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Real Estate Investing for Beginners

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Real estate has long been a staple of U.S. wealth. Many people still see it as the gateway to the American Dream. Some want to own a home as a residence while others see property as a lucrative financial opportunity. 

A recent study by the Institute for New Economic Thinking suggests the historical rate of return on real estate has been higher than stocks and bonds. Real estate investing used to require a significant amount of capital and extensive knowledge of the market, but the rise of REITs and investment platforms make chasing the American Dream easier than ever. 

Ready to go after real estate? Take a look at our guide for real estate investing for beginners and get started today.

Passive vs. Active Real Estate Investing

You can invest in real estate through active or passive investments. The amount of time and money you spend will depend on the channel you choose. The financial payoff will also be different. 

Passive Real Estate Investing

Passive investors reap the reward of an investment without the responsibility of day-to-day management. Stocks are an example of passive investing. You own a small part of a company and are entitled to a small percentage of profits when you buy, but you aren’t responsible for managing the company. 

Passive real estate investments are the same — you accept the financial risk and reward but don’t take on the management of the actual property. 

Read on for simple steps to get started in passive real estate investment. 

Step 1: Determine your maximum capital. Take a look at your finances and decide how much you are willing and able to invest. The amount of capital available to you will determine the investment opportunities are available to you. 

Step 2: Choose an investment strategy. Check out a few of the most common strategies for passive real estate investment:

  • A real estate investment trust (REIT) presents the option of buying shares of companies that manage portfolios of different real estate assets. 
  • Crowdfunding platforms pool your money with others to invest in a variety of real estate properties. This is a great resource if you’re a beginner without a lot of capital or knowledge of the real estate market. Read our Diversyfund review to learn more about crowdfunding. 
  • You can also team up with an active investor to purchase a property together. Reach out to your personal network or someone familiar with the industry to drum up collective funding. Make sure you invest with someone you trust.

Step 3: Do your research. Whether you focus on 1 investment strategy or several, take time to understand everything about your choices. Look into shareholder returns of a REIT or crowdfunding platform. Check out the investing track record of potential partners. 

Step 4: Invest. Create an account and connect your bank to the platform you’ve chosen. Invest in REITs through your brokerage account. Finalize the documents with your partner. 

Step 5: Monitor your investments. Remember to stay up to date on your investment’s growth as well as any news that may affect it. 

Active Real Estate Investing

Active investors are involved in the day-to-day management of a real estate asset. This includes buying the property, making necessary renovations, securing tenants and setting lease terms. 

Most active real estate investors engage in house-flipping or act as landlords. House flipping is when you buy a property at a discount, perform necessary renovations and sell it at a premium for profit. Landlords find tenants to use properties and receive income through rental payments. 

Landlords can expect competitive returns and a stable stream of income from rental payments. House flippers can expect to receive a giant lump sum at the end of a project. 

Here are the basic steps for approaching active real estate investment: 

Step 1: Determine your maximum capital. Like passive real estate investing, you need to know how much capital you can invest before you begin. Remember that lack of liquidity is a risk when buying property. It can take some time to sell a property and get your cash. 

Step 2: Research the market. Do you want to own residential or commercial properties? What are the current real estate prices in the location you’re considering? Are prices expected to increase over time? Can you make more money flipping homes or by holding on to a property? The only way to answer these questions is through extensive market research. 

Step 3: Shop around. Remember that you shouldn’t rush to buy your 1st property. Real estate prices won’t change drastically overnight. Take some time to browse different real estate websites, meet with a broker in person or even attend a foreclosure auction. 

Step 4: Purchase the property. Prepare to sign a mortgage agreement or pay for your property in full with cash. Be ready for inspections, appraisals and all the paperwork required to close the sale. 

Step 5: Landlord responsibilities. As a landlord, you’ll need to find tenants and take care of any subsequent issues that come up. This includes maintenance problems and the possibility of dealing with difficult tenants. You can also hire a management company to save you the hassle — but it comes with a cost. Take the time to make the best decision for your situation. 

Investing in REITs

A real estate investment trust (REIT) is a company that owns, operates or finances rental properties. This option offers investment without the hassle of managing a property. 

REITs pool your money together with other investors to buy or finance residential, commercial or industrial properties. Take a look at our guide on how to invest in REITs.

REITs often have low minimum investment requirements. REITs take rental income and pay dividends to investors. You’ll see returns through these steady dividends and long-term capital appreciation, which is the increase in a property’s value over time.

REITs have been known to deliver competitive returns, even outpacing the S&P 500 over the past 20 years. Here are simple steps to begin your real estate investment through REITs:

Step 1: Research. Get a feel for the market before you invest in a REIT, just like you would if you were to buy your own property. Which real estate sectors show the most growth? Which locations look most promising? Do you want to be exposed to the residential or commercial sector or both? These are just some of the questions to answer as you begin research. 

Step 2: Identify a REIT. Identify 1 or more REITs after you have a sense of the real estate market and what kind of exposure you want. 

Here are a few other factors to help you investigate REITs:

  • The type of properties the REIT operates
  • The location of properties 
  • Dividend payouts
  • Growth and earnings per share
  • Any management companies the REIT employs
  • Analyst ratings

Step 3: Choose a broker. Many REITs are accessible only through investment platforms like DiversyFund or Streitwise. It’s a good idea to compare different brokers. We’ve outlined some of the best online brokers for real estate below. 

Step 4: Invest. Settle on a broker, create an account, connect your bank information and transfer the funds! 

Step 5: Be patient. REITs manage portfolios hand-picked by leading industry experts to do the hard work for you. You don’t need extensive real estate knowledge but you should keep track of your investment performance and stay updated on any changes to the REIT. It’s also a good idea to keep an eye on major market influences. 

Best Online Brokers for Real Estate Investing

Online brokers make real estate investing more accessible and easier than ever before. You can read the latest research, trade different REITs and manage your dividends on a single platform. 

Diversyfund
Commissions
No management fees
Account Min
$500
Get started securely through Diversyfund’s website
Commissions
No management fees
Account Min
$500
1 Minute Review

DiversyFund isn’t your average crowdfunding platform. You’ll find that the company puts a twist on the traditional everyday crowdfunding platform, beyond anything you can find online with a simple Google search. You only have to look under DiversyFund’s skin one layer to surmise that DiversyFund is a conscientious developer and sponsor and helps hedge risk through improved vetting.

DiversyFund offers a multifamily real estate investment trust, the DiversyFund Growth REIT, and its main goals are to increase cash flow and resale value. It’ll automatically give you access to multi-million dollar real estate assets.

Best For
  • Those looking for an alternative investment beyond stocks and bonds
  • Individuals who aren’t sure they want to be landlords in the traditional sense
  • Investors who aren’t accredited
Pros
  • Only need to pony up $500 to get started
  • Open to investors all over the world
  • No expensive broker fees
Cons
  • You’ll only be able to access “blind pool” investments, which means that you can’t opt out of specific properties
  • There’s only one real investment option, the DiversyFund Growth REIT
CrowdStreet
Commissions
1% – 1.75%
Account Min
$10,000
Get started securely through CrowdStreet’s website
Commissions
1% – 1.75%
Account Min
$10,000
1 Minute Review

CrowdStreet is a commercial real estate investing platform where people can invest directly in commercial projects. Unlike a brokerage firm, CrowdStreet isn’t a middleman. Instead, the platform acts as a marketplace where investors can pick and choose the best deals for their time horizon and strategy.

Available investments range from family living spaces to office buildings to storage facilities and investors can sign up for a free membership. Your investment options are limited to what’s live on the Marketplace and you’ll need capital to build a diverse real estate portfolio. Only accredited investors can access deals through CrowdStreet.

Best For
  • Investors looking for diversification away from stocks
  • Real estate investors interested in new opportunities
  • Accredited investors with lots of capital at their disposal
Pros
  • Unique opportunities available
  • Makes real estate accessible and understandable
  • Investors can devote capital to both debt and equity offerings
  • Offers quality education materials and answers to FAQs
Cons
  • Real estate is highly illiquid
  • Most properties require a minimum $25,000 investment
  • You’re limited to what's on the CrowdStreet Marketplace
Fundrise
Commissions
0.85% asset management fee per year
Account Min
$500
Get started securely through Fundrise’s website
Commissions
0.85% asset management fee per year
Account Min
$500
1 Minute Review

Fundrise, a real estate investment platform, allows small investors to gain exposure to a diversified portfolio of real estate projects hand-picked by the Fundrise team. Investors can choose between a starter plan and three advanced plans, all designed to meet certain investing goals. Each plan gives you an exposure to a specific portfolio which comes in a form of eREITs and eFunds, custom-made products which are not traded on security exchanges.

Best For
  • Small real estate investors
  • Passive investors
  • Long-term investors
  • Beginners
Pros
  • Allows small investors to get exposure to commercial real estate
  • Diversification in the real estate sector
  • Goal-oriented investing
  • Relatively low fees
  • 90-day guarantee
Cons
  • Liquidity issues as eREITs and eFunds are not exchange traded

Tap into a New Income Stream

Real estate investing can diversify your portfolio and offer a stable stream of income. 

Whether you are an active or passive real estate investor, you’ll need to stay updated on market trends and put in the time to track your investments. Outside direct property investment, real estate stocks are also an option.

Don’t forget: The American Dream is about hard work but the rewards can be satisfying.