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How to Invest in Real Estate: 10 Ways to Build Wealth

There are numerous ways to start real estate investing. Find out which one best fits you.


[Updated: Sep 28, 2021 ] Oct 31, 2019 by Tyler Crowe

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Matt defines 'real estate investing.'
 
Passive Real Estate Investment Strategies Active Real Estate Investment Strategies
REITs Rental properties (short- and long-term)
Mortgage debt Flipping houses
Stocks, mutual funds, and ETFs Land (developing)
Crowdfunded real estate Foreclosures and REO properties
Land (speculative buying and selling) Commercial real estate
*Millionacres philosophy: Debt is a powerful tool in real estate and there are ways to invest in real estate with less money upfront, but always remember to use debt as a tool to enhance returns -- not to overextend your finances to make a deal happen.
Investment Category Recommended Minimum Investment Time Horizon
REITs, real estate stocks, mutual funds, and ETFs 2 to 3 years
Mortgage notes and debt 5 to 10 years
Rental properties (short- and long-term) 5 to 7 years
House Flipping Less than 6 months (time can be your enemy)
Land Depends on development strategy
Crowdfunded real estate and eREITs 5 years
Commercial real estate 10+ years
Real Estate Investment Options Suggested Capital Needed to Invest
REITS, real estate stocks, mutual funds, ETFs, and eREITs $0 to $100,000
Mortgage notes and debt More than $10,000 per investment
Rental properties (short and long term) 25% down plus capital reserves
Flipping houses Down payment plus 20%-33% of after repair value for renovations
Land Wide range depending upon ultimate outcome
Foreclosures and REO properties 25% down and much more for contingencies
Crowdfunded real estate (for accredited investors) $25,000 minimums in a single asset
Commercial real estate hundreds of thousands into a single asset
Type of Investment Pros Cons
Real estate investment trusts +Low-cost entry point +Liquid market for shorter time horizons -Modest returns  -Subject to stock market volatility
Real estate stocks, mutual funds, and ETFs +Low-cost entry point +Liquid market for shorter time horizons -Modest returns  -Subject to stock market volatility
Mortgage notes and debt +Multiple outcomes for various strategies +Modest price point for entry -Acquiring mortgage notes is challenging -Typically lower returns than an equity position
Long-term rental property +Good returns from cash flow and price appreciation +Tax-advantaged asset +Can use leverage -Active management of a property (or paying someone else) -Still requires significant upfront and contingency capital
Short-term and vacation rental property +Same as long-term rentals, but the potential for higher cash flow -Requires much more active management -Only suitable for certain locations
Flipping houses +High rates of return +No need for long-term holdings -Requires lots of upfront and contingency capital -Several things can go wrong for inexperienced flippers
Land investing +Lower upfront capital costs +Multiple exit strategies -Highly speculative -Development capital costs can be extensive
Real estate owned (REO) and foreclosures +Potential for higher returns on rental property rentals -Complex legal aspects  -High risk of things going wrong
Real estate crowdfunding +Access to institutional-quality commercial real estate at lower entry points +Best effort to rate of return ratio in real estate -Most crowdfunded deals still require accredited investor status -Can create some tax headaches
Commercial real estate +High rates of return +Multiple types of real estate to invest in -Immensely complex and shouldn't be done alone -Very high capital costs

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