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How To Invest In Real Estate

May 11, 2020
Tips & Tricks

(This advanced blog summarizes real estate investing tips and insights Lofty AI has acquired from working with thousands of investors and institutional funds.)

Getting started

Many people want to invest in real estate. They just don’t know where to get started.

In this real estate 101 guide, we'll teach you the tips and tricks to get started investing on the right foot.

We'll also break down the real estate investing strategies beginners should and shouldn't be using.

Lastly, we'll dive into the most important aspect: How to make money from real estate investing.

Most real estate investing for beginners books and real estate how to videos are useless.

This post contains actionable tips on how to be a property investor. The best way to get started is to dive in headfirst and start talking to other real estate investors. This will help you to begin to build your own real estate investing business plan.

Trading cash for an investment property


Joining a real estate investment group

A big advantage of real estate investing compared to stock market investing is all the available meetups and groups.

We recommend joining a local real estate investing group. This will allow you to connect with experienced investors and real estate moguls. It's a great place to start to learn how to become a real estate investor and grasp the different investment strategies in real estate.

You can also do this online. A real estate investing website we recommend is Bigger Pockets. BP contains more insight on how to start real estate investing as well as daily real estate investing news.

The real estate industry is beyond old school. So, when at these meet-ups, take the advice you receive from investors with a grain of salt. Try and treat their advice as if they were beta testers of a new product or service that you’ve just released.

Here's what I mean by that:

In your conversations with beta testers of a new product you just released, you would listen very intently to the problems they face.

In contrast, you wouldn't want to listen to their proposed solutions to those problems, because they’re almost always wrong.

You want to come up with those solutions yourself—it’s your product, which is why you know best.

Approaching these meet-up groups the same way will allow you to learn generic tips for real estate investing. It also allows you to funnel out old-school ways of thinking about problems that are easily solved by current technology.

Listen to their advice on things they wish they knew when they first started out investing, such as:

Aspects you should be digging into yourself include:

  • Whether to buy a duplex or a single-family home
  • Which real estate investment apps you should use
  • Which markets you should be investing in
  • Whether to flip or buy-and-hold

For example, most rental property owners are comfortable with real estate investing returns of 3% per year on appreciation.

With all the available technology today, that's no longer the case. By leveraging A.I. and machine learning, you can now identify neighborhoods on the precipice of rapid appreciation from the comfort of your own home.  

You no longer need to settle for these extremely low returns.

The real estate industry is beyond old-school. You will quickly realize there are many ways to automate the manual processes that old-school investors are clinging onto.

Quote by Grace Hopper

The first thing I always hear from real estate investors and real estate investing blogs is that you should only be investing locally, or “in your own backyard”.

This stems from the notion that because you are most familiar with the area you live in, you have the best idea of where and how to invest there compared to an area that you have never been to before. This logically makes sense, but there are major issues with this line of thinking

The issue with local knowledge

The biggest issue with local knowledge is that it's based purely on luck.

What if you happen to be living in a neighborhood with zero good deals and negative appreciation over the past 5 years? Are you fated to never be a successful real estate investor because you happen to lie there?

This mindset prevents a lot of people from getting started in real estate investing.

Because aspiring real estate investors are unable to find a deal in their local neighborhood, they often give up before they’ve even started.

This is why we built Lofty AI. We're able to automate local knowledge by leveraging real-time, idiosyncratic social data.

It's as if we have millions of boots-on-the-ground analysts walking around every single neighborhood in the US 24/7. Each analyst is picking up on the nuances and social cues that someone living there would notice.

This way, you can invest within an area even without being physically present there.

Professor X in Cerebro

Debt is good

I often hear from you should be buying your property with all cash and no leverage because debt (leverage) is “bad”.

Ever wonder how regular Joe's with 9-5 jobs are able to buy a couple $100k+ properties per year?

It's because they're using debt.

The truth is, debt is only bad if you’re spending more money per month on operating expenses and your mortgage than what you bring in with rent.

If your rent is greater than your expenses, you have positive cash flow.

The ultimate goal is to generate positive cash flow while your property appreciates in value simultaneously.

With leverage, you can buy a $100,000 property by only putting $20,000 down. The rest, you can borrow from a bank (mortgage) or borrow it from a hard money lender.

So, instead of buying one property for $100,000 upfront, you're able to buy 5 properties for $20,000 down on each.

The minimum down payment for an investment property is typically 20% of the home's purchase price. A 20% down payment will allow you to generate cash flow and get a good interest rate.

Conventional mortgage rates

People often wonder how to invest in real estate with little money. Using leverage is the answer.

House hacking

If you're wondering how to become an investor in real estate, house hacking is the way to go.

House hacking means that you live in one unit and rent out the unit next-door for cash flow

With this method, you get to live in your investment property while also keeping an eye on it at all times. House hacking is the perfect scenario for a first-time investor wanting to know how to learn real estate investing.

If you're wondering how to become an investor in real estate, house hacking a duplex is a great place to start.

Value-add

You can also improve the value of a property by doing a bit of rehab. Otherwise known as value-add. You don't have to have a construction background or pay tens of thousands of dollars to add significant value to a property.

For example, replacing your roof costs around $3,000 and you can buy new granite countertops for $30/sqft.

With these two cheap upgrades, you can substantially increase the value of your property right off the bat.

Managing risk

When investing in a property, you want to make sure to protect yourself from all the associated risks.

The best way to do this is to create an LLC or a limited partnership, rather than investing in your own name. This way, if a tenant is injured and decides to file a lawsuit, these legal entities can protect your personal assets. Ultimately, you would only lose the money you’d invested.

Investing in REITs

A question I often hear from people wondering how to begin real estate investing is how to invest in real estate stocks or a real estate investment trust (REIT).

In light of the COVID-19 pandemic, these instruments are not looking favorable for the next 5 years. This is because they mainly focus on commercial properties. Our advice is to stay away from real estate stocks and REITs for the foreseeable future.

The pandemic & social distancing will take a toll on all commercial assets in different ways:

  • Multi-family - People will want to maintain a greater distance from each other even after lockdown orders are relaxed.
  • Office - Companies are finally starting to realize how easy and convenient it is to work from home because tools like Slack and Zoom exist. This will prevent them from wanting to spend a bulk of their funding on rent.
  • Retail - For obvious reasons.

How to use Lofty AI to invest in real estate

Lofty AI makes it easy to invest in real estate from the comfort of your own home.

Our app shows you cash flowing, A.I. vetted properties primed for rapid appreciation in 30 different US markets.

Lofty AI platform with a full list of cities for investing in real estate
Lofty AI platform in Oakland, California

Our goal from the get-go was to automate local knowledge. We equip you with the same knowledge about a market as an investor who’s been investing there for the past 30 years.

We do this by using real-time, alternative data such as social media data trends, restaurant review patterns, sewage data, and much, much more.

Our data is updated every single day and is granular down to the block level.

By contrast, the rest of the industry uses yearly or quarterly updated data that’s granular at the city level.


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