Real estate investing is one of the primary drivers of wealth in the United States. It’s so easy, an immigrant with less than $100 built a $100 million real estate portfolio! We’ve gathered his tips to show you how to invest in real estate and make a great living.
Thach Nguyen was the youngest realtor in Seattle when he started in 1991. His first mentor taught him to market to people he didn’t know, then his second mentor taught him to acquire real estate. That’s when Thach Real Estate Group was born.
Today, he makes around $100K net profit each month from the $800K revenue he brings in on assets worth nearly $100 million.
Thach shared advice on how to:
- Create passive income
- Invest in real estate actively and passively
- Use online platforms
- Make the most out of a real estate website
- Earn a great living without being a personal finance wiz
He covers all of this in his course on building a $100M rental portfolio.
How to Invest in Real Estate
We’ll show you how to invest in real estate in this step-by-step guide. Just follow this easy process to get started.
If you’re already familiar with real estate investing, jump ahead with any of the links below.
Step 1. Start with a real estate investment plan
Before you begin buying real estate, you’ll want to develop an investment strategy. Thach explained:
Check out our interview below.
Your plan doesn’t have to be complex. It can be as simple as answering the following questions:
- How old do you want to be when you stop working?
- How much do you want to make?
- How much is the average rent in your area?
- How much profit do you make on each property?
- How many rental properties do you need to own?
How Many Rental Properties Do I Need To Retire?
We created a simple calculator to help you establish how many property purchases you need to make. Try it out!
How to Get Started In Real Estate
Another real estate entrepreneur, Emma Powell, suggests considering whether you prefer owning physical property or indirect real estate investing.
Once you’ve decided how hands-on you want to be, you should consider how different types of investments will impact your finances.
Check out our interview with Emma about how to get into real estate below.
Step 2. Think about your taxes, finances, and regulations
Different types of investments will impact your taxes and finances. Consider:
- Do you want a liquid asset (stocks, bonds, ETFs, publicly offered REITs) or to buy properties?
- Are you an accredited investor? Accredited investors are people who make over $200,000 or have a net worth of over $1 million, excluding their first home. This gives you access to private equity opportunities. Learn more.
- Do you need monthly or quarterly distributions? If so, you don’t want to invest in capital appreciation models or real estate developers.
- What is your tax income bracket? REITs count as normal income. If it’s not in a retirement fund, it will create a major tax consequence.
- Are you a real estate professional? You only qualify as a real estate professional if you spent more than 50% of your working hours managing real estate, own 5% or more of the company, and worked at least 750 hours during the year. Check the IRS website for more information.
The IRS loves going after real estate investors who do not have a real estate agent license. My family has dealt with two audits regarding the real estate professional rules.
If you are going to try to claim more than the $25,000 limit for normal real estate, you need to make sure you have documentation that is created the year you are filing for. That means you need to consider the following:
- Take detailed notes of date, time, and what work was performed.
- Make sure to have security cameras on all your rental properties—and time stamp the videos. Make a hard copy of the video before the year ends.
- Identify everyone in your phone that is real estate related as “Name (real estate).” Make sure to print out your phone bills before December 31 each year.
- Save all expenses related to the tax claim. Use accounting software to automate documentation.
- Use a mileage tracker to document miles and time spent commuting.
Read IRS 2021 Publication 925 for the regulations regarding the real estate professional classification.
Step 3. Consider ways to invest in real estate actively
There are so many options for real estate investors. You can choose to buy your own home, buy rental properties, flip houses, or use investment vehicles to get exposure to real estate without being actively involved. Emma Powell told us:
Invest in Your Own Home
Before you start investing in real estate to generate residual income, you’ll want to buy your own home. Owning your own home reduces the impact of inflation and is one of the greatest factors in building wealth.
61.9% of households own a home, while the median household net worth is $140,800. Just by owning your own home, you’ll be building more wealth than 50% of the population.
If you don’t already own a home, you can qualify for a first time homebuyer credit and buy a 4-plex to earn rental income on your first real estate investment. You’ll be glad you own a primary residence because regular income rarely outpaces inflation for the majority of the population.
If you have a mortgage payment locked in for the rest of your life, you build wealth as your wages increase.
I was talking to a friend the other day about renting vs owning and it really illuminated how important this is. He bought his home in 2018 and is paying around $800 per month. Meanwhile, I rent and have seen my rent go up from $800 to $1,200, which means I’ve spent an extra $11,472 in the last four years.
Savings from Ownership vs Renting
Consider House Hacking
Many people find living near their work too costly, so they buy local real estate with multiple units. If you buy a quad-plex and live in one unit, you still qualify for the first-time homebuyer credit, can reap the tax benefits, and have reduced income requirements.
Here’s an example of how it works for a $555,000 single-family home vs a quadplex:
*According to my lender, the maximum suggested debt/income ratio is 45%. If you have other outstanding credit, the income needed will be higher.
So effectively, you can cut the amount of income you need by over $5,000.
Buy Rental Properties
6.9% of the population owns rental properties. Furthermore, those who own rental properties have an average of $175,000 more net worth than those who don’t. Plus, they get additional cash flow from the rental properties. Emma told us:
You’ll need to consider whether each rental property justifies the expense. Most real estate investors say they expect owning rental properties to generate a 15% return on investment for each rental property.
If you have skill at repairing properties, you might want to buy real estate that needs repairs for less than the going rate in the area, fix them up, and sell them.
Santino Fillipelli runs a construction company, real estate brokerage, and real estate investment company. He buys homes to flip or repair and rent. Find out his approach to real estate investing.
To make any of these a more passive investment, you can consider hiring a property manager to assist you with them. It will reduce your profits and tax deductions, but it’s easier than managing it yourself.
Step 4. How to invest in real estate without buying property
The following ideas are ways to invest in real estate without buying property. These are good for those who are not ready to make the commitment of buying a property and renting it out.
If you want to get into the real estate market without direct real estate investments, Airbnb allows co-hosting. Co-hosting works really well if you own a cleaning business, handyman company, or general contracting business.
You just negotiate a deal to act as a property management company and take a percentage of revenue from the investment property owner.
Chris Mondragon makes money from real estate properties by managing their cleaning and greeting customers—all while making over $1M per year as a cleaning business.
Find out more about managing Airbnbs as a service company below:
If property management doesn’t sound right for you, keep reading for more real estate investment opportunities.
Real Estate Investment Trusts (REIT): How to Invest in Real Estate Stocks
One of the least expensive ways to get into real estate is real estate investment trusts. These companies are effectively real estate crowdfunding. A real estate investment trust sells shares and buys property. They then pay the investors the profits from the rental payments.
REITs may be sold on the stock market or be privately listed. The publicly traded REITs tend to produce lower returns but are easier to sell. You will normally need to be an accredited investor to access privately held REITs.
The following table consists of 27 REITs that are currently generating income of more than 8% based on a screener using TD Ameritrade on 9/3/2022. (I have not done further research to evaluate the quality of these real estate investment opportunities. Please remember to do your own research before buying.)
|Symbol||Company Name||Dividend Yield||Price|
|CDR-B||Cedar Realty Trust Inc||16.57%||$ 10.94|
|CDR-C||Cedar Realty Trust Inc||15.30%||$ 10.62|
|SQFT||Presidio Property Trust Inc||13.48%||$ 3.15|
|OPI||Office Properties Income Trust||12.53%||$ 17.56|
|GNL||Global Net Lease Inc||12.03%||$ 13.30|
|RTL||Necessity Retail REIT Inc||11.68%||$ 7.28|
|NYC||New York City REIT Inc||11.66%||$ 3.43|
|AHT-I||Ashford Hospitality Trust Inc||10.41%||$ 18.01|
|AHT-F||Ashford Hospitality Trust Inc||10.35%||$ 17.81|
|AHT-G||Ashford Hospitality Trust Inc||10.30%||$ 17.90|
|AHT-H||Ashford Hospitality Trust Inc||9.98%||$ 18.78|
|MDRR||Medalist Diversified REIT Inc||9.80%||$ 0.82|
|BDN||Brandywine Realty Trust||9.52%||$ 7.98|
|GIPR||Generation Income Properties Inc||9.15%||$ 7.08|
|CORR||Corenergy Infrastructure Trust Inc||8.97%||$ 2.23|
|AHT-D||Ashford Hospitality Trust Inc||8.94%||$ 23.64|
|IIPR-A||Innovative Industrial Properties Inc||8.43%||$ 26.70|
|SLG||SL Green Realty Corp||8.41%||$ 44.36|
|BTBIF||BTB Real Estate Investment Trust||8.39%||$ 2.73|
|BHR-B||Braemar Hotels & Resorts Inc||8.36%||$ 16.44|
|OHI||Omega Healthcare Investors Inc||8.30%||$ 32.28|
|INN-E||Summit Hotel Properties Inc||8.25%||$ 18.94|
|SBRA||Sabra Health Care REIT Inc||8.13%||$ 14.76|
|VNO||Vornado Realty Trust||8.11%||$ 26.13|
|MPW||Medical Properties Trust Inc||8.10%||$ 14.32|
|GOOD||Gladstone Commercial Corporation||8.06%||$ 18.67|
|BHR-D||Braemar Hotels & Resorts Inc||8.01%||$ 25.75|
Real Estate Investment Groups (REIG)
Real estate investment groups buy large properties like office buildings, multi-unit buildings, and shopping centers. The REIG can invest in real estate and earn profits from various real estate investment strategies:
- Acting as a property manager
- Flipping houses
- Running Airbnbs
- Financing building projects
A real estate investment group will not normally qualify for REIT status, but it can capitalize on a wider variety of real estate investing opportunities than REITs.
Real Estate Limited Partnerships (RELP)
Limited partnerships are a type of private equity where you have a general partner who will manage properties and limited partners who indirectly own the real estate property.
Most of the income generated is from the sale of properties, but they may generate passive income if the cash flow and profits are high enough to justify routine payouts. The minimum investment will normally be $2,000+, but it is common to require buy-ins of $100,000 to $1 million.
Real Estate Mutual Funds
Mutual funds are real estate investment tools that help you get exposure to multiple real estate stocks. These make it easier to invest in an industry without analyzing particular stocks.
These funds normally have minimum investments between $500 and $2,000, and you can add additional investments regularly. Mutual funds have expense ratios ranging from .03% to 4%.
The higher the percentage, the higher the gains have to be to develop wealth. I personally prefer ETFs, but review this article if you want to find good real estate mutual funds.
Real Estate Exchange Traded Funds (ETFs)
If you’re ready to start real estate investing but want to maintain diversification within the industry, real estate index funds are a good way to get started. Real estate ETFs buy shares of companies involved in the industry and then sell ETFs that give you a percentage of the ownership of all the holdings.
These are basically mutual funds with much lower minimum investments, lower fees, and are tradeable on the stock market.
I’ve compiled the top 20 real estate ETFs based on the Distribution Yield on 9/3/2022. (These real estate funds are not investment advice. Make sure you research each before you invest.)
|Symbol||Name||Morningstar Category||Current Price||Net Expense Ratio||Distribution Yield||Real Estate Exposure|
|SDIV||Global X SuperDividendâ„¢ ETF||Global Small/Mid Stock||$8.81||0.58%||12.87%||37.45%|
|MORT||VanEck Mortgage REIT Income ETF||Real Estate||$14.13||0.41%||9.98%||100.00%|
|HYIN||WisdomTree Alternative Income Fund||Nontraditional Bond||$19.97||2.93%||9.52%||68.38%|
|KBWD||Invesco KBW High Dividend Yld Fincl ETF||Financial||$16.93||2.59%||9.01%||40.46%|
|VNQI||Vanguard Global ex-US Real Est ETF||Global Real Estate||$42.57||0.12%||7.61%||98.94%|
|ALTY||Global X Alternative Income ETF||Allocation–70% to 85% Equity||$11.66||0.50%||7.60%||33.00%|
|DRN||Direxion Daily Real Estate Bull 3X ETF||Trading–Leveraged Equity||$14.52||0.96%||7.42%||100.00%|
|REM||iShares Mortgage Real Estate Capped ETF||Real Estate||$27.73||0.48%||7.00%||100.00%|
|SRET||Global X SuperDividendÂ® REIT ETF||Real Estate||$8.10||0.58%||6.86%||100.00%|
|MDIV||Multi-Asset Diversified Income ETF||Allocation–50% to 70% Equity||$15.72||0.69%||5.59%||31.99%|
|KBWY||Invesco KBW Premium Yield Eq REIT ETF||Real Estate||$21.72||0.35%||5.49%||100.00%|
|RWX||SPDRÂ® Dow Jones International RelEst ETF||Global Real Estate||$27.34||0.59%||5.49%||99.86%|
|XSHD||Invesco S&P SmallCap Hi Div Low Vol ETF||Small Value||$18.65||0.30%||5.06%||45.82%|
|WTRE||WisdomTree New Economy Real Estate ETF||Global Real Estate||$18.03||0.58%||4.84%||81.77%|
|GYLD||Arrow Dow Jones Global Yield ETF||Global Allocation||$13.15||0.75%||4.76%||41.87%|
|WPS||iShares International Dev Prpty ETF||Global Real Estate||$28.31||0.48%||4.69%||99.35%|
|GBLD||Invesco MSCI Green Building ETF||Global Real Estate||$17.95||0.39%||4.40%||94.58%|
|RDOG||ALPS REIT Dividend Dogs ETF||Real Estate||$42.56||0.35%||4.33%||100.00%|
|ROOF||IQ US Real Estate Small Cap ETF||Real Estate||$21.32||0.70%||4.28%||100.00%|
Crowdfunding Real Estate Investing Platforms
Real estate crowdfunding has become an easy way for a new real estate investor to enter the market. The following companies are some of the best real estate crowdfunding platforms.
I have ranked the online real estate platforms based on the investment minimum. Obviously, this should not be taken as financial advice, but the following strategy is something to consider:
- Start with Fundrise to get familiar with how real estate investments work.
- Reinvest dividends.
- Build up to YieldStreet for potentially lower fees.
- Once you reach $5,000, go for RealtyMogul or Equity Multiple.
- Build up to CrowdStreet.
- Keep repeating until you decide which ones you like better and focus on them.
|Industry Name||Minimum Account||Fees||Must Be Accredited Real Estate Investor?||Dividend Reinvestment Program|
|Fundrise||$10||1% (There may be other fees.)||No||Yes|
|YieldStreet||$500||0-2.5% (There may be other fees.)||No||Yes|
|Modiv||$1,000||3% (There may be other fees.)||No||Yes|
|EquityMultiple||$5,000||.5%-1.5% (There may be other fees.)||No for REIT, yes for individual property investment||No|
|RealtyMogul||$5,000||1-1.20% (There may be other fees.)||No for REIT, yes for individual property investment||No|
|CrowdStreet||$25,000||.5%-2.5% (There may be other fees.)||Yes||No|
These real estate crowdfunding opportunities offer both private REITs and the ability to finance projects. All are private equity so they are not highly liquid like publicly offered REITs. Expect to hold them for three to five years.
Step 5. Get real estate software
Emma gave us a lot of advice about software. We asked her what the best tools to manage real estate investments are. She told us:
She went on to explain:
She recommended the following software:
- Syndication Pro: Publish offerings, automate distributions, and manage investors with this CRM that meets SEC compliance issues.
- Active Campaign: Automation software is good for those who need a custom automation that isn’t included in Syndication Pro.
- REI Blackbook: While Syndication Pro is intended for managing investors, REI Blackbook is meant for wholesaling, renting, and flipping properties.
If you do a little of all types of real estate, you can use the three together.
Step 6. Find real estate investors
Thach told us a lot of his success is because:
Emma agrees that social media is the best way to position your real estate investment group as subject matter experts.
She discussed the website as one of the most important tools to find investors.
Emma suggested three specific portions of the website she finds critical:
- Hire a professional photographer for your website.
- Include a bold vision statement and a bold picture in the home page banner.
- The ‘about me’ page should answer, ‘What are you going to do for them?’
Step 7. Keep growing your investments
You’ll want to take the profits and reinvest them. This concept is called compounding, and it builds net worth fast.
If you take $100K and reinvest 15% profit each year, you’ll have over $6.5 million after 30 years. If you only reinvest 10%, the value drops to $1.75 million after 30 years.
Meanwhile, just the growth from the appreciation of the asset would theoretically be worth around $400K if the historical national home price values continue.
Mike Andes told us:
Check out our interview with him below.
Can I Invest Just $100 in Real Estate?
Yes! REITs, ETFs, and Fundrise are ways to generate income without owning real estate. Don’t wait to build wealth and cash flow just because you don’t have the income and credit score to finance properties on your own and make mortgage payments.
How to invest in real estate with no money and bad credit
Learn how to wholesale real estate. Find distressed properties. Make an offer to help the homeowner sell their property, and sell the single-family home to other investors for a profit.
This is a form of flipping houses that doesn’t require cash reserves or a real estate license. Learn how to wholesale real estate.
How to invest in real estate with little money
If you’re looking for ways to invest in real estate with small amounts of money, you’ll want to limit your considerations to a mutual fund, ETF, REITs, or other financial instruments that lets you build a real estate portfolio without a massive down payment.
How do beginners make money in real estate?
I’d suggest using house hacking. Above, we analyzed the returns of buying a house as an investment versus buying a quadplex. We found that spending $555K on a quadplex with 3% down would:
- Reduce your personal expenditure on housing by nearly 75%.
- Build equity faster because you are only paying $1 for every $4 purchased.
- Give you the ability to buy another quadplex within the first five years.
Which Investment Is Best in Real Estate?
Emma told us:
She also warned that offices and single family homes are at higher risk, but it’s still better owning properties than not.
A multi-unit building is normally the safest real estate investment. This includes buildings like apartment complexes. Everyone needs a roof over their head, and the chances of owning a completely vacant apartment complex are slim.
That means there’s less volatility than investing in a single-family home because you have multiple tenants paying rent. If you own a single-family home and the tenant doesn’t pay rent, you have to cover the monthly mortgage payment and property taxes. If you can’t, you risk defaulting.
How to Invest in Real Estate Book Options
Grab your favorite beverage and read up on how to invest money in real estate. Here are some Amazon best sellers:
- Buy, Rehab, Rent, Refinance, Repeat: The BRRRR Rental Property Investment Strategy Made Simple by David M Greene
- How to be a Real Estate Investor by Phil Pustejovsky
- The Book on Rental Property Investing: How to Create Wealth With Intelligent Buy and Hold Real Estate Investing by Brandon Turner
A Few Words of Caution
While real estate investment is enticing for its profitable returns, industry experts recommend having a diversified portfolio to increase your net worth. Different industries and segments perform better at different points in the economic cycle. That means that you don’t want to focus 100% of your net worth on real estate investments.
The median household only has about 35% of its net worth in real estate.
Make sure to remember:
- Many financial instruments are governed by the Securities and Exchange Commission.
- Past performance does not predict future performance.
- After-tax profits are more meaningful than pre-tax profits.
- Talk to a financial consultant to evaluate how to buy property within your financial scenario.
- Avoid high fees.
So What’s the Best Way to Invest in Real Estate?
The best way to invest in real estate will depend on your personal situation and local market. We’ve given you information on:
- Defining Investment Objectives
- Property Investment Taxes
- Traditional Real Estate Investing
- Equity Investments
- Online Real Estate Platforms
- Growing Your Investment Properties
For a step-by-step guide to developing your rental portfolio, we highly recommend Thach’s course, which covers all of the above and more.
Now it’s up to you to decide how you want to start investing in property. What method of real estate investment do you prefer?