Everything You Ever Wanted to Know About Real Estate Investing

There are myriad investment options available to Americans looking to save for their future. Stocks, bonds, mutual funds and exchange-traded funds (ETFs) are among the most common choices. However, one investment possibility many forget about is also one of the most basic at heart: investing in real estate. For as long as people have divided land, they have figured out ways to profit from it, and it may be easier than you think. There are a few ways you can invest in real estate to grow your financial portfolio.

For help figuring out how to best work real estate investment into your own portfolio, consider working with a vetted financial advisor.

Real Estate Investment Basics

Investing in real estate is very straightforward: you find a property for sale, make an offer and complete the sale if your offer is accepted.

If you buy a home as your residence, the process is very straightforward. The only remaining issue is whether you used a mortgage for the purchase, which you will have to repay over the agreed-upon term.

If you are purchasing land or homes as an investment, though, there are a few more issues to consider. There are two basic ways to make money from a real estate investment.

You can hold the property for a certain period of time, possibly making improvements to the land or buildings, before selling it for more than you paid.
You can also maintain ownership of the property and charge rent for others to use it. This could mean renting out your house, leasing to a business (assuming the proper zoning) or operating as a short-term vacation rental, such as an Airbnb.

Real Estate Investment Options

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1. Be a Landlord

The simplest way to make money from real estate is to rent out a home or homes that you own to long-term tenants. This could mean buying a second home and renting it, buying an apartment building or even renting a portion of the home you live in, such as a basement apartment or an in-law suite with a separate entrance and kitchen.

This does take some work, though. First, you need to have enough money to buy the property, which isn’t always easy.

Second, being a landlord does come with responsibilities. You’ll be in charge of maintaining the building and addressing any issues your tenants may have.

Many landlords, especially when using this as a side source of income rather than a primary job, choose to hire a management company to handle property management and maintenance. However, this is another expense that you must consider when determining whether this is a worthwhile investment for you.

2. Operate a Short-Term Rental

Another option is to rent out your property for short-term stays, likely through a service like Airbnb. This is an especially attractive option if you own a house in a major tourist city or another place people like to visit, such as property along the shore, near a lake or in a quaint town.

There are obvious benefits to this option — if you have the right location, you can charge a lot of money for a rental relative to the amount needed for upkeep. You can also use the property yourself when you aren’t renting it.

There are also downsides. Short-term rentals take a decent amount of work to maintain, as you must clean after each use and handle any damage caused by tenants.

3. Flip Houses

A group discussing real estate investment basics.

Flipping homes is another way to make money through the real estate market, but it is likely the riskiest option.

Flipping houses means buying a home, putting a significant amount of money and labor into its improvement, then selling it for a substantial profit.

The biggest draw of this strategy is the potential for a large resale amount that will bring a handsome reward when done.

That said, this is a very complicated process, and you should not consider getting into the house-flipping business unless you and/or your investing partners have extensive experience in real estate and home remodeling. You must also do plenty of research on the market to end up with a property you can sell.

If you don’t, you may be unable to sell the house at the profit margin you want, leaving you with a very expensive millstone around your neck that could sink your entire portfolio.

4. Real Estate Investment Trusts

Using a real estate investment trust (REIT) is one way to invest in real estate with slightly less upside than some of the other options. However, it includes a significantly simpler process — and one that requires less capital.

A REIT is a means of pooling money to invest in various real estate investments. You could own a small part of a huge apartment building and get the corresponding rent money, all while never having to speak to a tenant or deal with a management company.

Essentially, REITs allow average investors to get some skin in the game without risking too much. The return isn’t as bountiful but can still be meaningful.

5. Real Estate Crowdfunding

Real estate crowdfunding allows investors to pool money online to fund specific real estate projects, such as apartment developments, office buildings or mixed-use properties. These platforms connect individual investors with developers seeking capital, often for projects that would otherwise be inaccessible to smaller investors.

Unlike REITs, crowdfunding investments are usually tied to individual properties or projects rather than a broad portfolio. Investors may earn returns through rental income, profit sharing when a property is sold or a combination of both, depending on the structure of the deal.

This option generally requires less involvement than owning property directly, since investors are not responsible for management, maintenance or tenant issues. However, investments are often less liquid, with capital locked up for several years until a project is completed or sold.

Crowdfunding platforms vary widely in terms of minimum investment amounts, risk profiles and investor eligibility. Some opportunities are limited to accredited investors, while others are open to the general public.

As with any real estate investment, returns depend on market conditions, project execution and the financial health of the underlying property.

Bottom Line

A couple discussing real estate investment basics with their agent.

There are several options available for investors wanting to get into the real estate game. You can invest directly in property and make money from it in various ways, or you can buy into a REIT to get the benefits of real estate investing without having to do all of the associated work. The best option for you will depend on factors such as how much capital you have, your risk tolerance and how much work you want to do to maintain your investment.

Real Estate Investing Tips

A financial advisor can help you get into real estate investing if you need help. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
When buying a home, don’t forget about closing costs. These may seem small compared to all the other money you’ll be spending, but every penny counts.