How to Invest in Real Estate: 5 Ways to Get Started - NerdWallet (2022)

If you’ve ever had a landlord, you probably don't dream of being one: Fielding calls about oversize bugs and overflowing toilets doesn’t seem like the most glamorous job.

But done right, real estate investing can be lucrative — even now that we've shifted to an environment of higher interest rates. Investing in real estate can also help diversify your existing investment portfolio and be an additional income stream. And many of the best real estate investments don’t require showing up at a tenant’s every beck and call.

The trouble is that many new investors don’t know where or how to invest in real estate. Here are some of the best ways to make money in real estate, ranging from low maintenance to high.

Best ways to invest in real estate

1. Buy REITs (real estate investment trusts)

REITs allow you to invest in real estate without the physical real estate. Often compared to mutual funds, they're companies that own commercial real estate such as office buildings, retail spaces, apartments and hotels. REITs tend to pay high dividends, which makes them a common investment in retirement. Investors who don’t need or want the regular income can automatically reinvest those dividends to grow their investment further.

Are REITs a good investment? They can be, but they can also be varied and complex. Some trade on an exchange like a stock; others aren’t publicly traded. The type of REIT you purchase can be a big factor in the amount of risk you’re taking on, as non-traded REITs aren’t easily sold and might be hard to value. New investors should generally stick to publicly traded REITs, which you can purchase through brokerage firms.

(Video) How to easily invest in real estate — in one minute

For that, you'll need a brokerage account. If you don't already have one, opening one takes less than 15 minutes and many companies require no initial investment (though the REIT itself will likely have an investment minimum).

You can also gain exposure to a more diversified selection of real estate investments by buying into a fund that has interests in many REITs. You could do this through a real estate ETF or by investing in a mutual fund that holds shares of multiple REITs.

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(Video) Top 5 ways to invest in real estate with no money, according to Nerdwallet

2. Use an online real estate investing platform

Real estate investment platforms connect real estate developers to investors who want to finance projects, either through debt or equity. Investors hope to receive monthly or quarterly distributions in exchange for taking on a significant amount of risk and paying a fee to the platform. Like many real estate investments, these are speculative and illiquid — you can’t easily unload them the way you can trade a stock.

The rub is that you may need money to make money. Many of these platforms are open only to accredited investors, defined by the Securities and Exchange Commission as people who've earned income of more than $200,000 ($300,000 with a spouse) in each of the last two years or have a net worth of $1 million or more, not including a primary residence. Alternatives for those who can't meet that requirement include Fundrise and RealtyMogul.

» Ready to start investing? Best real estate crowdfunding platforms

3. Think about investing in rental properties

Tiffany Alexy didn’t intend to become a real estate investor when she bought her first rental property at age 21. Then a college senior in Raleigh, North Carolina, she planned to attend grad school locally and figured buying would be better than renting.

“I went on Craigslist and found a four-bedroom, four-bathroom condo that was set up student-housing style. I bought it, lived in one bedroom and rented out the other three,” Alexy says.

The setup covered all of her expenses and brought in an extra $100 per month in cash — far from chump change for a grad student, and enough that Alexy caught the real estate bug.

Alexy entered the market using a strategy sometimes called house hacking, a term coined by BiggerPockets, an online resource for real estate investors. It essentially means you’re occupying your investment property, either by renting out rooms, as Alexy did, or by renting out units in a multi-unit building. David Meyer, vice president of data and analytics at the site, says house hacking lets investors buy a property with up to four units and still qualify for a residential loan.

(Video) Nerdwallet How to invest in real estate #5 #Shorts

Of course, you can also buy and rent out an entire investment property. Find one with combined expenses lower than the amount you can charge in rent. And if you don’t want to be the person who shows up with a toolbelt to fix a leak — or even the person who calls that person — you’ll also need to pay a property manager.

“If you manage it yourself, you’ll learn a lot about the industry, and if you buy future properties you’ll go into it with more experience,” says Meyer.

» Related: Understand different types of real estate investments

4. Consider flipping investment properties

This is HGTV come to life: You invest in an underpriced home in need of a little love, renovate it as inexpensively as possible and then resell it for a profit. Called house flipping, the strategy is a wee bit harder than it looks on TV. It's also more expensive than it used to be, given the current higher cost of building materials and mortgage interest rates. Many house flippers aim to pay for the homes in cash.

“There is a bigger element of risk, because so much of the math behind flipping requires a very accurate estimate of how much repairs are going to cost, which is not an easy thing to do,” says Meyer.

His suggestion: Find an experienced partner. “Maybe you have capital or time to contribute, but you find a contractor who is good at estimating expenses or managing the project,” he says.

The other risk of flipping is that the longer you hold the property, the less money you make because you may be paying a mortgage without bringing in any income. You can lower that risk by living in the house as you fix it up. This works as long as most of the updates are cosmetic and you don’t mind a little dust.

» Which is better? Real estate vs. stocks

(Video) How Much House Can You REALLY Afford? | NerdWallet

5. Rent out a room

Finally, to dip the very edge of your toe in the real estate waters, you could rent part of your home. Such an arrangement can substantially decrease housing costs, potentially allowing people to stay in their homes as they continue to benefit from price appreciation on their property.

Adding roommates can also make a mortgage payment more attainable for younger people. But if you're not sure you're ready, you could try a site like Airbnb. It’s house hacking for the commitment-phobe: You don’t have to take on a long-term tenant, potential renters are at least somewhat prescreened by Airbnb, and the company’s host guarantee provides protection against damages.

Renting out a room feels a lot more accessible than the fancy concept of real estate investing. If you've got a spare room, you can rent it.

Like all investment decisions, the best real estate investments are the ones that best serve you, the investor. Think about how much time you have, how much capital you're willing to invest and whether you want to be the one who deals with household issues when they inevitably come up. If you don't have DIY skills, consider investing in real estate through a REIT or a crowdfunding platform rather than directly in a property.

» Real estate not for you? Consider investing in stocks instead.

» Want instant diversification? Learn how to invest with mutual funds.

(Video) Saving vs. Investing: Where to Put Your Money Now

FAQs

What is the best strategy to invest in real estate? ›

Here's a look at a variety of real estate investment strategies.
  • Invest in single-family rental (SFR) properties. ...
  • House hacking. ...
  • Flipping properties. ...
  • Live-in flip. ...
  • Real estate wholesaling. ...
  • Real estate investment trusts (REITs) ...
  • Real estate investment groups (REIGs) ...
  • Property tax lien investing.

How a beginner should start investing? ›

How to Start Investing: A Guide for Beginners
  • Start investing as early as possible.
  • Decide how much to invest.
  • Open an investment account.
  • Pick an investment strategy.
  • Understand your investment options.
23 Sept 2022

What is the safest investment with highest return? ›

Here are the best low-risk investments in November 2022:
  • High-yield savings accounts.
  • Series I savings bonds.
  • Short-term certificates of deposit.
  • Money market funds.
  • Treasury bills, notes, bonds and TIPS.
  • Corporate bonds.
  • Dividend-paying stocks.
  • Preferred stocks.
1 Nov 2022

What are the 4 main methods to invest in real estate? ›

With that in mind, here are five top ways to invest in real estate.
  • Buy your own home. You might not normally think of your first residence as an investment, but many people do. ...
  • Purchase a rental property and become a landlord. ...
  • Consider flipping houses. ...
  • Buy a REIT. ...
  • Use an online real estate platform.
26 Oct 2022

What is the 1 rule in real estate investing? ›

The 1% rule of real estate investing measures the price of the investment property against the gross income it will generate. For a potential investment to pass the 1% rule, its monthly rent must be equal to or no less than 1% of the purchase price.

What are 5 tips to beginner investors? ›

How to invest in the stock market: 9 tips for beginners
  • Buy the right investment.
  • Avoid individual stocks if you're a beginner.
  • Create a diversified portfolio.
  • Be prepared for a downturn.
  • Try a simulator before investing real money.
  • Stay committed to your long-term portfolio.
  • Start now.
  • Avoid short-term trading.

What is the smartest way to start investing? ›

Best investments for beginners
  1. High-yield savings accounts. This can be one of the simplest ways to boost the return on your money above what you're earning in a typical checking account. ...
  2. Certificates of deposit (CDs) ...
  3. 401(k) or another workplace retirement plan. ...
  4. Mutual funds. ...
  5. ETFs. ...
  6. Individual stocks.
18 Jul 2022

How should a $1000 Beginner invest? ›

How to Invest $1,000
  1. Start (or add to) a savings account. ...
  2. Invest in a 401(k) ...
  3. Invest in an IRA. ...
  4. Open a taxable brokerage account. ...
  5. Invest in ETFs. ...
  6. Use a robo-advisor. ...
  7. Invest in stocks.

How do beginners make money in real estate? ›

Here are six of the best ways for beginners to make money in real estate:
  1. Invest in single-family homes.
  2. House hacking.
  3. Invest in turnkey properties.
  4. Rent out properties on Airbnb.
  5. Manage real estate properties.
  6. Lend to investors.

What is the easiest way to start in real estate? ›

Buying REITs

REITs are undoubtedly the easiest form of real estate investing for beginners, making them an attractive option for beginner investors. REIT stands for "real estate investment trust".

How do I start property developing with no money? ›

How to Get into Property Development with No Money
  1. Visualise Your Success. An essential foundation for success as an entrepreneur in any sector is adopting the right mindset. ...
  2. Learn about the Industry. ...
  3. Get Some Hands-on Experience. ...
  4. Informal Loans. ...
  5. Commercial Finance. ...
  6. Commercial Mortgages. ...
  7. Buy-To-Let Mortgages. ...
  8. Auction Finance.
25 Feb 2022

What are the 3 safest investment types? ›

For example, certificates of deposit (CDs), money market accounts, municipal bonds and Treasury Inflation-Protected Securities (TIPS) are among the safest types of investments.

What is the safest investment in 2022? ›

7 of the Best Low-Risk Investments
  1. High-Yield Savings Accounts. A high-yield savings account at an online or brick-and-mortar bank is a safe place to put some money. ...
  2. Money Market Accounts. ...
  3. Certificates of Deposit. ...
  4. Series I Savings Bonds. ...
  5. Treasury Bonds, Notes and Bills. ...
  6. Fixed Annuities. ...
  7. Corporate Bonds.
24 Oct 2022

What is the 5 rule in real estate investing? ›

Multiply the value of the home by 5%, then divide that number by 12 to get your breakeven point. If the monthly rent on a comparable home is below the breakeven point, it makes financial sense to rent. If the monthly rent is higher than the breakeven point, it makes financial sense to buy.

What are the 5 main categories of real estate? ›

There are five main categories of real estate which include residential, commercial, industrial, raw land, and special use.

What are the 5 asset classes of real estate? ›

The commercial real estate market is divided into six primary asset classes: residential, office, industrial, retail, and hospitality.

What is the golden rule in real estate? ›

In its final paragraphs, the Preamble cites the Golden Rule: “In the interpretation of (these) obligation(s), REALTORS® can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, 'Whatsoever ye would that others should do to you, do ye even so to them. '”

What is the 80% rule in real estate? ›

The 80% rule means that an insurer will only fully cover the cost of damage to a house if the owner has purchased insurance coverage equal to at least 80% of the house's total replacement value.

What is the 50% rule in real estate? ›

The 50% rule in real estate says that investors should expect a property's operating expenses to be roughly 50% of its gross income. This is useful for estimating potential cash flow from a rental property, but it's not always foolproof.

What are the 3 keys to investing? ›

3 keys: The foundations of investing
  • Create a tailored investment plan.
  • Invest at the right level of risk.
  • Manage your plan.
27 Aug 2020

What are the top 10 best investing tips? ›

Following are a few tips that can help beginners save money for the future.
  • Set Your Objectives. Setting long-term objectives can be of great benefit when investing in stocks and shares. ...
  • Level of Risk. ...
  • Control Over Emotions. ...
  • Study the Stock Market. ...
  • Diversification of Investments. ...
  • Avoidance of Leverage.

How do you grow your money in 2022? ›

You can double your money in 2022 by increasing the amount of money you invest, planning a long-term investment strategy, or seeking out investments that generate higher returns (retirement plans, stock options, and oversold stocks).

Where should I invest $1000 right now? ›

Investing in ETFs, purchasing fractional shares, opening an account with a robo-advisor, funding an IRA, or even kickstarting your own online business are just a few ways you can invest $1,000 right now.

How do you invest in a small amount of money in real estate? ›

10 Way to Invest in Real Estate with Little Money
  1. 1. “ House Hacking”
  2. Live-in, Then Rent.
  3. Live-in House Flips.
  4. Real Estate Crowdfunding.
  5. Real Estate Investment Trusts.
  6. Borrow Your Down Payment, But Be Cautious.
  7. Master Lease Option (MLO)
  8. Wholesale Properties to Investors.

What is the simplest thing to invest in? ›

Cash. A cash bank deposit is the simplest, most easily understandable investment asset—and the safest. It not only gives investors precise knowledge of the interest that they'll earn but also guarantees that they'll get their capital back.

How much will $1000 be worth in 20 years? ›

How much will an investment of $1,000 be worth in the future? At the end of 20 years, your savings will have grown to $3,207. You will have earned in $2,207 in interest.

How much money should a beginner invest for the first time? ›

"If you're a typical working person or a beginning investor, you should know that it doesn't take a lot of money to start," IBD founder William O'Neil wrote in "How to Make Money in Stocks." "You can begin with as little as $500 to $1,000 and add to it as you earn and save more money," he wrote.

How can I teach myself real estate? ›

A good place to start is to read books, newspapers, magazines and online articles on related topics. One resource will lead to another, and then another, and as you find yourself asking questions or wanting more information on a specific issue, it will guide you to the next article or book.

What is the fastest way to make money in real estate? ›

  1. 7 Fastest Ways to Make Money in Real Estate. ...
  2. Renovation Flipping. ...
  3. Airbnb and Vacation Rentals. ...
  4. Long-Term Rentals. ...
  5. Contract Flipping. ...
  6. Lease to Buy. ...
  7. Commercial Property Rentals. ...
  8. Buying Land.

What type of real estate makes the most money? ›

The 6 Highest Paying Real Estate Careers with Good Salaries
  • Home Inspector. ...
  • Real Estate Lawyer. ...
  • Real Estate Broker. ...
  • Commercial Real Estate Agent. ...
  • Property Manager. ...
  • Corporate Real Estate Manager. ...
  • Wrapping up.
6 Jan 2022

How do I start investing in real estate in 2022? ›

  1. Invest In A Bigger Real Estate Deal. One of our favorite options for investing in real estate is joining with others to invest in a bigger deal. ...
  2. Buy A Rental Property. ...
  3. Flipping Houses. ...
  4. Rent A Portion Of Your Existing Home. ...
  5. Real Estate Investment Trusts (REIT)
7 Nov 2022

What are the 10 steps to becoming a successful real estate agent? ›

How To Become A Successful Real Estate Agent In 10 Steps
  1. Be Available.
  2. Set Goals.
  3. Have a Marketing Plan in Place.
  4. Become an Expert in Your Market.
  5. Build Relationships.
  6. Ramp Up Your Social Media Efforts.
  7. Implement Small Business Systems.
  8. Don't Only Focus On Selling.

How can I buy real estate with no money? ›

Purchasing Real Estate With No Money Down
  1. Borrow the Money. Probably the easiest way to purchase a property with no money down is by borrowing the down payment. ...
  2. Assume the Existing Mortgage. ...
  3. Lease with Option to Buy. ...
  4. Seller Financing. ...
  5. Negotiate the Down Payment. ...
  6. Swap Personal Property. ...
  7. Exchange Your Skills. ...
  8. Take on a Partner.
2 May 2022

How can I start a house with $5000? ›

5 Ways to Start Investing in Real Estate with Just $5,000
  1. Borrow money. One of the simplest ways to get the funds you need to buy a home is to borrow money from family or friends.
  2. Partner with someone. ...
  3. Seller Financing. ...
  4. Private money. ...
  5. Wholesaling. ...
  6. Lease options.
8 Jun 2022

What makes a property profitable? ›

The most common way to make money in real estate is through appreciation—an increase in the property's value that is realized when you sell. Location, development, and improvements are the primary ways that residential and commercial real estate can appreciate in value.

Where can I put my money to earn the most interest? ›

The following ideas can help you make a plan to save and maximize your interest earnings.
  • High-Yield Savings Account. ...
  • High-Yield Checking Account. ...
  • CDs and CD Ladders. ...
  • Money Market Account. ...
  • Treasury Bills.
8 Apr 2022

Is it smart to invest in real estate right now? ›

Investing in real estate can be a terrific method to build a lot of wealth right now in 2022. Think about real estate as a long-term investment as the housing market is currently out of control. Not only are property prices rising across the board, but mortgage rates have reached their highest level in almost a decade.

Why is my 401k losing money right now 2022? ›

There are several reasons your 401(k) may be losing money. One reason is that the stock market is simply going through a down period. Another reason your 401(k) may be losing money is that you have invested in a specific company or industry that is not doing well. Finally, your 401(k) may lose money because of fees.

Where do millionaires keep their money? ›

Many millionaires keep a lot of their money in cash or highly liquid cash equivalents. They establish an emergency account before ever starting to invest. Millionaires bank differently than the rest of us. Any bank accounts they have are handled by a private banker who probably also manages their wealth.

What investments should I avoid? ›

13 Toxic Investments You Should Avoid
  • Subprime Mortgages. ...
  • Annuities. ...
  • Penny Stocks. ...
  • High-Yield Bonds. ...
  • Private Placements. ...
  • Traditional Savings Accounts at Major Banks. ...
  • The Investment Your Neighbor Just Doubled His Money On. ...
  • The Lottery.
4 Nov 2022

What is the riskiest type of investment? ›

The highest risk investments are cryptocurrency, individual stocks, private companies, peer-to-peer lending, hedge funds and private equity funds. High-risk, volatile investments may bring high rewards, or they may bring high loss.

What are four types of investments that you should always avoid? ›

Here are four kinds of investments that are best avoided.
  • Your Buddy's Business.
  • The Speculative Get Rich Quick Scheme.
  • The MLM With a Pricey Buy-In.
  • Individual Stocks.
  • What to Do When Tempted to Speculate.
5 Oct 2021

What investments have highest returns? ›

9 Safe Investments With the Highest Returns
  • High-Yield Savings.
  • CDs.
  • Money Market Accounts.
  • Treasury Bonds.
  • TIPS.
  • Municipal Bonds.
  • Corporate Bonds.
  • Su0026P 500 Fund.
26 Oct 2022

Where should I invest 30K right now? ›

The Best Ways To Invest $30K Right Now
  • Stocks & ETFs. Unsurprisingly, one of the best ways to invest $30,000 is to invest in a variety of stocks and exchange-traded funds (ETFs). ...
  • Real Estate. ...
  • Index Funds. ...
  • Mutual Funds. ...
  • Cryptocurrency. ...
  • Alternative Assets. ...
  • Fixed-Income Investments. ...
  • Robo-Advisor.
27 Sept 2022

What real estate strategy makes the most money? ›

The most common way to make money in real estate is through appreciation—an increase in the property's value that is realized when you sell. Location, development, and improvements are the primary ways that residential and commercial real estate can appreciate in value.

What is the most profitable type of real estate investment? ›

High Return on Investment and Positive Cash Flow

Because you may receive monthly positive cash flow and a high ROI, Airbnb and rental properties are the best types of real estate investment. Investing in rental properties especially yields a steady and substantial profit.

What is the most common way to invest in real estate? ›

Invest in Your Own Home

Primary residences are the most common way most people invest in real estate. You take out a mortgage, make your monthly payments and gradually build ownership in your home. With luck and strong demand in your local market, you can cash in on the equity when you sell your home.

What are the 3 most important things when looking to buy real estate? ›

 If you have been involved in real estate for any length of time, you've heard it said that the three most important things when it comes to real estate are “location, location, location.” I've heard nationally-recognized experts say that over and over on national media.

What type of real estate has best returns? ›

One reason commercial properties are considered one of the best types of real estate investments is the potential for higher cash flow. Investors who opt for commercial properties may find they represent higher income potential, longer leases, and lower vacancy rates than other forms of real estate.

What is the 70 rule in real estate investing? ›

The 70% rule can help flippers when they're scouring real estate listings for potential investment opportunities. Basically, the rule says real estate investors should pay no more than 70% of a property's after-repair value (ARV) minus the cost of the repairs necessary to renovate the home.

What type of real estate is best for beginners? ›

Investing in single-family homes is the easiest way for beginners to enter the real estate investing world. The high demand for single-family rentals makes it a reliable income property in any real estate market.

What are the 4 types of real estate? ›

There are five main categories of real estate which include residential, commercial, industrial, raw land, and special use.

What type of real estate appreciates the fastest? ›

 Question: What type of property appreciates faster – condo, townhouse, or single-family? Answer: Since 2012, the data is clear – single-family homes appreciate the fastest, followed by townhouses/duplexes, and then condos. Since 2012, the average single-family home has appreciated 69% compared to 27% for condos.

Where should I invest in property in 2022? ›

NSW: Maitland, Tenambit (both in the Hunter Valley/Newcastle region), and Bilambil Heights. QLD: Riverview, One Mile, and Innes Park. SA: Elizabeth South, Hackham West, and O'Sullivan Beach. TAS: Warrane, Ravenswood, and West Moonah.

What are 3 ways in which you can invest in real estate? ›

The five most common ways to invest in real estate in India are discussed below.
  • Rental Properties. ...
  • House Flipping. ...
  • Real Estate Investment Groups (REIGs) ...
  • Real Estate Investment Trusts (REITs) ...
  • Online Real Estate Platforms.
17 Dec 2021

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