Whether you have $100 or $100,000, investing in real estate can be a powerful wealth-building tool.
I got my start with real estate investing in 2016 with the purchase of a run-down 1970s split level with four bedrooms. My W-2 income was less than $23,000 at the time. I lived with a rotating cast of three other short and long-term renters for years while slowly renovating it. Deals like that are much harder to find today, but that doesn’t mean you’re shut out of the market entirely if you’re in the same income bracket I was.
Here are five proven ways to invest in real estate, ranging from hands-off approaches that take minutes and minimal funds to set up, to more involved strategies that could become your full-time occupation.
1. Real Estate Investment Trusts (REITs)
What they are: REITs (Real Estate Investment Trusts) are companies that own, operate or finance income-producing real estate across various sectors like shopping malls, apartment buildings, offices, warehouses and hotels. They work similarly to mutual funds, allowing you to invest in real estate without actually buying or managing physical properties.
If you’re looking to invest in real estate immediately with limited funds at risk, REITs offer the most accessible entry point.
REITs are required by law to distribute at least 90% of their taxable income to shareholders as dividends, which typically makes them excellent income-generating investments. Many REITs pay higher dividend yields than what you’ll find with many stocks. Keep in mind that dividends from a REIT will be taxed at your income tax rate, not the lower capital gains tax rate you’d get with other investments, so you’ll need to prepare for a larger tax bill or hold them in a tax-advantaged account.
The beauty of REITs lies in their simplicity. You don’t have to worry about finding tenants, fixing toilets or dealing with property taxes as the REIT management team handles all those headaches. You just invest your money and collect dividends when they do well.
How to get started: You can buy shares of publicly traded REITs through any brokerage account, just like you would purchase stocks. If you’re new to investing or don’t have much capital, many investing apps like Robinhood, M1 Finance and Stash offer fractional shares of REIT ETFs (Exchange-Traded Funds), allowing you to start with as little as $5.
Expert tip: Consider diversifying across different types of REITs. Residential, commercial, healthcare and mortgage REITs each respond differently to economic changes, providing better portfolio protection. Since REITs pay through dividends, holding your REITs in a tax-advantaged account like a Roth IRA or Health Savings Account is a smart money move.
2. Crowdfunding Real Estate Platforms
What they are: Crowdfunding real estate platforms are online services that connect investors with real estate developers seeking funding for specific projects. Rather than investing in diversified portfolios of several properties like REITs, these platforms let you select individual properties or development projects to invest in.
For investors who want more control over their real estate investments without the hassle of direct property ownership, crowdfunding platforms offer an intriguing middle ground.
These platforms typically fund commercial or residential developments, apartment renovations or other real estate projects. The returns can potentially be higher than REITs, but so is the risk since you’re often investing in a single property rather than a diversified portfolio.
Consider that most crowdfunding investments lock up your money for several years. While some platforms offer early withdrawal options, they typically come with penalties or depend on another investor buying your shares.
How to get started: Popular platforms include Fundrise (which allows investments starting around $10) and CrowdStreet (which focuses on commercial real estate but typically requires larger minimum investments, often over $25,000). Be aware that some platforms only accept accredited investors—individuals with a net worth over $1 million (excluding primary residence) or annual income exceeding $200,000.
Expert tip: While crowdfunding is increasing in popularity, I don’t recommend it for beginners. The fees are substantially higher and less transparent, plus they aren’t diversified enough for people new to the industry. A REIT is a much better starting point until you better understand real estate investments.
3. Invest in Your Own Home
What is it: Perhaps the most common real estate investment most people make is purchasing a primary residence. By making mortgage payments, you gradually build equity in your home while potentially benefiting from property appreciation.
If you continue to slowly climb the property ladder during your working years and then downsize in retirement, you’re likely to benefit from a stable place to stay and a large check at the end of it.
However, the financial returns might be less impressive than you’d expect. Even with the wild market recently, home prices have only averaged a 4.29% increase in value annually since 1987, according to data from the Federal Reserve.
By comparison, REITs have historically delivered average annual returns around 11.28%, according to Nareit, while even a basic S&P 500 index fund has averaged roughly 10% returns long-term.
That doesn’t mean buying a home is a bad investment, it just means you should think of it as both a lifestyle choice and a financial one. Government programs for homebuyers, along with favorable mortgage terms, make homes much more accessible than other real estate investments.
You can even follow my playbook and rent rooms out while living in your home for extra cash flow for renovations, to build equity faster or to reduce your housing expenses.
How to get started: If you’re considering buying a home, first assess whether you plan to stay in one location for at least three to five years (to offset transaction costs). Research first-time homebuyer programs in your area, which might offer down payment assistance or reduced interest rates. Make sure your monthly mortgage payment is well within your budget, as you’ll be on the hook for maintenance as well as regularly increasing property taxes and insurance premiums.
Expert tip: Don’t rush to pay off a low-interest mortgage if you can earn higher returns by investing that extra money elsewhere. While a paid-off mortgage is an emotional win, it’s rarely the smartest money move. Let’s say you have room in your budget and can either pay off your 3% mortgage earlier or invest more in your 401(k) and you’re in a 30% total tax bracket. Paying off your mortgage saves you 3% in interest, but investing in your 401(k) will give you an immediate 30% tax savings, and grow at an average rate of roughly 10% a year if investing in something like an S&P 500 index fund.
4. Invest in Rental Properties
What is it: Purchasing residential or commercial property to rent out to tenants is perhaps the most traditional form of real estate investing. This approach can provide both ongoing income and potential appreciation.
Rental properties come in two main varieties:
- Long-term rentals: These properties are typically leased for at least a year, providing consistent monthly income (assuming reliable tenants). Options range from single-family homes to multi-unit properties.
- Short-term rentals: These cater to travelers and temporary residents through platforms like Airbnb and VRBO. While they typically generate higher nightly rates, they also require more active management and face more volatile seasonal and economic fluctuations.
The appeal of rental properties lies in their wealth-building potential. A well-chosen rental property can provide monthly cash flow while it potentially appreciates, and your tenants essentially help pay down your mortgage.
The downside? Becoming a landlord involves significant work. Finding tenants, handling maintenance, addressing emergencies and dealing with potential vacancies. Additionally, financing investment properties typically requires larger down payments and comes with higher interest rates than primary residences.
I’ve been a landlord for most of the last nine years, generally living with or near my tenants. The vast majority of my tenants have been fantastic people, but the few bad ones were so bad that I stopped renting out my house entirely. Carefully consider if you have the stomach to deal with a nightmare scenario before you start investing in rental properties.
How to get started: Research rental rates and property values in your target market. Many successful investors start with a small, manageable property like a duplex or condo. Consider “house hacking” by living in one unit of a multi-unit property while renting out the others, which can qualify you for better financing terms.
Expert tip: Factor in at least one to two months of vacancy per year when calculating potential returns, along with setting aside 1% to 2% of the property value annually for maintenance and repairs. Many new landlords underestimate these costs and overestimate their cash flow.
5. Flip Properties for Profit
What is it: Property flipping involves purchasing homes or buildings, renovating them and selling them at a higher price. This strategy can deliver significant returns but requires substantial knowledge, capital, risk tolerance and ability (if you DIY your renovations).
Despite what you might see on HGTV, flipping houses isn’t a guaranteed path to quick profits. It requires identifying undervalued properties, accurately estimating renovation costs, managing contractors (or doing the work yourself) and understanding local market trends.
The financial risks are considerable. Renovation costs frequently exceed initial estimates, permits can cause unexpected delays and market conditions might shift while your money is tied up in the project. Most flippers need to account for financing costs, realtor commissions, closing costs and capital gains taxes, all of which eat into profits.
For those with construction experience or strong contractor relationships, flipping can be highly profitable. The key is buying properties at a sufficient discount to cover all expenses while leaving room for profit.
How to get started: Before diving in, spend time learning your local market: attend open houses, track property values and build relationships with realtors specializing in distressed properties. Consider partnering with an experienced flipper on your first project to learn the ropes.
Expert tip: Use the 70% rule as a starting point: Never pay more than 70% of a property’s After Repair Value (ARV) minus renovation costs. For example, if a renovated home would sell for $300,000 and needs $50,000 in repairs, you shouldn’t pay more than $160,000 ($300,000 × 0.7 – $50,000).
Which Real Estate Investment Strategy Is Right for You?
The best approach depends on your financial goals, risk tolerance, available capital and desired level of involvement:
- For passive income with minimal effort: REITs or real estate crowdfunding
- For building equity while meeting a basic need: Your primary residence
- For ongoing income plus appreciation: Rental properties
- For active income requiring significant effort: Property flipping
Real estate investing can provide portfolio diversification, potential tax advantages and protection against inflation. But physical properties also come with illiquidity risks. You can’t sell a house as quickly as you can sell a stock.
For most investors, a balanced approach works best. Start with REITs to gain exposure to real estate while learning more about the market. As your knowledge and capital grow, you might consider adding a rental property or exploring more active strategies.
Whatever approach you choose, remember that real estate—like any investment—requires research, patience and a clear-eyed assessment of both potential returns and risks. Talk with a financial advisor about how real estate fits into your overall investment strategy before making any major decisions.
The path to real estate wealth is rarely a sprint; it’s a marathon. But for those willing to put in the effort and make informed choices, it remains one of the most reliable routes to long-term financial security.
