5 Simple Ways to Invest in Real Estate

Here's how—from buying rental property to REITs and more

By 

ANDREW BEATTIE

Full Bio

•  

Andrew Beattie was part of the original editorial team at Investopedia and has spent twenty years writing on a diverse range of financial topics including business, investing, personal finance, and trading.

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Updated October 11, 2024

Reviewed by 

LEA D. URADU

Fact checked by 

JARE

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1 second of 1 minute, 40 secondsVolume What makes a good real estate investment? Any good investment has a high chance of success and a solid return on your investment. One of the factors in favor of real estate investing is the relatively small stake needed to get started, compared to investing in many other assets.

A home mortgage generally requires a 20% to 25% down payment, but, in some cases, a 5% down payment is all it takes to purchase an entire property as a rental opportunity. That's great for those with do-it-yourself skills and plenty of spare time, but it's only one of several ways to make money in real estate without an outsized investment upfront. These are some other real estate investment strategies to consider, along with their pros and cons.

KEY TAKEAWAYS

• Buying and managing rental property is an option for investors with do-it-yourself skills and the time to manage the property hands-on.
• "Flippers" look for undervalued properties and look to sell them quickly for a profit.
• REIGs are an option for passive investing in real estate.
• REITs pay dividends and can be bought and sold on exchanges, like stocks.
• Online real estate investing platforms offer diverse opportunities for a relatively modest stake.

1. Rental Properties

Owning rental properties is a good choice for individuals who have do-it-yourself (DIY) skills, the patience to manage tenants, and the time to do the job properly.

Although financing can be obtained with a relatively low down payment, it does require substantial cash on hand to finance upfront maintenance and to cover periods when the property is empty or tenants do not pay their rent.

On the plus side, once the property starts bringing in cash, it can be leveraged to acquire more property. Gradually, the investor can acquire a number of income streams from multiple properties, offsetting unexpected costs and losses with new income.

Rental Property Investing

Pros

• Provides regular income and potential appreciation

• Can be maximized through leverage

• Many expenses are tax-deductible

Cons

• Managing tenants can be tedious

• Unexpected costs can eat up income

• Unpredictable vacancies can reduce income

According to U.S. Census Bureau data, the sales prices of new homes (a rough indicator for real estate values) consistently increased in value from the 1960s to 2007, before dipping during the financial crisis.1 Subsequently, sales prices resumed their ascent, even surpassing pre-crisis levels.23

By the end of 2023, the average home sale price in the U.S. hit $498,300, slightly off record highs recorded earlier in the year.4

WARNING

Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).5

2. Real Estate Investment Groups (REIGs)

Real estate investment groups (REIGs) are ideal for people who have some capital and want to own rental real estate without the hassles of hands-on management.

REIGs are a pool of money from a number of investors, similar to a small mutual fund, that is invested in rental properties.6 In a typical real estate investment group, a company buys or builds a set of apartment blocks or condos.

A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all of the units, handling maintenance, advertising vacancies, and interviewing tenants.

In exchange for conducting these management tasks, the company takes a percentage of the monthly rent.

A standard real estate investment group lease is in the investor’s name, and all of the units pool a portion of the rent to cover vacancies. This means you'll receive some income even if your unit is empty. As long as the vacancy rate for the pooled units doesn’t spike too high, there should be enough to cover costs.

REIG Investing

Pros

• More hands-off than owning rentals

• Provides income and appreciation

Cons

• Vacancy risks

• Fees similar to those associated with mutual funds

• Susceptible to unscrupulous managers

3. House Flipping

House flipping is for people with significant experience in real estate valuation, marketing, and renovation.

This is the proverbial "wild side" of real estate investing. Just as day trading is different from buy-and-hold investing, real estate flippers are distinct from buy-and-rent landlords.

Real estate flippers often aim to profitably sell the undervalued properties they buy in less than six months.

Some property flippers don't invest in improving properties. They pick properties they hope have the intrinsic value needed to turn a profit without any alterations.