Investing in real estate can be an incredibly profitable and fulfilling journey.

If you’re looking to put together an awesome side hustle or to branch out from your current 9 to 5 desk job, this guide to real estate investing will put you on the right track. Real estate investing basics can be mastered even if you are working a full-time job, and for many, it’s perfect for a second income stream.

Real estate investing overview

The goal with any investment is to put your money to work to produce a nice return, and with the proper plans and software, real estate investing can be a winner for you. Note these three income-producing real estate investment strategies, and see our following discussions of purchase appreciation, rental properties for positive cash flow, and house flipping. 

Purchase appreciation

If you bought a home on the southeast side of Austin, TX in 2013 for $100,000, that same home is likely worth at least $300,000 today. If you bought a property in Long Island City, NY as Amazon was deciding whether to build their headquarters there, you probably aren’t happy. If you bought during the Amazon sugar rush, you may be a bit underwater as Long Island City property prices have since receded to pre-Amazon frenzy levels.

When looking to invest in property, patience is many times required and a quick exit with huge profits – like the Austin situation – is usually not the rule.

Location

You’ve undoubtedly heard the cliché that the three most important facets of real estate investing are location, location, location, but in our view, location is the bedrock key to success. In Austin, a rapidly growing city with a housing shortage/crisis, the location means anything within the city limits. In New York, as the supposed Amazon headquarters appeared a lock, the location meant Long Island City and anything closely surrounding that neighborhood.

Savvy real estate investors also know that the neighborhood location can be more important than the actual property as the old advice that you should buy the cheapest home in the most expensive neighborhood is still solid real estate business truth. For example, a $500,000 home can produce rapid gains in an area where million-dollar properties dominate the landscape.

How software can help

Sophisticated software like HouseCanary and REALEFLOW can provide a load of valuable information about a specific property. You can customize your report to include comparable neighborhood sales and adjusted values according to the information you input. This software will also provide you with a three-year price forecast. By using the average sales price per block geographic information, you can quickly pinpoint the changing area valuations.

Rental properties for positive cash flow

While purchase appreciation is on the top of anyone’s real estate investing basics list, it’s great if you can make your property cash-flow positive. To do this, you obviously need to buy it correctly. Saddling yourself with an expensive property that comes with high property taxes and limited opportunities to attract renters at a nice price is a trap some wannabe landlords fall into. You can quickly check the cheapest apartments in your area, which will help you to look at local rent price scenarios.

Do the math

If your monthly mortgage payment including taxes and insurance is $1200, you need to rent your unit for more than that amount to break even. Sure, that’s business 101, but rental rates are not arbitrary. Before you even begin to consider purchasing a property, look at an online national rent report.

When you understand what the median rents are for your area, you can work the numbers to make sure that you can get the rent amount you need to assure positive cash flow. If the going rent rates for a one-bedroom apartment are only around $750, you’re going to have a tough time creating positive cash flow with that $200,000 property that you are planning to purchase with $20,000 down. Your $180,000 mortgage at 4 percent, for example, will cost you $859 per month before taxes and insurance, so that assures a negative cash flow. Consider renting out property you already have. Also known as home sharing, you can rent out your entire house or just parts of your home on a short term basis. Check your current homeowners policy if it already includes coverage for short term rentals.

How software can help

Software like Proapod, according to the company, can provide “concise easy-to-read reports created instantly and Intuitive forms with automatic real-time calculations.” Using the appropriate software can help you pinpoint property values, prices and loan scenarios and can quickly analyze any property purchase and estimate your positive or negative cash flow.

House flipping

You have watched many DIY cable house flipping shows, and you undoubtedly know the drill. Find an undervalued property at a low price that needs work, carefully prepare demo and renovation plans and start work quickly. Then resell for a nice profit.

If you purchase your fixer-upper with what is called hard money, your loan interest meter will be running at a high-interest rate – sometimes even up to 15 percent. That is why it is critically important to get a plan, stick to the plan and find the proper team to get the house flipping work done.

How software can help

A variety of software tools can help you here. You can use online reviews to begin vetting contractors as you should never hire anyone to do any work until you can be as sure as possible that they will be able to meet or beat deadlines and come in under budget.

You can find contractors on many sites and even on Craigslist. You can analyze deals, review accounting and manage your entire project with software like a house flipping spreadsheet. And of course, you can find the amortization schedules for a loan of any length at many online sites.

Are you ready?

Any investment requires diligence and homework on your part. Before you make any real estate investment decisions, first make sure you understand the terms and definitions of the real estate space. Research local real estate market trends and locate the best vendors for financing, remodeling and marketing your property.

Read as many real estate investment books as you can, talk to as many pro investors as you are able to meet, and carefully weigh the pros and cons of each investment. By paying attention to details, you can become a successful real estate investor. 

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