pass the pre-license exam, they are ready to take a beating as a real estate agent. The truth is that your pre-licensing class would teach you the theoretical aspects of real estate law and closures, but not how to close homes, how to deal with buyer remorse, or how to look for leads. Real estate investment will give you a stable income and, if approached correctly, you will earn enough income to cover your expenses and save some additional money.
I describe seven common funding sources in my Bigger Pockets article: The Complete Guide to Financing Your First Real Estate Deal. Finally, to immerse the edge of the foot in the waters of real estate, you could rent part of your house. Similarly, real estate exchange-traded funds (ETFs) maintain baskets of securities in the real estate sector. An example of an active investor in real estate is someone who self-manages a rental property rather than hiring a professional property manager.
You can learn a lot about real estate opportunities on the official websites of government agencies, such as the Federal Housing Administration (FHA), Homesales. . .