To get started with investing in real estate, you must first choose your strategy. There are a lot of ways to play the real estate game. We'll focus on the two predominant ones: "fix and flip" and "hold and rent."
Fix and flip
With the "fix and flip" approach, you find a "handyman's special" or "fixer-upper" and buy at a low-enough price to allow you to do the necessary repairs and sell at a profit. Sometimes significant discounts are available on houses that need only minor or cosmetic improvements.
On the other end of the spectrum are houses that require major renovation. It is essential to determine where on the scale your target property lies, and whether you have the time and money necessary to put the house into marketable condition.
Hold and rent
If you intend to "hold and rent," you will always want an acceptable positive annual cash flow, exclusive of any profit upon resale. Until you become more experienced, it is probably wiser to buy toward the lower end of the market in a desirable neighborhood. The kind of renters you'll want will be looking for a safe neighborhood, and folks with kids will want a good school district.
It is also very important to screen your tenants carefully rather than accept the first warm body that responds to your ad.
A tenant who doesn't respect your property can eat up a year's worth of profit—or far worse. You should consult a lawyer to obtain a basic lease agreement, which you can reuse. Feel free to add a page with any additional terms and conditions you feel are appropriate.
To find your first property, ask around to find a real estate professional who is investment-oriented. He or she will have access to the Multiple Listing Service (MLS).
The MLS is a database—a computerized catalog of all properties listed for sale by brokers. The MLS provides much of the information you'll need to know about a house: neighborhood, number of bedrooms and bathrooms, asking price, and a great deal more.
Your real estate agent can use it to ferret out a list of only those properties that meet whatever criteria you specify—e.g., price range.
Dive deeper: Real estate investing: The full breakdown
This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.
Read more information and tips in our Explainers section