How to Start Investing in Real Estate (2025 Guide)

Investing in real estate can be a great way to diversify your investment portfolio, although many people don’t take advantage of doing so because they’re unsure how to get started or falsely assume that it requires a lot of cash.

The truth is, learning how to start investing in real estate isn’t as difficult as you might think. In this article, we’ll walk you through common ways to begin investing in real estate, cover the pros and cons, and give you the tools to add this asset class to your investment portfolio.

5 Ways to Invest in Real Estate

House Hacking

House hacking is one of the simplest ways to get started with real estate investing (as long as you want to own physical property). We know what you might be thinking: house hacking sounds like some shady, covert way to make money. Rest assured, it’s completely legal and surprisingly easy to get started.

With house hacking, you make money using your primary residence. Maybe you have a single-family house with multiple bedrooms, and one isn’t occupied. You could rent that room to a friend or family member in exchange for monthly rent.

Another popular approach is to buy a multi-family home, like a duplex or something larger. You live in one unit and rent out the others. Some savvy house hackers have even been able to cover their entire mortgage with rental income, eliminating their own housing costs altogether.

Before diving into house hacking (or any other real estate investment), consider the work involved and whether you have the time to be a landlord. You’ll be responsible for maintenance and handling tenant issues, so ensure you’re ready before making the leap.

Pros of House Hacking

• Income: House hacking lets you earn extra income by collecting rent from tenants each month. You can use that income to save, invest, or pay down debt.
• Reduced housing costs: Since tenants cover part of your mortgage, you can live with significantly lower monthly housing expenses.
• Build equity quicker: By owning a multi-family home or a larger single-family property, you can build equity faster (with help from your tenants’ rent payments, of course).
• Potential to live in a more desirable location: With rental income helping cover the mortgage, you might be able to afford a home in a neighborhood that is otherwise out of reach financially.
• Lower down payment: If you live on the property, you may qualify for an FHA loan, allowing you to buy with as little as 3.5% down.

Cons of House Hacking

• Lack of privacy: Renting out a bedroom in your home can compromise your personal space and privacy.
• Fewer available housing options: If you’re buying a home specifically for house hacking, the numbers need to make sense. The pesky numbers can limit the number of properties that fit your criteria.
• You’ll need to set boundaries: Living on the same property as your tenants, especially if they’re friends or family, requires explicit, professional boundaries to avoid potential issues.

Purchase Long-Term Investment Properties

Some people prefer not to live in the same property as their tenants. In that case, it makes sense to purchase a single- or multi-family property to rent out while living elsewhere yourself.

Most lenders will require a down payment of 20% to 30% for an investment property, much higher than the 3.5% down payment available through an FHA loan for house hacking.

If you’re a first-time real estate investor, having an experienced team is crucial. Work with a real estate agent who has experience with investment properties. They can help you analyze the financials to ensure the properties you’re considering have strong potential for profitability.

Investment properties are also a solid way to scale your real estate portfolio. Once your first property generates income and builds equity, you can leverage that equity to purchase additional properties.

Pros of Investment Properties

• Steady rental income: Rental properties can generate consistent monthly income, as long as you maintain steady occupancy and have tenants who pay on time.
• Tax advantages: Rental real estate has several tax benefits, including mortgage interest deductions, depreciation, and the ability to defer capital gains taxes.
• Diversification: Real estate offers a way to diversify your investment portfolio beyond stocks and bonds.
• Long-term wealth: Rental properties can be a powerful tool for building generational wealth you can pass down through your estate.

Cons of Investment Properties

• High upfront costs: Large down payment requirements can make it difficult for new investors to break into the market.
• Time-consuming: Unless you hire a property manager, you’ll be responsible for maintenance, repairs, and all tenant interactions.
• Depreciation: While many investors count on property appreciation, values can decline if the housing market softens.

Start Flipping Investment Properties

If you don’t want to deal with tenants, you might consider buying an investment property with the sole intention of flipping it for a profit. While this approach requires significant effort and the ability to work on tight timelines, it also offers the potential for substantial returns.

When flipping, you’re not looking for a move-in-ready property. Instead, you want to find something that needs work—ideally, a home you can purchase at a discount.

After closing, you’ll make the necessary upgrades and then list the property for resale. Depending on the project’s scope, a flip can take as little as a month, though most take four to six months or longer.

Flipping houses requires experience. You need to know which renovations will impact resale value most, and how much those upgrades will cost.

If you’ve watched any of the many house-flipping shows on HGTV, doing so often looks like a straightforward way to earn big money. And while that’s entirely possible with the right property, flipping comes with real risk.

You might uncover hidden issues during demolition that weren’t obvious during the initial walkthrough that can derail your budget and hurt your profits.

Pros of Housing Flipping

• Potential profits: Flipping homes can lead to significant gains in an appreciating housing market.
• Faster return on investment: Compared to long-term rentals, flipping can deliver a quicker return on your initial investment.
• Avoid tenants: Flipping lets investors sidestep the responsibilities of tenant management entirely.

Cons of Housing Flipping

• High upfront costs: Flipping properties can be expensive. In addition to the purchase price and renovation costs, you’ll need to cover holding costs. That means making mortgage payments each month without any rental income coming in.
• Tight timelines: Your profitability as a flipper depends on how quickly you can complete the work and sell the property. These time pressures can add a lot of stress to the process.
• Tax implications: Flipping typically results in short-term capital gains taxes, which are often higher than the long-term capital gains taxes you’d pay if you held the property for over a year.

Use an Online Real Estate Investment Platform

If you’re not interested in directly owning or managing a property, another option is to use an online estate investment platform. Platforms like Fundrise or Groundfloor connect real estate developers with individual investors.

Depending on the platform, you can invest in commercial or residential properties, some of which even offer the option to invest in land.

These crowdfunding platforms are generally easy to use. You browse available projects, choose one that meets your criteria, and make an investment. Minimum investment requirements vary: some platforms allow you to get started with as little as $100, while others may require $25,000 or more.

Once you’ve invested, the goal is to receive monthly or quarterly distribution payments, depending on the platform and project.

Pros of Using Online Real Estate Investing Platforms

• Low barrier of entry: Investing in physical property usually requires a significant upfront investment. With real estate crowdfunding platforms, the entry point is much lower.
• Diversification: Online platforms let you spread your investment across multiple properties in different locations, helping you diversify your real estate portfolio.
• Simplified management: The platform handles property management, legal issues, and other administrative tasks, making it a more passive investing experience.
• Potential for high returns: While you may not see the same gains as house flipping, there’s still potential to earn returns that outperform the stock market.

Cons of Using Online Real Estate Investing Platforms

• Illiquid: As with most real estate investments, your money is typically locked in for a set period. This lack of liquidity can be a drawback if you need access to your funds.
• Fees: Crowdfunding platforms usually charge an administration fee, often between 1% and 3%, which reduces your overall returns.
• Accreditation requirements: Some platforms are only available to accredited investors, limiting access for the average investor.
• Due diligence required: As with any investment, doing your homework is crucial. Make sure the project aligns with your financial goals and risk tolerance.

Buy Real Estate Investment Trusts (REITs)

Do you want exposure to real estate in your portfolio but also want the liquidity of a stock or mutual fund? If so, consider investing in a real estate investment trust (REIT). Think of REITs like mutual funds for real estate.

REITs typically own a range of commercial properties, like shopping malls, office buildings, apartment complexes, and hotels. They often offer high dividend yields, which makes them attractive to many investors.

Before investing, you should probably understand how the REIT is structured. Some REITs are publicly traded on stock exchanges, while others are private. Private REITs are generally less liquid and carry more risk.

If you decide to invest in REITs, you can buy and sell them directly through your brokerage account.

Pros of Real Estate Investment Trusts (REITs)

• Income generation: REITs must distribute 90% of their taxable income to investors as dividends, creating a reliable stream of passive income.
• Diversification: Because REITs hold a range of properties, they diversify your portfolio through exposure to multiple real estate assets.
• Liquidity: Publicly traded REITs can be bought and sold on stock exchanges, giving you quicker access to cash than with traditional real estate investments.
• Low barrier of entry: You can start investing in REITs with minimal capital, making them far more accessible than purchasing physical property.

Cons of Real Estate Investment Trusts (REITs)

• Less growth potential: Since REITs must distribute 90% of their profits to shareholders, they have less capital available for reinvestment, which can limit long-term growth.
• Higher taxes: Dividends from REITs are typically taxed as ordinary income, which may result in a higher tax burden than qualified dividends.
• Sensitive to interest rates: Changes in interest rates can affect property values and influence investor demand for REITs.
• Fees: Non-traded REITs often come with high fees, which can reduce overall returns.

The Bottom Line

Learning how to invest in real estate can be a great way to diversify your investment portfolio. Whether you’re interested in owning physical rental properties or prefer a more hands-off approach through real estate crowdfunding platforms or REITs, real estate could boost your cash flow.

TurboTenant can help simplify your role as a real estate investor. In addition to being a leading property management platform, our software offers features designed to help you manage your investments more efficiently, including:

• Property advertising
• Rental applications
• Tenant screening
• Lease agreements
• Rent collection

Sign up for a free TurboTenant account today to immediately streamline your property management operation.

Frequently Asked Questions