What is the best type of real estate investment for beginners?

THE BEST ASSET TYPE FOR REAL ESTATE INVESTING BEGINNERS

Real estate investing is a good way to build wealth and work towards financial independence. There are many available strategies for investors to try depending on their risk tolerance, budget, and goals.

Generally speaking, real estate investing involves the purchase, ownership, management, rental, or sale of real estate for the purpose of profit. Real estate is a tangible asset-based investment, meaning investors can directly use the property due to its physical nature. This type of investment can range from residential properties to commercial properties. [1]

One of the main advantages of real estate investing is the potential for steady cash flow through rental payments from tenants. Rental properties, for example, can provide a consistent monthly income stream that can offset mortgage payments and other expenses. This ultimately leads to positive cash flow.

Additionally, real estate tends to appreciate in value over the long term, providing the opportunity for significant capital gains when properties are sold. [1]

Investors even benefit from tax advantages like deductions for mortgage interest, property depreciation, and operating expenses. These tax benefits can reduce taxable income and increase returns. [1]

However, real estate investing requires careful research, management, and sometimes significant upfront capital. It is therefore crucial for investors to have a solid idea of what they are getting into. For beginners, the variety of options can be overwhelming.

Here we will talk about some of the best real estate investment options for beginners.

SINGLE-FAMILY RENTAL PROPERTIES

Investing in single-family real estate is often considered one of the best entry points for beginners. This investment strategy involves purchasing a standalone home that is intended to house one family. Compared to managing a multifamily property or a commercial property, this is relatively straightforward because you will only have one unit to manage. [2]

First-time investors should know that owning real estate typically involves taking on the role of a landlord, along with all the responsibilities that come with it. Property management is one of the biggest challenges for real estate investors, as it involves handling all the day-to-day tasks of the investment property. [2]

As a landlord, you will have to collect rent, take care of repairs and maintenance, deal with tenants, and handle emergencies. But with a single-family property, you only have one tenant to take care of. This simplifies the learning curve for new investors. It allows beginners to handle property management themselves or with minimal professional assistance. [2]

This hands-on experience can be invaluable for learning the ropes of real estate investment, from tenant screening to property maintenance, building a solid foundation for future investments.

Financing for single-family properties is also generally more accessible, with lower down payment requirements and favorable mortgage terms. This accessibility, coupled with the potential for appreciation and rental income, makes single-family real estate an attractive option for those new to the market.

Investors even benefit from the appeal of single-family properties. Families, couples, and individuals all seek out single-family homes, meaning there will always be a steady demand for rentals. This can lead to lower vacancy rates and more stable rental income.

Do keep in mind that a vacancy will completely stop your cash flow due to the fact that there is only one tenant. You need to have some funds ready in case your cash flow is disrupted by a vacancy.

REAL ESTATE INVESTMENT TRUSTS (REITs)

Real estate investment trusts or REITs are also suitable for beginners because they allow investors to gain exposure to the real estate market without the need to purchase physical properties. Investing in REITs typically requires less capital than buying property outright, making it much more accessible.

A REIT is created when a corporation or trust is formed to use investors’ money to purchase, operate, and sell income-producing properties. Unlike physical real estate, REITs are highly liquid assets that are traded on major stock exchanges, providing the flexibility to buy and sell shares with ease. This liquidity is particularly beneficial for beginners who might need quick access to their funds. [2]

Another key benefit of investing in REITs is the diversification they offer. REITs typically invest in a broad range of property types, including residential, commercial, industrial, and healthcare properties. This diversification helps mitigate risks, as the performance of the REIT is not tied to the success or failure of a single property or market segment.

Investors should take note that when you invest in a REIT, you do not own the property itself. You also cannot choose which properties to invest in as the REIT will have that responsibility.

REITs are managed by professional teams with expertise in real estate. This provides an extra layer of security for novice investors. The management teams handle property acquisition, development, and maintenance. It is a great way to benefit from real estate without the responsibilities that usually go with it.

It is also worth noting that REITs are required by law to distribute at least 90% of their taxable income to shareholders in the form of dividends. This provides a steady income stream, which is an attractive feature for those new to investing. [2]

HOUSE HACKING

House hacking is a great option to consider thanks to its dual benefits of reducing living expenses and generating rental income. This strategy involves purchasing a multifamily property, living in one unit, and renting out the others. By doing so, the rental income from the tenants can cover a significant portion, if not all, of the mortgage and other housing costs. [3]

This setup allows new investors to ease into the real estate market with less financial pressure, as they essentially have built-in tenants to help with expenses. Similar to owning a single-family property, it provides a hands-on learning experience in property management, tenant relations, and maintenance. [3]

The difference is that handling a multifamily property is more difficult. However, it also has potential for stronger cash flow and long-term financial growth. As the property appreciates in value over time, the owner builds equity, which can be leveraged for future investments.

House hacking can even lead to significant tax benefits. Mortgage interest, property taxes, and certain expenses related to the rental units can be deductible, reducing the investor’s overall tax liability.

For beginners, this strategy offers a relatively low-risk introduction to real estate investing, serving as a good stepping stone to more advanced investment strategies.

VACATION RENTALS

In recent years, vacation rental investment has gained a significant amount of popularity. With the expansion of the economy and the rapid growth of the private accommodation sector, it is now easier than ever for families to find vacation rental properties in their favorite destinations. [4]

Investing in vacation rentals can be an excellent choice for beginners because these properties often offer higher income potential compared to long-term rental properties. The reason for this is because vacation properties can be rented out at a higher daily rate, especially during peak tourist seasons. [4]

Properties in popular vacation destinations also tend to appreciate in value over time due to high demand. This can lead to significant long-term gains for investors.

With the rise of platforms like Airbnb and Vrbo, it has become easier to market and manage vacation rentals, providing owners with more control over pricing and occupancy rates. [4]

Investors can even enjoy their own property during off-peak times or when it is not rented out. This offers a bit more flexibility when it comes to personal use.

However, just like other investment strategies, it is important for beginners to consider the potential challenges such as higher maintenance costs, seasonal fluctuations in occupancy, and the need for effective property management.

REAL ESTATE INVESTING TIPS FOR BEGINNERS

Real estate investment can be a rewarding way to build wealth, but it requires careful planning and consideration, especially for beginners.

One of the first tips is to thoroughly research and understand the local market. This includes learning about neighborhood trends, property values, rental rates, and future development plans. Understanding these factors will help investors identify the best locations to invest in and avoid areas that may not offer good returns.

Investors should familiarize themselves with different property types in order to determine which investment approach aligns best with their investment goals and risk tolerance.

Finally, beginner real estate investors should have a solid financial plan. This includes setting a budget, securing financing, and accounting for all potential costs like property taxes, maintenance, insurance, and management fees. It’s also wise to have a contingency fund for unexpected expenses.

Working with a real estate agent, a financial advisor, or a mentor experienced in real estate can provide valuable guidance.

THE BEST REAL ESTATE INVESTMENT FOR ACCREDITED INVESTORS: MULTIFAMILY SYNDICATION

While beginners may have limited choices when it comes to real estate investing, there are investors who have access to a lot more options thanks to their investment knowledge and experience. For example, accredited investors can invest in unregistered securities and participate in investment opportunities that are not available to the general public.

Accredited investors have the net worth and annual income to protect themselves in case a certain investment does not work out. They have a financial safety net that allows them to take on a bit more risk. Plus, with their investing experience, they know how to properly assess these deals so that they don’t take on too much risk unnecessarily.

If you are an accredited investor who wishes to add real estate to your investment portfolio but do not have the time to manage a property by yourself, one of the best options is multifamily real estate syndication.

A real estate syndication deal involves multiple investors pooling their financial resources together to purchase a single real estate property. This type of deal can be done with almost any type of real estate, but multifamily syndication is the most popular among investors. [5]

Multifamily properties like apartment communities and condominiums are known for their strong and predictable cash flow. They have multiple tenants providing rental income, meaning they are not heavily impacted by vacancies, unlike single-family properties.

Multifamily syndication makes these expensive properties more accessible to the lone investor. Thanks to this arrangement, you will not have to take on all the risk by yourself.

Multifamily syndication is a passive investment in real estate because the syndicator or sponsor takes on most of the responsibilities in the deal, from creating the business plan to executing it. As the general partner (GP), they are in charge of locating the investment property and managing its day-to-day operations. [5]

As limited partners (LPs), investors have limited responsibilities. They only have to provide a portion of the capital needed to acquire the property. They also pay certain fees to help get the syndication deal running. But beyond that, they don’t have to get involved with running the property. [5]

Investors earn a share of the property’s cash flow. Depending on the deal structure, they may also earn a share of the equity upon resale. Keep in mind that every syndication deal is different, so due diligence is still necessary.

Real estate syndication solves most of the problems investors face with real estate investing. It allows investors to enjoy the benefits of owning real estate without the headaches that usually go with it. Multifamily syndication is a good way to add real estate to your investment portfolio without taking on the responsibilities of a landlord. [5]

WORK WITH BAM CAPITAL FOR THE BEST MULTIFAMILY REAL ESTATE SYNDICATION DEALS

Accredited investors understand the importance of choosing a trustworthy syndicator. It is the syndicator’s job to make most of the decisions for the investment property after all, so it is essential to work with one with a reliable track record for excellence.

Work with BAM Capital. This Indianapolis-based syndicator has established itself as a leader in its industry. This is thanks to their award-winning investment strategy that mitigates investor risk while creating forced appreciation. In fact, they now have over $700 million AUM and 5,000+ units. [6]

BAM Capital prioritizes properties that are Class A, A-, and B++, particularly high-quality real estate properties that have in-place cash flow and proven upside potential. [6]

BAM Capital is also a vertically integrated company, meaning they can guide their clients through every step of the syndication process, from acquiring the properties to renovating and managing them.

No investment is without risk. Make sure to consult your investment advisor or speak to a BAM Capital investment team member before making any financial decisions.

For accredited investors who want to enjoy the passive income and all the other benefits of being in a multifamily syndication, schedule a call with BAM Capital and invest today.

Sources:

[1]: https://www.investopedia.com/terms/i/investmentrealestate.asp

[2]: https://www.investopedia.com/mortgage/real-estate-investing-guide/

[3]: https://www.forbes.com/sites/davidgreene/2018/12/04/house-hacking-how-financially-savvy-people-live-in-expensive-markets-while-saving-money/

[4]: https://www.fortunebuilders.com/p/investing-in-vacation-rental-properties/

[5]: https://multifamilyrefinance.com/apartment-investing-blog/multifamily-syndication#important

[6]: https://capital.thebamcompanies.com/