How to Invest in Property For First-Time Investors

Learning how to invest in property is a very powerful way to generate long-term wealth. This is often quite overwhelming for inexperienced investors. It seems that the path will be a hard one abreast, with everything from navigating through the market to securing financing. With proper guidance, however, real estate investment can bring in many profitable opportunities in passive income and financial growth that offer increased equity.

Most individuals do property investment through a home mortgage, which requires 20% to 25% as a typical down payment. In other cases, as little as 5% down may allow first-time investors to secure a rental purchase. But being a hands-on landlord is just one of many strategies you can look into. This article will introduce a few real estate investment strategies, ranging from direct property ownership to more passive methods.

Table of Contents

Types of Property Investments

1. Residential Properties
2. Commercial Properties
3. Industrial Properties
4. Land Investments
5. Real Estate Investment Trusts (REITs)
6. Vacation Rentals and Short-Term Rentals

How To Invest in Property for First-Timers

1. Acquire a Rental Property and Be a Landlord
2. Purchase REITs
3. Utilize an Online Real Estate Investing Platform
4. Flip Houses for Profit
5. Invest in Real Estate Syndication

Types of Property Investments

When considering how to invest in property, it is paramount to consider the various options available for real estate investments.

1. Residential Properties - Most new investors get into residential properties first because the concept is well-known and accessible. Single-family homes and multi-family homes, like apartments, duplexes, etc., fall under residential.

2. Commercial Properties - Commercial property deals with office buildings, retail centers, among other non-residential properties. These are usually more capital-intensive investments but could bring in greater returns over time. The commercial real estate market is prepared for growth from 2024 to 2029 at a rate of 1.40% due to emerging demand for urban office and retail space.

3. Industrial Properties - These are types of properties involving warehouses and distribution centers, most of which are always rented out to firms for a long period. In 2024, resulting from demands brought about by e-commerce, the industrial real estate market has been on fire with warehouses accounting for 17% of the total commercial real estate transactions in the U.S.

4. Land Investments - Investment in land is versatile in nature. It could be utilized in the future for development or even held onto for appreciation over time. Usually, raw land refers to undeveloped land, which comprises a lower purchase cost. Developed land often applies to land with plots, on which basic infrastructure is already set up.

5. Real Estate Investment Trusts (REITs) - REITs are options for real estate investors who want to take exposure to real estate without liability regarding property management. REIT, a company that owns, operates, or finances income-producing real estate, extends an opportunity to invest to an individual investor by buying its shares.

6. Vacation Rentals and Short-Term Rentals - Another popular investment choice is short-term vacation rentals. And lately especially, websites such as Airbnb and Vrbo offer their services to people who would rent out a house or apartment buildings for short periods of time. The investor can invest in properties in high-demand tourist locales and rent those properties to visitors at much higher nightly rates.

How To Invest in Property for First-Timers

Let's take a closer look at some of today's most accessible first-time investment methods, starting with becoming a landlord.

1. Acquire a Rental Property and Be a Landlord

A great way to invest in real estate is by buying a residential house and then renting it out. The process yields a regular rental income, while the house appreciates in value with time. This could be a quite stable way for first-time investors to get into real estate, assuming you are purchasing in an area that has high demand for rentals.

Real estate has conventionally been a stable store of value. If you look at the U.S. Census Bureau data on sales prices of new homes, which generally is representative of property values, you will see that values steadily increased from the 1960s to 2007, except during the financial crisis. Since then, home prices have recovered and continued to rise, even surpassing pre-crisis levels. But remember, historical performance does not guarantee future results.

2. Purchase REITs

REIT investing is a more passive investment approach especially for first-time investors who seek to invest but without all issues that come with ownership and management of property. In this regard, REIT investing allows interested investors to acquire a portion of large-scale commercial property portfolios by buying shares in REITs through stock exchanges. This means investors get to have the fruit of real estate ownership without dealing with the day-to-day management problems.

The major attraction of a REIT is that these trusts typically generate consistent passive real estate income through dividends. REITs, by law, pay at least 90% of their taxable income in dividends to the shareholders, usually making it a very reliable source of regular returns.

According to Statista, in 2023, REITs have seen an average yearly total return of about 11.4%, often high compared to the direct investment in real estate for residential or commercial purposes.

Related article: REIT vs Real Estate Fund: Key Differences Explained

3. Utilize an Online Real Estate Investing Platform

Online real estate platforms have become an increasingly popular avenue for first-time investors who want to get into real estate with low costs while having ease of access.

Concreit and similar platforms allow you to invest in the asset class of real estate with a huge financial commitment or the responsibility that goes along with direct property ownership. 

One of the most important benefits of online real estate investing is its low barrier to entry. This enables one to diversify their investments across many properties or projects, thereby decreasing overall risk exposure.

4. Flip Houses for Profit

Flipping houses is a great and exciting investment technique primarily for the bold and hands-on investors. This mostly involves buying undervalued property, renovating or "flipping" it to increase market value, and selling for profit.

House flipping can bring huge returns in a relatively short period. But the venture indeed requires detailed planning, tight budgeting, and a good knowledge of the local real estate market.

One of the most critical elements in flipping houses is to be able to accurately budget renovation costs. Potential flippers must also consider market fluctuations and economic factors, such as interest rates, which can affect speed of sales and the final sale prices.

5. Invest in Real Estate Syndication

Real estate syndication appeals to a lot of first-time investors who wish to deal in larger properties. However, for simplicity, such deals may be turned over to active managers. In essence, syndication within real estate investment will involve a group of investors combining resources for the acquisition of properties. What this does is that it allows individual investors to invest partial capital whereby the property is managed by one professional and, thus considered a more passive investment.

Real estate syndication will be generally made up of a syndicator or sponsor who identifies and acquires the property to invest in. Generally speaking, as an investor, you join these groups with other investors who invest funds in an attempt to share the financial risk and rewards.

According to Forbes, real estate syndications can offer average annual returns from 7% to 10%, depending on property types and current market conditions. This compares favorably with alternative investments, with the additional advantage of diversification of your investment portfolio across numerous properties.

How Much to Invest in Property?

The amount of money you may need to invest can be different depending on the type of investment and the current market. Only the deposit amount will be required, which is between 5% and 25% of the price, to buy an investment property. With the mechanism for investment in REITs or an online real estate crowdfunding platforms, it is usually so much easier to start with minimum investment opportunities. At times, this is as low as $500 to $1,000. 

What Are the Best Types of Properties for First-Time Investors?

It is easier to finance single-family homes, while management issues, at least for a first-time landlord, are generally simpler. The popularity of sites like Airbnb has been drawing more and more people into short-term rentals for numerous vacation spots. Properties of this sort generally represent the best balance of affordability, demand, and appreciation for first-time investors.

How do I Calculate the ROI of a Property?

The multifamily property's possible return on investment should be assessed based on a number of financial metrics. Net Operating Income (NOI) is the gross rental income minus operating expenses. A high ranking of NOI for a certain property means this property has excellent income-generating potential. Cap rate is the rate of return one would expect from an investment property, determined by taking the NOI and dividing it by the purchase price of the property. It is common to expect investors to have a target of 6% to 10% cap rate. 

The Bottom Line

Amongst so many options available on how to invest in property, you have to mold your investment strategy according to what best fits your financial goals, risk tolerance, and time commitment most capable. Truly setting you up for success will involve understanding the types of properties that work for a first-time investor, how much capital is needed, and how one can get involved in many aspects of realty.

As you venture into this, remember that it takes a number of research and due diligence. Be informed of market trends, property valuations, and prospective returns to realize maximum success from your investment.