Real Estate Investing for Beginners: Where to Start

Why real estate investing?

Real estate investing has long been a stable vehicle for wealth-building compared to other asset classes. While all investments carry some risk, investing in real estate offers steady appreciation over time, making it an attractive option for those seeking predictable, long-term returns.

Beyond this, real estate investment offers many other advantages that make it ideal for beginners getting started:

• Stability. From 1992 to 2024, U.S. housing demonstrated an average annual growth rate of 5.5%, compared to the stock market’s average of 7.66% (or 10.39% when including dividends). Stocks can offer higher returns, however they are more volatile. Real estate, by contrast, offers a steadier growth pattern, making it ideal for those prioritizing consistent returns and asset security.
• Passive income. Another key advantage is the generation of passive income. Rental properties, for example, provide regular monthly cash flow, building financial security without constant market monitoring. Over time, this income stream can grow, particularly in high-demand rental markets, which offers reliable, predictable returns.
• Appreciation. Properties often increase in value over the long term, so investors can build equity and realize significant returns upon sale. Historical data supports this steady appreciation, especially in well-performing markets. As Derek Graham, principal and founder of Odyssey Properties Group, notes, “A real estate investment provides a hedge against inflation if rents keep pace with, or outpace, the rate of inflation.”
• Tax advantages. Real estate offers substantial tax benefits, such as deductions for mortgage interest, property taxes, and depreciation, which can help reduce overall tax liabilities. For example, a $275,000 property can be depreciated over 27.5 years, offering a $10,000 annual deduction that reduces taxable income, even as the property appreciates.‍
• Diversification. Stocks and bonds can be highly correlated, on the other hand real estate is a tangible asset that behaves differently under various economic conditions. This helps spread risk, balancing the portfolio and reducing the potential impact of downturns in other markets.

While the stock market and other investment options may offer rapid gains, real estate stands out as a reliable way of building and preserving wealth.

Types of real estate investments

Now that we’ve established why real estate is the smart investment option, let’s talk about the many ways you can actually invest in it:

Let's now take a closer look into each of these investment types:

• Residential rental properties. Investing in rental properties means purchasing homes, apartments, or other dwellings and leasing them to tenants. This approach generates consistent monthly income through rent and provides a reliable source of cash flow and long-term appreciation.

• House flipping. House flipping is about buying properties at lower prices, renovating them to increase their market value, and then selling them for a profit. The goal is to quickly improve and resell the property, often within a short timeframe, to maximize returns. (Learn more: How to Start a House Flipping Business)

• REITs: Real Estate Investment Trusts. These are companies that own, operate or finance income-producing real estate. You can buy shares of a REIT, which is similar to buying stocks, to receive dividends without owning any physical property. This hands-off approach provides liquidity and an easy entry into the real estate market.

• REIGs: Real Estate Investment Groups. REIGs enable investors to own shares in physical properties, such as apartment units, without the need for direct management. The group handles everything from maintenance to tenant services, enabling investors to earn passive income from rent. Unlike REITs, investing in a REIG involves owning a piece of actual real estate and less liquidity.

• Commercial properties. Investing in commercial properties, such as office, retail, or industrial spaces, provides higher income potential through long-term leases. These leases offer greater stability compared to residential rentals but typically require more complex management and higher upfront costs.
  
• Wholesaling. Wholesaling focuses on finding discounted properties, securing them under contract, and selling said contract to another buyer, which leads to quick profits without needing to own the property.

• Short-term rentals. Short-term rentals (e.g. Airbnb) offer the potential for higher returns by renting properties on a nightly basis. It is ideal for high-demand areas but requires significant effort put in management and is subject to local regulations.

Now that we’ve explored different types of real estate investments and their potential benefits, it’s important to understand the market dynamics that will influence your decisions.

Understanding the real estate market

Understanding the real estate market goes above and beyond property pricing. It involves analyzing market statistics, reviewing reports, and keeping track of broader trends that can influence property values.

The most effective way to get a fair deal is by conducting a Comparative Market Analysis.

How to do a Comparative Market Analysis (CMA)

A Comparative Market Analysis or simply CMA is the most useful tool to determine whether a property is priced correctly. It involves evaluating the prices of similar properties that have recently sold in the same area, giving you a realistic idea of what a fair market value looks like. Think of it as getting a full view of the local landscape before making a purchase.

Pro tip: Always look at recent sales, not just listings. Listings always tell you what people desire, but only sales tell you what buyers are actually willing to pay.

The key elements of a typical CMA:

• The property’s address along with three to five comparable properties (comps)
• A detailed description of each comp: elevation, floor plan, the number of bedrooms and bathrooms, etc
• The square footage of each property
• The sales price of each comparable
• Dollar adjustments to account for any differences between the subject property and the comps
• The relevant price per square foot for each comparable
• A suggested price range for the property

While a CMA is a valuable tool for understanding property pricing, you need two other metrics for a more comprehensive analysis: market heat index and overall market statistics.

Market Heat Index

Want to know how “cold” or “hot” a real estate market is? The Market Heat Index measures demand based on how fast properties are selling. Hot markets can mean less time to make decisions, while cooler markets might give you more room to negotiate.

For instance, according to a recent report from Realtor.com, markets like Manchester, NH, and Akron, OH, are currently some of the hottest in the country, with properties selling quickly due to high demand and limited supply.

Take a look at this graph from the Realtor.com Hottest Markets Report to see how these cities compare to other regions. Keeping an eye on such data can help you evaluate whether it’s a good time to invest in certain areas — or if you might want to explore cooler, less competitive markets. Speaking about data –– for comprehensive data analysis and insights, explore DataFlik’s services to help you make informed decisions.

Market statistics

For conducting a proper CMA, knowing individual property prices or market heat index is not enough — you also need to understand broader market trends.

Take a look at market statistics like housing supply, demand, and local economic growth. For example, a low housing supply with high demand means a seller’s market, which could lead to higher property values. 

To better understand how real estate markets can shift, let’s take a look at a real-world example:

Phoenix, AZ has experienced significant growth in recent years. The average property price in Phoenix has steadily increased over the past five years, highlighting the potential for appreciation in high-demand markets. Savvy investors consistently monitor these changes to make informed decisions regarding optimal investment timing and locations.

How to start real estate investing

Now that you understand the types and benefits of real estate investments, it’s time to get practical. The first step to success is to create a clear financial plan. Without defined goals and a structured budget, it's easy to lose focus and struggle to measure your progress. If you’re getting started in real estate, we’ll guide you through everything from financing to strategy selection. Investing beginners might find it overwhelming, but this step-by-step approach makes the process easier.

Now let’s lay a solid foundation for your real estate journey.

1. Estimating your financial goals and budget

Whether your goal is to achieve financial independence within a year or generate $250,000 in annual income, setting concrete goals will help you stay focused and motivated.

George T. Doran introduced a proven method for effective goal-setting is the SMART framework: Specific, Measurable, Agreed upon, Realistic, and Time-activated goals.

Here’s how real estate expert Ken McElroy suggests applying the SMART framework:

• Specific: Clearly outline your goals.
  Example: “I want to own three rental properties within two years.”
  
  
• Measurable: Ensure you can track your progress.
  Example: “I’ll earn $250,000 in passive income by the end of year two.”
  
  
• Agreed upon: Write down your goals and commit to them. A written plan makes accountability easier.
  Example: “I will create a detailed Excel plan to track the purchase of two rental properties, including budgets, timelines, and action steps, by the end of the year.”
  
  
• Realistic: Set challenging yet achievable goals.
  Example: “I plan to acquire a duplex within six months, starting with a $20,000 down payment saved from my current income.”
  ‍‍
• Time-activated: Attach deadlines to each goal.
  ‍Example: “I will purchase my first property by June next year.”
  

2. Estimating the cost of different investment types

Effective budgeting requires understanding the costs associated with various types of real estate investments. Here’s a breakdown of the average starting budgets for various investment options:

Now, let's take a closer look at each investment type:

• Rental properties: Cost: $100,000 or more. Buying homes or apartments to lease to tenants is the traditional route in real estate investing. Initial costs are the property’s down payment, immediate repairs and closing costs. Additionally, investors should budget for ongoing maintenance and property management fees.

• House flipping: Cost: $30,000 to $100,000 or more. An investor buys properties at a discount, renovates them, and sells them at a higher market price. To enter the business of flipping, one must be prepared for the costs associated with purchasing the property, renovation expenses, and holding costs until the property is sold. Without significant upfront capital and knowledge of the renovation process, you won't be able to make it work.

• REITs: Real Estate Investment Trusts: Cost: $1,000 to $25,000 or more. Investors buy shares in companies that own or finance income-generating real estate. Similar to stocks, Real Estate Investment Trusts (REITs) offer a streamlined method to invest in real estate without the need for direct ownership of physical properties. Additionally, it's important to highlight that REITs are highly liquid, enabling investors to quickly buy or sell shares.

• REIGs: Real Estate Investment Groups: Cost: $5,000 to $50,000. For investors who want to own physical properties without the hassle of managing them, REIGs are a good option. You can invest in a unit or part of a property, and the operating company handles all the marketing and management in exchange for a cut of the rental income.

• Commercial properties: Cost: $200,000 to several million dollars. Investing in commercial real estate — office buildings, industrial warehouses, or retail spaces,  — can yield higher returns through long-term leases. Although commercial properties require larger upfront capital, they offer stable income potential with reliable tenants.

• Wholesaling. Cost: $500 to $5,000. Wholesalers identify undervalued or distressed properties, secure contracts for these properties, and then sell those contracts to other buyers for a fee. This strategy often requires lower capital, as wholesalers don’t purchase the property themselves, but costs may include marketing, legal paperwork, and other fees to secure deals.

• ​​Short-term rentals. Cost: $50,000 to $200,000 or more. Short-term rentals can be lucrative in areas with high demand. Investors need to cover the cost of purchasing or leasing the property, furnishing it, and managing the listing and maintenance between guests. The location of the property defines its cost.

Each investment type comes with different levels of risk and commitment, so always choose an option that aligns with your financial goals and risk tolerance.

3. Building your real estate network

In real estate, it’s not just about what you know, but who you know. Networking opens doors to off-market deals, better financing options, and reliable contractors. Other investors can offer valuable insights and may even collaborate with you on projects. The stronger your network, the better the opportunities.

To start building your professional network, start attending local real estate meetups or join online investor groups to start building your connections. It’s like the social side of the business, but with way better returns than cocktail chatter.

Key players to connect with on those events are:

• Real estate agents: These are your boots on the ground, helping you find properties before they hit the MLS.
• Contractors: You’ll need a team of reliable contractors for renovations and repairs. Don’t just settle for the first one you find—get multiple bids and make sure they’re experienced with the type of work you need.
• Lenders: Whether it’s a traditional mortgage lender or a private hard money lender, having good relationships with financing sources can help you close deals quickly.
• Other investors: Fellow investors can be a goldmine of information and advice. They may even offer you opportunities that you would not discover independently.

By building a strong network, you’re essentially setting up a support system that will help you move through every step of the investment process — from finding properties to financing deals, and everything in between.

4. Finding the right property

So you’ve set your goals, built your budget, and gathered a rockstar team of contacts. It’s time to have some fun and find the right property to invest in. 

Finding investment properties can feel like treasure hunting — if you know where to look, you can discover incredible deals. Here are a few major ways to find those hidden gems:

• MLS (Multiple Listing Service). The traditional way to search for properties. The MLS has listings from real estate agents, but bear in mind, that competition can be stiff since these properties are widely visible.
• Off-market deals. Sometimes the best deals are the ones that aren’t even on the market. Networking and building relationships with investors, real estate agents, and wholesalers can provide you with access to properties before they are publicly listed.
• Auctions. At auction properties can sometimes sell for prices that are below their market value. While this can be a great way to snag a deal, auctions are also riskier — you may not have a chance to inspect the property before bidding.

5. Financing your investment

Once you've identified the ideal property, the next step is to determine how to finance it. The right financing can make or break your investment, so it’s crucial to understand how to start real estate investing and what options are available for this. The most common ones include:

• Traditional mortgages. The classic route for most investors, a traditional mortgage is best suited for those who plan to hold onto the property long-term. These loans usually come with fixed interest rates and extended repayment terms.
  
• Hard money loans. This method provides short-term, high-interest financing for investors who require swift access to funds. They are often favored by house flippers who need fast funding for renovation projects.
  
• Private investors. Private investors can be a source of flexible funding if you’ve built a reliable network. Terms are often negotiated, allowing for personalized arrangements that fit both parties.

By fully understanding your financing options and aligning them with your investment strategy, you can maximize your returns and minimize risks.

6. Choosing a real estate investment strategy

Now that you know how to finance your investment, it’s time to figure out how to make your money work for you. 

As you already know, there are several tried-and-true strategies for real estate investing. Selecting the right option depends on your goals, risk tolerance, and how involved you wish to be.

• Buy and hold. This strategy is one of the most common and straightforward investment approaches. This method allows you to build passive income through rent while your investment grows:
  
  • Pros: Steady income and long-term appreciation.
  • Cons: Requires property management and dealing with tenants.
    

• House flipping. For those looking for quick returns, house flipping is a more active approach. Timing and renovation costs are key to making this strategy successful:
  
  • Pros: Potential for high, fast returns.
  • Cons: High risk if the market shifts or renovation costs spiral.
    

• Wholesaling. Wholesaling is a lower-risk, quicker way to generate income, but it requires excellent negotiation skills. And just like other strategies, it has its pros and cons, too:
  
  • Pros: No need for large capital or property management.
  • Cons: Smaller profit margins, and you’ll need a strong buyer network.
    

• BRRRR Strategy: Buy, Rehab, Rent, Refinance, Repeat. The BRRRR strategy merges house flipping with the buy-and-hold approach. It entails buying a distressed property, renovating it, renting it out, and then refinancing to recover your initial investment. You can then use that cash to buy another property and repeat the process:
  
  • Pros: Allows you to build a portfolio with limited upfront capital.
  • Cons: Requires solid renovation and management skills.

Choose the strategy that best fits your financial goals and risk appetite and you’ll be on the path to making real estate work for you.

7. Tracking and scaling your investments

Now that you’ve chosen your strategy and started investing, the key to long-term success is tracking your progress and scaling your portfolio. Reliable data can streamline this process and highlight opportunities to optimize your investments. Visit DataFlik to see how our tools can enhance your real estate investing journey.

Tracking your real estate investments involves more than just checking your bank balance. Using investing platforms and investing apps you can monitor metrics like cash flow, ROI, and cap rate efficiently. These numbers will help you measure the profitability of your properties and make adjustments if needed.

After successfully managing one or two properties, it's time to consider scaling your portfolio.

Monitor market conditions and your financial capacity closely. Scaling too quickly without a solid foundation can result in cash flow issues or challenges in managing multiple properties.

Scaling involves acquiring more properties to increase your cash flow and equity. The BRRRR strategy we discussed earlier can be a powerful tool for this, as it allows you to recycle the capital from one property into the next without needing to save up for a new down payment every time.

Conclusion: Start small and grow

Real estate investing may seem overwhelming at first, but with the right plan, it's entirely achievable. Start by setting clear financial goals, choosing an investment strategy that aligns with those goals, and building a strong network of professionals. As you track your progress and gain experience, you'll be in a position to scale your portfolio and grow your wealth.

Remember, real estate isn’t a get-rich-quick scheme — it’s a steady, reliable path that, with time and dedication, can lead to financial freedom.

Further reading

We’ve incorporated insights from some of the best real estate investing books out there throughout this article to give you a strong foundation. 

These books, along with the resources listed below, will help you continue your journey and expand your knowledge:

• The ABCs of Real Estate Investing by Ken McElroy
• BRRRR: Buy, Rehab, Rent, Refinance, Repeat by David Greene
• The Millionaire Real Estate Investor by Gary Keller
• How to Invest in Real Estate by Brandon Turner
• Investopedia Real Estate Guide