Real estate investing for beginners

You don’t need robber baron wealth to invest in real estate. Learn how and where to get started.

President Franklin D. Roosevelt called investing in real estate “about the safest investment in the world.” And while nothing is a sure thing, in general, knowing how to invest in real estate will not only diversify your portfolio, but may also put more cash in your pocket. After all, the value of property nearly always goes up.

Rental properties

One of the most common forms of real estate investing is rental properties. When you moved out of your parents’ place, it was probably into a small, shared apartment. Once you were married, maybe an even smaller apartment. Eventually, you might find a cozy, three-bedroom bungalow. Point is, everybody needs somewhere to live.

Rental units such as apartments, condominiums and small homes are a fairly safe step into real estate investing for beginners. But before jumping into the community pool, do some research. You’ll want a place that will appreciate in value — become worth more over time. That will vary, based on the neighborhood, city and even kinds of homes available. You can better gauge the possibility of a good return based on a few factors.

• Housing market: The more desirable the neighborhood, the more sought after your property will be
• Types of housing: Who might be renting there? Young couples? Seniors? Families? Cater to future tenants
• Rental prices: Check KSL Homes to see what others are charging for similar properties. Will rent bring in enough income?
• Interest rates: More people can buy their own homes when rates are low, which could lower the demand for your rental

Pros: You’ll have regular, possibly sizable monthly income. You may also have tax deductions, depending on your income. If you eventually decide to sell the property, it will likely be for much more than your purchase price, especially if you keep up with home improvements.

Cons: Interest in your property will depend on the housing type — condo, house, etc. — and where it’s located. If the area is transitioning into an urban hotspot for singles, for example, your five-bedroom family home may not be as popular.

Mother-in-law apartments

Another way to ease into real estate investing is to use what you already own. Turn your basement into a mother-in-law apartment, or build a tiny home in your backyard. Called an accessory dwelling unit, the addition is likely cheaper and easier to manage than an apartment or condo, for example, because it’s right there. Get an estimate from a contractor to see if the cost would outweigh your potential income.

Pros: Conveniently close.

Cons: You could have strangers living in your home or backyard.

Flipping houses

The uptick in flipping houses as a real estate investment has increased exponentially in recent years. According to Attom Data, in 2022 more than 8% of home sales in the U.S. were flips, up from 5% in 2017. Much of that increase — a 58% jump — occurred from 2021-22.

Flipping homes looks easy enough. Buy a home that’s older, repair and/or renovate, then sell it for a profit. The average return on investment nationwide for 2022 was 26%, but it can vary greatly based on the location. In Utah, for example, flipped homes garnered a 10% gross profit, an average of $45,877.

Before buying a place to flip, be sure to do your research. Start by understanding the neighborhood you’re considering. Is it an up-and-coming area? Who lives there? How is transportation?

Middle-class or working class neighborhoods are usually the most affordable, and homes there often sell quicker than others. A real estate agent can help you get a fuller picture of the area and the earnings potential.

Pros: On average, it only takes six months to flip a house, depending on how much work you do. Also, you may become an expert in home repairs and working with contractors, which will help you on the next project.

Cons: This could be a challenging start to real estate investing for beginners, because you’ll need a substantial amount of cash to get going. And, it can be a tremendous amount of work — not to mention the strain on your relationship when someone can’t seem to measure accurately.

Vacation rental

Your dream vacation home could be a reality if you can use it as vacation rental for everyone else. Many resort communities in Utah have a rental agency in place that will take care of all the details, such as reservations and housekeeping. If your place isn't connected to a community, you can hire a rental service independently. You can even go it alone, but it may be time consuming and difficult if you live far away.

It can also be expensive to get started. If it’s a place you want to go, others probably do, too, which could mean the property may be pricey. Of course, that also means you’re more likely to rent it out frequently.

Pros: Guests help pay for your investment, so you can have a vacation home.

Cons: Managing and maintaining your rental can be challenging at a distance.

Real estate investment trusts

If you want to invest in property but lack the capital or time to do so, consider buying into a real estate investment trust. REITs are companies that manage multiple properties, from single-family rentals to billboards to retail shops. Instead of owning four office buildings yourself, for example, you can invest in a REIT. All stakeholders in the REIT receive dividends from those buildings managed by the company. 

According to Nareit, an REIT investment research firm, 48% of Utah households are invested in REITs. Those include properties such as City Creek Center, Pioneer Valley Hospital and a Holiday Inn Express. You can invest in REITs through an investment broker; there are both publicly traded and non-traded offerings. 

Pros: You get a steady income from properties without ever having to manage them. It’s also a way to diversify your portfolio. While a REIT is technically a stock, it’s considered a real estate investment.

Cons: Your dividends will likely be taxed at a higher rate than other investments (similar to long-term capital gains), although still lower than regular income taxes. An REIT is considered a long-term investment, so you won’t be taking home quick money.

Real estate crowdfunding

Just as crowdfunding functions as a way to invest in new products, real estate crowdfunding is investors joining forces to own property. It’s a unique way to diversify your income, not only with different properties but also in different geographical areas that you may not have been able to access otherwise.

Among the choices of real estate investing for beginners, crowdfunding is appealing because there is usually little capital required and the risk is likely smaller. The typical investment is usually $5,000, but it can be as little as $500 or up to $100,000.

Pros: It’s easy to get started and may open up new opportunities.

Cons: Crowdfunding platforms may charge a user fee, and you’ll be taxed on your dividends. Some may require proof of a minimum income.

Commercial investing

While it’s generally much more expensive to get into, commercial real estate investments can pay much larger dividends. Office buildings, retail stores or warehouses are all considered commercial real estate. 

There are different challenges with renting commercial space than residential. For instance, you may have multiple businesses, with different lease periods for each. That means more information to keep track of, and more people to work with. As a building with many occupants, you also may have more risk regarding property damage, as well as people getting injured on the premises.

Pros: Potential for bigger returns on your investment

Cons: Dealing with multiple parties can be challenging, as well as the possibility of additional liability.

Getting started

Start your search for real estate investment properties on KSL Homes. You can search by the type of property (condo, apartment, single-family home), price, neighborhood and features such as number of bedrooms.

If you’re looking for a rental property, see what others are charging in the area. Want to flip a home? Start your search here for the best deal. And when you’re ready to put your investment on the market, list it on KSL Homes, where every day more than 4,000 people will see it.