15 Top Tips for First-Time Real Estate Investors

If you're interested in building wealth through real estate, you've already taken a step in the right direction. The world of real estate presents opportunities for every type of investor, regardless of your risk tolerance or even the amount of capital you start with.

If you're looking to add real estate to your investment portfolio in the near future, here are 15 top tips you should know first.

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As is true in building any aspect of your portfolio, you should identify and formulate your overall investing strategy when venturing into real estate.

For example, do you want to create an entire secondary source of income? Or do you simply want to diversify into real estate as another slice of your overall portfolio? How much capital do you have or want to invest in real estate?

Do you want to use your real estate investments as a means of helping to build a robust nest egg for retirement, buy a house, or pursue other defined financial goals? Also, consider the level of risk you're comfortable taking on in your portfolio. This will greatly determine the types of real estate investments you choose and the sectors you steer away from.

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Undoubtedly, one of the most common misconceptions around real estate investing is that you have to take on significant risk or have a large amount of money to get started.

In fact, nothing could be further from the truth. With so many real estate investment methods available to individual retail investors today, you can easily put your money to work in a way that supports your personal financial goals and situation.

The types of real estate you invest in may change with time, particularly as you gain more experience in the space. However, before you put your capital in any type of investment, having a clear idea of where you want to start and the objectives you want to reach is key. Real estate is no exception.

Of course, there are the types of real estate investments that everyone thinks of, like flipping a property or buying and renting out a house as a second source of income. These just barely scratch the surface of the real estate investing options available today, ranging from funds containing a mix of real estate assets to platforms enabling you to buy fractional shares of residential or commercial real estate.

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Diversification is a wise strategy for any investor. This is especially true in the world of real estate. As with stock investing, different types of real estate assets pose varying levels of risk -- and, therefore, potential returns -- for your portfolio.

You don't need to invest all your capital at once. Whatever type of real estate you're considering investing in, don't be afraid to take your time. Invest a modest amount of capital to start and multiply that investment over time.

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While options like buying a property to flip or lease can certainly pose viable options for some real estate investors, they are also the routes that generally require the highest risk tolerance and a generous amount of starting capital.

On the other hand, investment vehicles like real estate investment trusts (REITs), real estate mutual funds, and real estate exchange-traded funds are just a few common ways to invest in real estate without buying an actual property yourself. We'll talk more about a few of these in upcoming slides.

Investors can also benefit from consistent dividend payments from these funds, which compound their returns over time and produce more capital to reinvest.

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If you want to invest in physical real estate but have been holding off because you don't have a huge stash of cash to put into an income-producing property, you're in luck. You can be a long-term real estate investor without ever purchasing a physical property on your own.

With options like real estate investment groups and real estate crowdfunding, you can build your portfolio from the ground up with the amount of cash you can afford to invest right now.

As with any investment, it's important that you really understand the underlying asset before you put cash into it. For one, this will help ensure that the types of real estate assets you invest in align with the preferred balance you've set for your investment portfolio.

Performing your due diligence will also help you determine the most appropriate ways to allocate your cash within the space in a way that fits with your overall investing strategy and makes the best use of your investment capital.

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REITs are one of the most common ways to invest in real estate without buying a property. REITs invest in and operate a pool of assets. These range from various types of income-producing real estate to mortgage loans.

Investing in REITs has many benefits, including the diverse types of real estate they encompass and the steady dividends they pay. REITs must pay out at least 90% of their taxable income in dividends due to how they're structured.

Healthcare REITs are one of many variations of REIT investing options to consider. The healthcare space as a whole is a particularly noncyclical space to invest in, which is why it attracts so many investors. Healthcare REITs can comprise everything from assisted living facilities to hospitals and other medical provider entities.

Office REITs are another popular way to invest in commercial real estate through the vehicle of an investment fund.

These REITs own and operate office space across the country, typically generating revenue through these assets via long-term leases. Office REITs can have tenants in wide-ranging industries spanning everything from healthcare to tech.

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Industrial REITs own and operate many different types of industrial properties, leasing them to tenants involved in everything from manufacturing food to running logistics centers for online brands.

One of the major benefits of industrial REITs is that tenants typically rent out these properties under multi-year leases that can span decades. This lends both a level of non-cyclicality and enhanced liquidity to these types of investments.

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If investing in commercial real estate interests you, but you don't want to put money into a physical property on your own, retail REITs may be for you. While near-term economic and market headwinds could impact REITs in this space, people will still rely on physical locations to buy daily goods and services for the foreseeable future.

Retail REIT portfolios can contain commercial space leased by tenants ranging from grocery stores, pharmacies, and discount chains to restaurants, gyms, and home improvement stores, to name just a handful of examples.

In the digital age, it's fair to say that the world couldn't function without data centers. If you want to invest in this space, data center REITs are a no-brainer option to do so without taking on the same level of risk you would by investing in the individual companies themselves.

When investing in data center REITs, you can benefit from the significant tailwinds and durable growth this sector offers while diversifying your capital across multiple companies in this space.

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If you want to invest in residential real estate but don't have the capital or the inclination to buy a property on your own, you may want to consider residential REITs. Bear in mind these types of investments are subject to cyclicity based on factors like what's happening with the market at large and the state of interest rates.

That being said, residential real estate remains a compelling area for investors with a higher risk tolerance to park their capital over the long term. Investing in residential REITs allows you to become part owner in everything from apartment buildings to standalone dwellings.

Diversified REITs can be worthwhile additions to your portfolio if you're interested in investing in multiple real estate types. As its name suggests, a diversified REIT can contain any combination of property types, including retail spaces, hotels, and residential properties. These types of REITs can help you quickly gain broad exposure to a range of real estate assets and sectors at once, with whatever dollar amount you have available to put to work.

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Whatever your personal strategy, real estate is an excellent way to broaden your investment horizons while unlocking new on-ramps of growth for your portfolio. Combining investments in real estate and great stocks can supercharge your portfolio's potential over time.

Investing in various real estate asset types -- whether a combination of funds, commercial and/or residential real estate, or an entirely different approach -- could not only mitigate your risk exposure but also maximize your long-term profits.

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