How to Be a Real Estate Investor in 2023

Nov 06, 2022
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Table of Contents
  1. Who are real estate investors?
    1. Residential real estate
    2. Commercial real estate
  2. Buy and hold rental properties
  3. Buy, rehab, rent, refinance, and repeat (BRRRR)
  4. Fix and flips
  5. Alternative investing strategies
  6. Investing in REITs
  7. VA investment properties
  8. The bottom line

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Do you want to learn how to be a real estate investor in 2023? Some investors make passive income on their rental properties and don’t have to worry about fixing toilets, changing lightbulbs, and dealing with lousy tenants. 

Real estate investing has the power to be automated to allow you to make truly passive income with your investments. 

But often the hardest part of real estate investing is getting started. You may think you need thousands of dollars upfront, but there are some ways you can become a real estate investor that doesn’t require much upfront capital at all.

Continue reading to find out the best ways to be a real estate investor this year and start taking advantage of the benefits that come with owning real estate.

Who are real estate investors?

Real estate investors are people who buy real estate for investment purposes and hope to generate a return on their investment (ROI). There are plenty of different ways that you can become a real estate investor, even if you’re a first-time homebuyer without any experience in real estate.

There are generally two types of real estate investments that you can buy. They are:

  • Residential real estate

  • Commercial real estate

Residential real estate

Residential real estate deals with all residential properties between 1 and 4 units. This means residential real estate includes single-family homes, duplexes, triplexes, and fourplexes. Any housing structure over 4 units is considered commercial real estate and has different financing requirements.

Residential real estate often generates lower returns for investors but can be more stable over time and easier to start with as a beginner. Those who want to learn how to be a real estate investor should start with residential real estate before advancing into commercial real estate when they get more experience.

The most common way for people to get involved in residential real estate investing is by buying a property and then renting out some or all the rooms to other tenants. Ideally, the tenant's rent should pay for some or all of your mortgage payment and can produce positive cash flow. This is also known as a “house hack,” which we will discuss later. 

Commercial real estate

Commercial real estate tends to include properties like office buildings, shopping malls, hotels, apartment complexes, and condo buildings. Most commercial real estate investors are part of a commercial real estate investment firm that pools money together to buy and sell commercial buildings.

Commercial real estate is generally harder to break into as a beginner since it requires more capital to finance larger and more expensive properties as opposed to residential buildings.

Most of the people who are known to have made their fortune in real estate do so with commercial real estate investing. The potential for big returns is much higher when dealing with multi-million dollar properties in big cities.

Unless you have a lot of money already, it will be hard to break into commercial real estate. We recommend working for a commercial real estate investing company to learn the ropes of commercial real estate before you try to buy your first commercial property.

How to be a real estate investor

If you’re like me, you may not know much about real estate or real estate investing strategies. This is why it may be a good idea to take a real estate licensing exam, even if you don’t want to become a real estate agent yourself.

Real estate licensing courses teach you the basics of real estate and real estate investing strategies that beginners need to know. You’ll learn how real estate contracts work, why home inspections are important, and many other crucial parts of the real estate process.

We highly recommend Real Estate Express if you want to get started with a real estate licensing course this year. 

Even if you don’t sign up for a licensing course, you’ll want to do some of your own research to get familiar with real estate investing terminology and investing strategies. Without basic knowledge of the real estate industry, you shouldn’t expect to have much success in this field.

Getting started with a “house hack”

We mentioned house hacking above and want to cover it more in-depth now.

A house hack is when you buy a residential property and plan to rent out some or all the rooms in the house to generate rental income. House hacks are often done with multi-family properties like duplexes and triplexes but can also be done with single-family homes. 

An example of a house hack is when you, as the new homeowner, buy a duplex and rent out the second unit to other tenants. You may not see your tenants very often which makes house hacking one of the best ways to be a real estate investor today.

Most house hackers are issued loans with a low down payment requirements and generous financing terms. After living in the home for at least one year, you can then rent out the entire home to tenants as a sole investment property. House hackers often rinse and repeat the process and acquire several rental properties over the course of a few years.

House hacking is by far the best way to get started as a real estate investor since you may be able to get the home for as little as 3.5% as a down payment with an FHA loan. This makes house hacking ideal for first-time homebuyers who may not have millions in the bank but want to get started investing in real estate.

Want to learn more about house hacking and other real estate investing strategies? Check out the best books for real estate investors looking to buy their first property this year.

Buy and hold rental properties

Those that qualify for a conventional mortgage may want to look into traditional buy-and-hold rental properties that also generate consistent cash flow. A buy-and-hold rental property is when you purchase a home at or below market value and then rent the entire unit out to one or multiple tenants.

This tends to be another easy way to get your feet wet with real estate investing without the capital requirements of commercial real estate. However, you will need to come up with at least 20% of the purchase price of the home as your down payment with a conventional loan. 

Buy, rehab, rent, refinance, and repeat (BRRRR)

The BRRRR strategy (pronounced “burr”) is similar to a buy-and-hold rental property, however the BRRRR strategy specifically targets properties that need cosmetic or structural improvements which allow investors to buy the property for under market value once the property is fixed up.

BRRRR investing can be lucrative with the long-term consistent cash flow that the investment provides. However, it does come with some risks and it’s not advised for a total beginner to get started with this strategy. It would help if you had a mentor or someone who has done a BRRRR investment prior to teach you the ins and outs of this investing method.

Since BRRRR investments target distressed properties, you run the risk of purchasing the home and then putting too much money into the property where the rental income doesn’t make up for it. Or you may not be able to fix the house up the way you thought you could originally. 

Also, BRRRR investing doesn’t guarantee that you’ll be able to do a cash-out refinance since interest rates must be low enough to make the refinance worth it. 

Fix and flips

Fix and flips are another way that a lot of people are getting involved in real estate investing. This investment method was popularized by HGTV television shows displaying how professional investors make money with fix and flip properties.

Unfortunately, fix and flips can be very complicated and you have to potential to lose some or all of your investment if you don’t have the experience needed to succeed with fix and flips.

However, this doesn’t mean you shouldn’t do fix and flip investments. We highly recommend learning from someone who has done fixes and flips before you go out on your own. This could be a friend, family member, or social media connection that is willing to show you the ropes of fix and flip investing.

Alternative investing strategies

If none of the investing strategies we went over appeal to you, there are many other ways to be a real estate investor today. Some of the most popular alternative methods of real estate investing include:

Investing in REITs

A real estate investment trust (REIT) is an investment that works much like a stock. REITs are often listed on public exchanges and their value fluctuates intra-day.

Investing in a REIT isn’t an investment in a single property. REITs are funds comprised of a collection of commercial real estate properties within an investment portfolio. 

REITs are stable long-term investments that provide consistent returns for investors. However, these returns are often not as high as investing in actual commercial buildings as part of an investment fund or group. You also need to invest in REITs for many years before seeing a significant return on your investment.

VA investment properties

Members of the Armed Forces and their families who qualify for a VA loan can get started in real estate investing with no money down. They can perform the same type of house hack mentioned above and don’t have to bring anything to closing.

This makes VA loans very attractive to service members, however the majority of people reading this article won’t qualify for a VA loan.

The bottom line

Learning how to be a real estate investor isn’t as difficult as you may think. It all starts with learning the basics of real estate with a real estate course that introduces you to many of the different concepts you need to know before you invest in your first property.

We believe house hacking offers the most advantages for new investors with low down payment requirements and the fact that you’ll get consistent cash flow as long as you can attract and retain high-quality tenants.

Interested in learning more about partnering with us to grow your business? Contact us today to find out how to advertise with us and grow your business organically with the power of SEO.

Table of Contents
  1. Who are real estate investors?
    1. Residential real estate
    2. Commercial real estate
  2. Buy and hold rental properties
  3. Buy, rehab, rent, refinance, and repeat (BRRRR)
  4. Fix and flips
  5. Alternative investing strategies
  6. Investing in REITs
  7. VA investment properties
  8. The bottom line