You might think that investing in real estate takes a lot of money, time, and expertise. However, there is more than one way to invest in real estate, and not all of them take a lot of money or expertise.

So, regardless of your budget, experience level or time available, you can actually become a real estate investor pretty quickly and easily. Here are four different ways on how to invest in real estate.

4 Ways to Start Investing in Real Estate

Real estate by definition is a piece of land with all its property and natural resources found within that land. The way an investor makes money on real estate is just like investing in stocks; you buy it at a lower price and sell it for a higher price, or you buy an investment that produces regular income streams like dividends (or, in this case, rental income).

There are also multiple types of investments within the real estate market that you can work with like residential properties, commercial real estate, REITs, etc. Each of which can be great investments using the real estate investing methods discussed here.

With that said, there are essentially four ways in which you can invest in real estate. They are:

  1. Buying rental properties and renting them out for the rental income.
  2. Purchase undervalued properties, fix them up and sell them for a profit.
  3. Invest in real estate through crowdfunding real estate investment apps.
  4. Purchase shares of a Real Estate Investment Trust (REIT).

Each method is directly tied to the real estate market via partial or full ownership in real estate properties. Here is how each of these methods work.

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1. Purchase Rental Properties

Perhaps the most common method of investing in real estate is through buying properties and renting them out to families or businesses in need. You can purchase a townhouse, condo or single-family home and then find a family that needs a place to stay and charge monthly rent that will pay down your mortgage for you.

Or, you may purchase commercial office spaces or buildings and rent that space out to local businesses in need of a physical location for their customers.

Either way, you make money primarily through the rental income of the property, as well as any appreciation of the value of that property.

How to Get Started Purchasing Rental Properties

First you have to have solid financials to either prove to a bank you can support a mortgage payment or have the cash available to pay for the property in cash.

Next, you want to look for real estate that has a high probability of high rental demand. This often includes properties near local colleges and universities, real estate close to major cities, or real estate that has convenient access to local shopping areas, commuting options, and recreational areas.

After finding a potential real estate investment property, you need to analyze the potential real estate income and compare it to your mortgage payment or the property value to determine if it will be an acceptable return on investment.

2. Buy, Fix, & Flip Real Estate Properties

This method is often referred to “Fix & Flip” real estate investments or just “House Flipping.” Rather than buying property with high demand for renting, you are looking for properties that are highly undervalued.

Once you've found an undervalued property, your job is to purchase it, perform some renovations and updates, then sell it for a profit. This process may take anywhere from 3 months to 12+ months to complete.

The Basic Process of Buying & Flipping Real Estate Properties

Properties may be undervalued for many reasons. Some might be due to a poorly kept up house, a bank trying to sell off a foreclosed or bankrupt property, or simply a highly motivated seller who wants to sell quickly meaning they are willing to sell it to you at a discount potentially.

To analyze a fix and flip real estate investment, you will need to analyze the property purchase price, how much the costs of renovation will be, and how much you can sell the home for after it's been renovated.

If you buy a home worth $300,000 and estimate your rehab costs to be $30,000, and anticipate it being able to sell for $375,000 after it's updated, then you will pocket $45,000 when the transaction is complete.

3. Real Estate Investing Apps

If you're like many, you don't want to spend the extra time it takes to manage a rental property or oversee the renovation of an investment property. That's where investing in real estate through crowdfunding real estate apps come in handy.

Companies like Fundrise let you contribute as little as $500 to an Fundrise account, and that money will be added to the funds of thousands of other investors. These funds are then used to invest in real estate for you, with Fundrise experts doing all the real estate analysis work for you.

You just sit back and watch your investments grow! Of course, crowdfunding apps also take a small cut of your earnings as a fee for managing the investments for you.

Best Crowdfunding Real Estate Investing Apps / Sites

Each real estate investing app or website pools your money with other investors and manages a portfolio of real estate investments for you. The website or app lets you see your returns, activity, and transactions just like a regular bank account or investment account.

Some of the best websites and apps used for investing in real estate are:

  • Fundrise
  • DiversyFund
  • Streitwise
  • Realty Mogul

4. Real Estate Investment Trusts (REITs)

REIT stands for Real Estate Investment Trust. It acts much like the crowdfunding apps we discussed above but must meet certain regulations to be classified as a REIT and listed on a major stock exchange.

You can invest in real estate by purchasing shares of real estate entities that buy and manage multiple real estate properties collect money from their investors and use it to build a real estate investment portfolio.

There are REITS that don't trade on the stock exchanges as well, but for sake of this discussion we're only focusing on REITs traded on a major stock exchange.

By investing in a REIT, you are pooling your money with thousands of other investors, and that money is used to build and manage a profitable real estate portfolio.

How to Invest in REITs

You can purchase shares of a REIT through your investment broker like Fidelity or TD Ameritrade, just like you would purchase a share of stock.

Some popular REIT investments to consider are:

  • Vanguard Real Estate ETF
  • iShares Core US REIT ETF
  • iShares Residential Real Estate ETF

Each of these REITs are considered Exchange Traded Funds, which means when you purchase a share of the ETF, you're essentially purchasing portions of potentially hundreds of REITs. They are diversified by nature and can be managed passively.