For newcomers to the market, the term “real estate investing” often conjures up two thoughts: “That sounds like a good idea” and “I wouldn’t even know where to start.” Don’t be intimidated. Real estate doesn’t require market expertise or advanced degrees in economics. All you need is starting capital and good guidance.

This article is meant to motivate those of you sitting on the investment fence. Perhaps you have the money, but not the confidence. Below are three of the most straightforward ways to invest in real estate. All require work, patience, and maybe even some sacrifice, but the eventual returns can be well worth it.

Investing in Rental Properties

If you have the money to invest in cash-flow properties the first thing you want to do is pick a great location. For long-term equity growth, a residential property in a good location is key. Immerging areas are also good. A bad neighborhood today can be the trendy new spot in 5 years. Don’t be afraid to start small. You don’t need an entire apartment building – instead look for single units or a duplex. Whatever the size, make sure to properly estimate the number of repairs needed to the building. Upkeep can be the black hole of real estate investing.

Take choosing your tenants seriously. A bad resident can literally ruin your returns. Credit and income checks are a must, along with background checks and employer verification. Going off “good vibes” alone is a risk you don’t want to take. Some investors choose to live in a unit on the property. This can be a great way to save money while developing a stronger relationship with your tenants.

Above all, know thy numbers. An accurate estimate of the rental income and leasing costs is crucial to gaining a return. Betting on appreciation alone is not a good idea. Your monthly expenses will include a mortgage, taxes, insurance, on-site maintenance and insurance. A down payment of around 20% will also be required for financing. One way to lower maintenance costs is to require tenants to pay a deductible for all services. This can go a long way in drastically reducing the number of requests.

Buy A Fixer Upper

Don’t want to deal with tenants? Then perhaps buying a fixer-upper is more up your alley. This is also known as house flipping. Basically, you buy a property in need of love, renovate it for as little as possible, then resell for profit.

This type of investing requires a lot more math to achieve success. You must have an accurate estimate of repair costs so that you can plan accordingly. Unless you have a contractor in the family, this can be difficult to do. Often people bring in a partner to both ease the risk and to help plan out the renovations.

Time is also a factor. The longer you hold on to the house the more mortgage you’re paying. Like with rental properties, many people choose to live on location to help lessen the cost. It may not be glamorous, but your bank account will thank you.

Just Buy, Invest in a House or Condo

With housing shortages in many major cities, more and more people are content with apartment life. Not only is it cheaper, it’s often the only option for residents who are unable to afford the initial costs. However, if it is within your power to do so – buy! This may mean sacrificing fancy dinners and summer vacations, but the reward is worth it. Renting does nothing more than line your landlord’s pocket (which is great if you end up being a landlord one day).

Investing in a house or condo is the American dream for a reason. Not only does it feel good, it allows you to build equity. The housing market is volatile, and there is no guarantee that you will make money over a five or even ten-year period, but over twenty years, the value of the home tends to go up. In large markets like LA, just 3-5 years can mean up to a $100,000 increase in your property.

Knowing your potential down payment is the first step in helping plan for the future. In many markets, upwards of 20% is required. This means in a city like In Los Angeles, to buy a $680,000 home your household income needs to be in the ballpark of $138,000 per year. That number can seem overwhelming, but if you are married or living with a partner, that’s under $70,000 each. If that falls outside your means and buying a house is still top on your list of priorities, you may want to consider looking in smaller, more affordable cities. The commute to work may be longer, but you can spend that time thinking about how good it feels to own a home.

Job instability, a rocky economy, and lack of credit for homebuyers have changed the real estate market drastically over the past few years, causing more of the population to look for flexible living options instead of being locked into an uncertain housing market.

From a risk-adjusted standpoint, single-family residence (SFR) rental investing has become the more popular option for those wanting to invest in the real estate market, providing a predictable return on equity due to the following factors:

• The increased number of people looking to rent rather than buy a home makes it easier for investors to find and keep renters.
• The increased number of distressed properties on the market that are selling below replacement costs, coupled with a lack of new housing being created, makes purchasing now to sell later a viable option for investors.  As markets move back toward the mean and rental rates increase 3-5% year-over-year, investors will be able to see a positive return on investment coming from the appreciation of their asset(s).
• In addition to receiving a return in the future from selling the property, investors can cover costs of mortgage and maintenance, and even gain an additional return on investment with the rent payments of the tenant(s).

Investors who see the paradigm shift from a “fix and instant flip” strategy to that of a “fix, hold and rent” strategy, are in a unique position to capitalize on one of the fastest growing components of the rental market—single-family residence rentals.

And it’s not just “mom-and-pop” investors and service companies who are doing this. Over the past few years, a tidal wave of institutional investors has accumulated hundreds of thousands of homes. Recent data shows that institutional investors (defined for these purposes as entities purchasing at least 10 single family homes within a calendar year) purchased a combined total of 366,206 single-family homes from January 2011 through November 2013.

At the beginning there was no lack of supply. Single counties hit hard by the foreclosure crisis yielded thousands of potential distressed home purchases every month. Markets such as Memphis, Fresno, Charlotte, Atlanta and Phoenix saw large volumes of purchases from institutional investors early on in 2012. But as availability of inventory—particularly distressed inventory—started to dry up in some of those first-wave markets, primarily in the west, institutional investors moved into a second wave of markets, many in southeastern cities, such as Jacksonville, Fla.; Winston-Salem, N.C.; Tampa, Fla.; Lakeland, Fla.; and Macon, Ga.

Although the accumulation of single-family homes by institutional investors has created operational challenges and complexities never before seen in the market, most experts agree that SFRs are a sustainable business model.

Still, it is important to keep these 10 best practices in mind when investing in a SFR:

1. Do your homework. Research the market you plan to invest in, or align yourself with a group that has local market knowledge and resources to react quickly in that market. Each opportunity must be evaluated independently for property condition, local hazards, and fit with investment objectives.Proper due diligence is critical, as operators embark on a long-term relationship with every home in their portfolio. Unlike an apartment building where an investor can acquire multiple units using a common set of resources, every SFR is different—even when they’re purchased as part of a pool of homes.
2. Be patient. For every property they acquire, investors have to start with a pool of many more—as the housing market is very competitive. Even the most aggressive buyers only win a fraction of their homes.
3. Rely on trustworthy on-the-ground resources. Investors need access to on-the-ground resources and experience to source a steady supply of homes, understand the appropriate value, assess the cost of required renovation, establish clear title, manage the escrow process, understand any HOA restrictions or other tax considerations that would impact the investor’s return on their home. It is also imperative to build strong vendor relationships (i.e., with maintenance professionals, etc.), or engage with a professional asset management company.
4. Be available. Constant communication and follow up with tenants/occupants and leasing professionals is key. Set expectations from the start to avoid unnecessary issues (e.g. payment issues).
5. Have a local presence. Property managers must have a strong, local presence to ensure positive rental outcomes, good tenant relationships, and low vacancy rates. Local property managers can manage tenant relationships and rent collection in such a way that tenant issues and delinquencies are resolved quickly. Customer service specialists can foster positive, collaborative relationships with tenants.
6. Be discerning. Set up a protocol for screening tenant applications and make sure you hire only licensed agents to avoid unnecessary issues (e.g., fraudulent leases, etc.)
7. Invest in operations to ensure high service standards. As the SFR industry becomes more mature, operating standards required by the market are likely to rise. Property managers must make investments in scalable operational processes and systems to achieve the required high service standards in tight timeframes. Managers must be able to rehab, rent, maintain, and respond to issues in a scalable manner.
8. Know the costs. Costs vary across geographies and investor strategies. Where some investors prefer to purchase properties requiring only minimal rehab, others cast a broader net to include properties with meaningful amounts of renovation required. It’s important to consolidate administrative functions and optimize the placement of maintenance resources.
   Below are the approximate costs:
   – Rehab — $20,000 for distressed sales
   – Leasing — 1 month’s rent
   – Management — 7 to 8 percent of collected rents
   – Maintenance — 3 calls per home per year with total cost less than $500
9. Learn from experience. With experience and analysis, seasoned operators will find opportunities to improve performance of their portfolios. Operators will look back at their experience and find ways to hone in on mispriced properties. Those with large footprints will identify variations in expenses and investment returns across the country. Those working on behalf of investors will be able to advise their clients on how to make smarter decisions.
10. Understand the risks. The SFR strategy is a bet—not only on the continued demand for rental housing and the strength of home price appreciation—but also, on a long-term path to liquidity for investors. Large firms bought heavily before there was a clear path to liquidity; betting that something would emerge, by public offering REIT, securitization, or simply a maturing industry of SFRs where stabilized portfolios could be sold to other players at non-distressed prices.

Thus far, the bet appears to be paying off. Public offerings of Silver Bay, American Residential Properties, and American Homes 4 Rent along with the first-ever securitization of rental homes by Invitation Homes—at a very low rate—have demonstrated that public market investors buy into the potential of SFR rentals.

With the influx of institutional capital, it is becoming harder for individual investors to compete and find the best investment opportunities on their own. Partnering with a company that is experienced in residential investing and property management can save investors time and money by providing them with local industry knowledge and in some cases a fully integrated service platform. 

One of the popular methods of personal wealth building is to increase your cash flow by making an investment in the properties. Think about the common fact that housing is a representative of the consistent tangible need and people are striving every now and then to buy the house. So this will remain as the best strategies in order to increase your personal cash flow thus building your personal wealth. Of course, there are great chances of becoming a rich and wealthy person by doing real estate, but on the same hand, there are chances in losing huge money if it is not done in a proper way.

• Getting an experienced mentor: There are plenty of successful people in the real estate investment business that have increased their personal cash flow to a great extent. By taking the guidance of the known person who is successful in making money will help you in real estate investment. The cash flow was increased to them with the same kind of investment barely by knocking the doors of schools. The reason behind this is that, as it is an education of trial and error method in the property investment, it will cost thousands of dollars to be invested. So it is very crucial to get a successful mentor who is trustworthy in the field and competent enough to guide you in learning about the investment in property related issues, thus increasing your personal cash flow.

• Know your financial status before investing: Prior to the investment in the real estate in order to increase the personal wealth building or personal cash flow, it is important to know that the things are together with respect to home and finance. It means to say that the investment or expense is around 70% of the net pay so you must be sure that you have sufficient money in reserve to cover your expenses during emergency conditions. You must make a good and consistent habit of keeping around 10% of income for the next investment. This will lead you to mainly focus on your investments for increasing the cash flow without worrying whether you need to invest money on the mortgage.

It is also suggested that prior to your move in the real estate investment to increase the personal wealth building or increasing the cash flow, it is necessary to get the clear and written snapshot of your present financial situation. This gives you a brief idea regarding the financial investments and money flow.

• Spend some time in making certain predictions: Before making an investment on the rental properties or on the property that you are planning to sell it is always suggested to make a practice of making certain predictions or look into the tax appraiser’s website. They will guide you in taking certain important steps and also make a habit of driving around your town to know about the present opportunities that are available for your investment. By doing these tasks, it will help you in building the confidence before starting the investment in the real estate industry to increase the personal cash flow.

Taking the guidance of few websites also fetches ample information regarding the real estate investment. They mainly emphasize on giving tips and suggestions regarding the investment on the property, even for the newcomers of this business. If you did not get the successful mentor to start this investment business, then you can take the help of online websites that is available to help you. If you have any doubts or queries you can get it clarified right away, without waiting for a long time. The professional will answer to all your questions regarding the investment on which you must do.

You can also contact few real estate companies, which can help you to increase your cash flow, but the only thing you need to do is to make sure that the company is reliable and trustworthy. In order to know whether the company is trustworthy just search about the company on the internet.