Residential real estate investing is what many in the real estate world consider to be the on-ramp to becoming a successful, lifelong real estate investor. Why? 

Because the principles you learn from residential investing apply to everything in the asset class investment field. From office buildings to commercial real estate. and more, learning these principles through residential investing provides you the “softest” on-ramp (think, “buying a home and losing your investment” vs. “buying an industrial office building and losing your investment”) to learning.

Leadflow’s real estate lead generation software is about empowering people on how to invest in residential real estate and start down the road to financial freedom. So, with this in mind, we’re going to walk you through the step-by-step process of how to get started.

Investing In Residential Real Estate: A Step By Step Guide

1. Locate A Target Area

When locating a prime area to buy a property, along with finding areas of population growth, there are a couple of key things to consider:

1. If buying a property to rent out, will you personally manage the property? Or will you hire a property manager?
   
2. Does the home need renovations? If so, will you personally be renovating? Or will you use a 3rd party to coordinate?

Again, if you’re renovating and/or managing, the property needs to be within driving distance. If not, you’ll want to network with other property owners in the area to find reputable building managers and contractors who can handle renovations.

2. Find An Investment Property

Investing in real estate relies so much on your ability to find the perfect property. Here are some more traditional ways to find investment properties…

1. Locating Distressed Properties

This means driving around to spot properties that are in disrepair. Look for properties that need obvious work on the outside of the house. Properties with unmowed lawns can also be an indicator of a distressed property. These owners are usually far more willing to sell.

2. Search For Absentee Owners

This involves going to your local county tax office or website to find owners with different mailing addresses than the property you’re interested in. This could mean they’re not actually using this property, and may be far more likely to sell.

3. Search The City’s Probate Court Records For Inherited homes

These are called “probate leads” - they’re people who have inherited homes and therefore may be interested in offloading them quickly and, ideally, for a lower cost.

Counties will often list foreclosed homes for sale on county websites or in county offices. 

Streamlining Your Property Search

While there are many ways to find seller leads, if you’re crunched for time/resources, software like Leadflow Pro automatically finds 18 different lead types with the click of a button.

3. Contact The Property Owner To Gauge Willingness To Sell

Half the battle of residential real estate investing comes with contacting property owners in a way that doesn’t come off as aggressive or annoying. 

Direct mail marketing and even email marketing   are great ways to show your interest while maintaining a respectful distance in the beginning stages of the buyer-seller relationship.

4. Get A Home Inspection

Due diligence should be your mantra as you start your journey toward becoming a real estate investor. 

Once you’ve found your ideal investment property and have confirmed that the owner is willing to sell, a home inspection is a fundamental part of your due diligence. 

Why roll the dice by forgoing a home inspection? If it turns out the home has serious problems, you’ll be left to foot the mortgage payments.

5. Estimate Repair Costs

You’re probably not buying a turnkey investment property, so factoring in renovation costs is critical to determining your bottom line. 

Using a house flipping calculator will help you determine not only how much it will cost to rehab, but also how much your renovations will boost the property value!

6. Determine Potential Cash Flow

Ok - so far, so good. But now you need to think about  how you will make your investment back. If you’re planning to rent the unit out, what does the monthly rental income look like? What’s a fair price to ask, and how long will it take for you  to make your investment back? 

To do this, you’ll want to comp nearby properties.

Comping Nearby Properties

Determining cash flow is notoriously difficult. It requires hours of research “comping” or comparing nearby properties using online and physical resources. But even then, you’re crossing your fingers that you didn’t miss anything.

Using a real estate comp tool helps you assess nearby property values with the click of a button. This will give you a solid idea about how much you can expect from rental income before you invest into real estate, and what the cash on cash return will look like in the coming years.

7. Source Potential Investors To Secure Funding

Don’t let a lack of personal funds deter you! Most people getting into residential real estate investing don’t have the funds readily available to purchase a property outright and fund renovations. 

While one option is to obtain financing through a bank, another is finding real estate investors who see the value in what you’re doing and want to invest in your project.

Traditional Ways To Secure Funding For Residential Real Estate Investments

1. Going to real estate investor networking events to pitch your idea
2. Join local Meetup groups dedicated to real estate investing
3. Leverage social media to connect with other real estate investors
4. Host real estate classes/seminars in your city
5. Travel to areas where you’re interested in investing, and use it as an opportunity to network and find residential real estate investors.
6. Obtain traditional bank funding 
7. Secure Hard Money Loans or funds from Private Lenders
   

8. Make The Purchase

You’ve done your due diligence throughout the entire process - you’re almost there! Make sure you get your contracts in the hands of a real estate attorney who will be able to ensure that everything is good to go.

Different Types Of Residential Real Estate Investments

A lot of beginner investors think of residential real estate investing as house flipping, but that’s not the only form of residential investing.

Single-Family Homes

This is the classic fix-and-flip scenario. You find a single-family home for sale that you can renovate to dramatically increase the home price, and sell at a profit.

Apartment Units

Remember, residential real estate is anywhere that people live. This includes apartments! Buying apartment units and renting them out is one of the best ways to generate annual cash flow.

Mobile Home Units

The past couple years have seen an explosion in mobile home unit investments. Just like apartments, mobile home units are a great long term investment.

Vacation Homes

AirBnB, anyone? Buying and renting out vacation homes on platforms like AirBnB and VRBO are fantastic ways to generate passive income. But remember, to do your due diligence when researching locations as vacation spots increasing in popularity are great, but vacation spots decreasing in popularity can put your investment at risk.

Duplex

Often considered the holy grail of residential real estate investing, buying a duplex allows DIYers to live on one side while fixing up the other, and vice versa. You’re then free to rent both units in order to offset your mortgage payments, live in one and rent the other, or sell both.