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Real Estate Investing For Beginners in 2010 & Beyond

Real estate investing in 2010 and beyond offers great opportunities, but investing in real estate successfully will be no walk in the park. Real estate investing before the financial crisis was smoke and mirrors. Now investing in this market is akin to stock investing. There is no sure thing. Investing for beginners can be tricky, so here’s how I suggest you get up to speed before you invest money in properties.

Many of us remember when most any investment property was naturally expected to go up in price. Most of us remember when the stock market was in trouble at the start of the new millennium and real estate investing was making people rich. What few investors really understood at the time is that real property is subject to market dynamics like stocks are. What goes up in price eventually comes down; and what goes up like a rocket comes crashing down to earth.

Financial leverage and easy money launched property values, and reality (plus a financial crisis) brought prices crashing down. That’s why real estate investing in 2010 or later holds such opportunity for investors. Both the residential and commercial sector were struggling to make a comeback as 2010 started to unfold, and property values looked cheap. Investing for beginners involves getting a good start AND avoiding big mistakes that can bury you financially.

Here are three negatives associated with owning properties, and how to get started as an investor while avoiding costly mistakes. The first negative is poor liquidity. An investment with GOOD liquidity can be sold quickly and easily at the market price with little expense. This is not true of real property, especially today. Second, owning properties involves active management and expenses. Third, the advantage of real estate investing that made folks rich over the years is the same thing that put many folks in the poor house… financial leverage… a fancy term for borrowing a lot of money to invest with.

Here’s how I suggest you get your feet wet. Invest in a real estate mutual fund or ETF, which is a stock. If you have a brokerage account you can do this in a matter of seconds on the internet. If not call a discount broker and open an account. Search “discount broker” on the internet to find one. Then, start following the financial news on TV, in the newspaper, or on the internet.

Your mutual fund or ETF (exchange traded fund) will be your starter investment that invests in companies that own and manage commercial properties like office buildings, apartment complexes and shopping malls. There is no active management on your part, because professional money managers do it for you. You just buy shares and hold until you want to sell; and you can sell shares in a matter of seconds for a commission of about $10. There is no need to leverage or borrow money and you can invest as little as a few hundred dollars, or as much as you like.

There’s another reason I suggest this as a great way of investing for beginners. As the market for properties improves you’ll be making money; but you’ll also get a feel for real estate investing as you follow the financial news. Who knows… when you see how easy it is to make an investment online… you may never want to deal with the hassles of owning real properties. Either way, you’ll get yourself up to speed as you get a handle on the market for real properties.

In any market, not just the stock market, poor timing spells ‘bad investment’. Another advantage to investing in a fund vs. a physical property is that you can invest over time to smooth out the risk. If prices fall you can add more shares at a cheaper price while waiting for the recovery.