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How To Invest In Real Estate

Dan Miller5-Minute Read
April 28, 2022

Investing in real estate can be an attractive choice for people looking to build up or diversify their investment portfolios. If you have always wondered if real estate is a good investment or how to get started, you’re in luck. After reading some of these tips about how to invest in real estate, you should have a better idea of what real estate investing is and how you can get started in real estate.

How To Start Investing In Real Estate

Asking “How do I start investing in real estate?” is akin to asking yourself “How should I live my life?” There are thousands, if not millions, of answers, and they depend very much on you, your skills, your stage in life and what you’re looking to accomplish. Depending on what you want out of the experience, there are a few different ways to get started investing in real estate.

Buy Rental Properties

One popular way to get started investing in real estate is by buying rental property. You might consider either buying a single-family home or a smaller multifamily home. Then you can rent it out to provide passive income and cash flow for investors.

Buy REITs

Another path to get started in real estate investing is by investing in REITs (real estate investment trusts). A REIT is a company that owns, invests in or finances real estate investing. You can invest your money in a REIT and get some of the benefits of real estate investing without having to be a hands-on landlord. Investing in REITs can also come with tax advantages.

Flip Houses

House flipping is a term that references buying distressed houses, fixing them up and then selling them. This can be a good real estate investment if you are able to find good properties and have the ability to finance the renovations as well as the home purchase. Depending on the condition of the subject property, you may not be able to get a conventional loan when house flipping and may have to look for alternative financing.

Invest In REIGs

Similar to REITs, REIGs (real estate investment groups) are another way to passively invest in real estate. A REIG is like a mutual fund that invests in rental properties. Some REIGs are as simple as just a few people working together to pool their capital to invest in real estate. Other REIGs are much larger, diversifying their purchases across many different cities, states and types of real estate.

Join Online Real Estate Investing Platforms

Another way to invest in real estate is to join an online real estate investing platform, also known as real estate crowdfunding. There are many real estate investing platforms that you can join. Each platform focuses on different types of real estate, so do your due diligence to find the best one for you. Joining an online real estate investing platform can also be a good way to meet other investors and get financing for your investments.

How To Finance An Investment Property

There are a variety of different ways to buy an investment property, depending on the type of property you are buying and what condition it is in. The simplest way to finance an investment property is to get a mortgage, if your property qualifies for one. Shop around to different lenders and mortgage brokers to find one that has the best rates for the property you're buying. It can also make sense to work with a real estate agent for help in navigating the real estate market.

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How To Invest In Real Estate With Little Or No Money

If you don’t have the money for a down payment, there are a couple of different ways that you can still invest in real estate.

Use A Hard Money Loan

Many investors with extra capital choose to lend that money to others who are investing in real estate. These loans are called hard money loans, and come with much higher fees and interest rates. Typically hard money loans require collateral to secure the loan, so be sure to consider this before deciding on this type of funding. Still, if you're looking for financing on a distressed property that won't qualify for a conventional loan, a hard money loan can be a good option.

Get An FHA 203(k) Loan

An FHA 203(k) rehab loan is a way to buy a home that needs repairs or renovations. With a 203(k) loan, you can get the money to buy the home as well as make some repairs rolled into the total cost of your mortgage. While this loan does allow you to make repairs as part of the loan, the home will need to still meet certain FHA loan requirements. Another thing to keep in mind is that a 203(k) loan is only an option if you plan to live in the home you're buying.

Partner With Other Investors

If you're still not sure you want to take an active role in real estate investing, you can also consider partnering with more experienced investors. This can get you involved in investing without costing too much upfront or having too much specialized real estate knowledge. Real estate investing platforms are one great way to find other investors to partner with.

Engage In House Hacking

House hacking is a term that has become popular recently as a way for people to start investing in real estate and build up home equity. Here are a couple of ways to house hack:

  • Buy a multifamily home to live in and have tenants pay the mortgage.
  • Buy a single-family or multifamily home and rent it as a vacation rental. Stay with friends when you have guests booked.
  • Rent out a spare room or unit in your primary residence.
  • Share your home with housemates or roommates.
  • Get a job (travel nurse, caregiver, park ranger, au pair) that provides free housing.

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Pros And Cons Of Investing In Real Estate

Here are a few of the benefits and drawbacks of investing in real estate. You'll want to consider both the good and the bad to determine if real estate is a good investment for you.

Pros

  • You can earn a steady cash flow and passive income.
  • Investment properties can have tax deductions like property taxes, mortgage interest and more.
  • Investing in real estate can diversify your investment portfolio for added security during economic downturns.
  • The real estate market often appreciates in value over time.

Cons

  • Real estate investments aren’t liquid and are dependent on the property and your ability to earn from it.
  • You’ll need starting capital to afford real estate to invest in; see above for ways to invest with little or no starting capital.
  • Investment properties can take time to appreciate in value.
  • Many real estate investing strategies require a significant time investment.

The Bottom Line

Real estate investing is not for everyone, but it can be an attractive way to diversify your investments and earn additional money. There are a wide variety of different ways to invest in real estate, so you're likely to find something that fits what you're looking for. If you do want to start investing in real estate, consider making a real estate investment business plan.

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Dan Miller

Dan Miller is a freelance writer and founder of PointsWithACrew.com, a site that helps families to travel for free/cheap. His home base is in Cincinnati, but he tries to travel the world as much as possible with his wife and 6 kids.