7 Best Ways to Start Real Estate Investing

Investing in real estate is one of the easier approaches to create passive income or diversify your investment portfolio. Putting your money into properties, from residential homes and commercial spaces to undeveloped land and rental assets, is a sure way to achieve consistent profit generation.

Real estate tends to gain in value over time, which means your initial investment could tangibly grow in the future. Meanwhile, the tenement is a stable cash flow generator, especially in popular rent locations. 

However, even if you are determined to invest in real estate, don’t make a prompt start. First, you should understand all the risks inherent to this field. Real estate markets are sensitive to economic downturns and social shifts that might make property prices fluctuate. Thus, macro-financial trends or local market shifts can decrease the value of your investment in the long run. 

If the idea of capitalizing on the property still speaks to you, and you wonder how to get into real estate investing, you’ve come to the right place. Below, we’ve reviewed the best ways to invest in real estate and grow your funds.

1. Real Estate Investment Trusts (REITs)

When you google “How do I invest in real estate?” REITs will be among the top search results, and for a good reason. They will let you benefit from real estate’s income potential without the complexities of property ownership and management.

REITs refer to companies that own, manage, or finance income-generating immovable assets across different sectors, including residential, commercial, and even industrial objects. They pool investors’ money to purchase and manage properties, gaining revenue primarily through rentals or sales. What makes REITs so attractive is consistent income distributions that come in the form of dividends.

Pros:

• Portfolio diversification with various objects to reduce risks;
• REITs accessibility through stock exchanges.

Cons:

• REITs price fluctuations based on market conditions;
• Limited control over the assets since the company executives manage them. 

Examples:

• Simon Property Group owns and manages shopping malls, premium outlets, and retail spaces across the globe;
• Equity Residential operates rental apartment properties in various markets.

As such, REITs are among the best ways to invest in real estate for those who seek a steady income inflow without putting too much effort.

2. Crowdfunding

When considering how to invest money into real estate with crowdfunding, have a look at specialized platforms. They allow multiple investors to collectively invest in real estate projects, no matter their financial capabilities and available resources. By and large, such platforms simply connect investors with real estate developers or property owners who seek financial support for their business ideas. The assets in question could be residential buildings, commercial spaces, or even renovation projects with the goal of generating profit later on.

While traditional real estate investments might require hefty initial capital, crowdfunding allows for smaller contributions, creating opportunities for individuals who haven’t had these opportunities before.

Pros:

• Lower barrier of entry;
• Diversification by spreading investments across different properties or projects;
• Convenience, with transactions and management handled through online platforms;
• Transparency for making informed decisions.

Cons:

• Limited control over the project management and execution;
• Liquidity challenges due to long-term commitments.

Examples:

• Fundrise provides a whole range of options on how to start investing in real estate, known for its approachable minimums;
• RealtyMogul is a functional platform for commercial real estate investments.

Real estate crowdfunding is a promising option for those who seek to dip their toes into the topic without a massive upfront investment.

3. Rental Properties

To make money on rentals, you should own or purchase some property to further rent it out to tenants. It could be a house, an apartment, or a commercial asset. As a landlord, you will have to maintain it, handle tenant issues, and ensure that the space remains in good condition.

The payments collected from tenants are a steady income stream, providing a return on your investments. At the same time, rentals involve:

• finding suitable tenants;
• negotiating the rental price;
• drafting lease agreements that outline the occupancy terms and responsibilities of both parties;
• sticking to your landlord commitments.

Pros:

• Predictable source of income, ensuring financial stability;
• Property appreciation over time, allowing you to build equity;
• Tax deductions related to property expenses and mortgage interest. 

Cons:

• Ongoing property maintenance, repairs, and dealing with tenant-related issues;
• Vacancy periods can impact income;
• Market risks can affect property values. 

Examples:

• Zillow Rental Manager assists landlords in managing their rental properties;
• WeWork leases office spaces and sublets them to businesses.

Rental properties are among the best real estate investments for generating passive income and building long-term wealth. 

4. House Flipping

House flipping involves the process of identifying properties that are undervalued, in distress, or in dire need of renovation. The next step is to purchase these assets at a reduced price. Subsequently, strategic investments are made in renovations and upgrades to enhance the property’s value. The ultimate goal is to sell these transformed properties at a significantly higher price, thereby realizing a substantial profit. This practice not only capitalizes on market inefficiencies but also contributes to the revitalization of properties and neighborhoods through well-considered improvements and investments.

Pros:

• Renovations can boost the property value, yielding high profits;
• Individuals can truly unleash their creativity in home design and renovations;
• Full control over the improvement process.

Cons:

• Financial risks, especially if renovations end up costing more than anticipated;
• Costs, such as mortgage payments and utilities during renovations, can eat into profits;
• Market volatility and time constraints. 

House flipping can be an attractive and efficient strategy for those who have an eye for real estate opportunities and renovation potential. However, suppose you are new to investing in real estate and have little to no experience in analyzing market conditions and estimating the scope and cost of renovation. In that case, we recommend sticking to another option.

5. Real Estate Investment Groups (REIGs)

Real estate investment groups (REIGs) or syndicates are formed by multiple private investors to collectively contribute funds to properties. There is typically a professional entity responsible for property acquisition, management, and eventual sale on behalf of investors. Each investor contributes money to the group and receives a share of after-sale profit proportional to their contribution.

Pros:

• Investment diversification to spread risks across various properties;
• Professional management;
• Access to the expertise of seasoned real estate experts;
• Lower entrance capital requirements;
• Passive real estate investing without day-to-day management responsibilities.

Cons:

• Limited control over the management and decision-making processes;
• Management fees and expenses;
• Potential disputes between group members about investment objectives and risk tolerances.

This is presumably the best way to start investing in real estate for busy professionals limited in time, novice investors lacking experience, and in need of guidance, as well as for investors with stringent budgets.

6. Real Estate Wholesaling

If you are reluctant to engage substantial funds in property investing and go through the routines of the purchasing process, this investment strategy is for you. You’ll act as a middleman in a property transaction. A wholesaler pinpoints distressed properties and negotiates a contract with a seller at a reduced price to further assign the contract to another investor at a higher price. The price difference is normally between 5% and 10%. It’s the so-called wholesaler fee.

Pros:

• Low barrier of entry for aspiring investors with a keen eye for potential deals and the lack of capital;
• Quite a quick-money turnover and profit generation;
• Minimal risk as compared to other ways to invest in property;
• Great flexibility since investors are not tied down to specific properties or locations.

Cons:

• High market competition;
• Legal complexities due to intricate legal frameworks and local regulations;
• Dependence on networking to establish meaningful relationships.

Real estate wholesaling appeals to those who strive to enter the real estate market without substantial capital and long-term commitments. At the same time, to become a successful wholesaler, you should have strong negotiation skills, some market knowledge, and a knack for spotting lucrative deals.

7. House Hacking

This is a creative investment strategy when the owners of multi-unit properties, such as duplex or triplex, reside in one unit and rent out other units to tenants.

Pros:

• Additional income generation to offset mortgage payments or property taxes;
• Reduced housing expenses to allocate more funds to savings or other financial goals;
• Building equity over time;
• Specific tax advantages.

Cons:

• Property management responsibilities;
• Lack of privacy due to sharing property with tenants;
• Securing financing for multi-unit properties can be more complex than obtaining a traditional mortgage.

With the right mindset and strategic approach, it’s the best way to start real estate investing for first-time house buyers looking to minimize their housing costs.

Final Thought

Real estate investing offers a bunch of opportunities to make money without putting too much effort, generate income, diversify your investment portfolio, and grow your funds.

Which is the best way for you to invest in real estate? It is the one that aligns with your financial objectives, matches your risk tolerance, and suits your available financial and time resources.

To confidently navigate this investment landscape and make a well-informed decision, it wouldn’t go amiss to consult with real estate professionals or appropriate financial advisors.

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