First steps to becoming a real estate investor
How do you become a real estate investor with limited experience? The path to real estate investing should be approached strategically, starting with the methods that best match your current resources and circumstances.
Each of the following entry points offers unique advantages for beginners, allowing you to build experience while minimizing initial risk.
House hacking: living in your investment
House hacking, which is purchasing a multi-unit property, living in one unit and renting out the others, is perhaps the most accessible entry point for beginners.
Benefits:
- Lower down payment requirements (as low as 3.5% with Federal Housing Administration [FHA] loans for owner-occupied properties)
- Rental income offsets your mortgage and expenses
- Live for reduced cost or potentially free
- Learn landlording with fewer properties to manage
Example scenario: Imagine Sarah, a 28-year-old marketing professional, purchased a duplex with an FHA loan requiring just a 3.5% down payment. By living in one unit and renting out the other, she could reduce her housing costs by 75% while building equity and learning property management first hand.
This strategy essentially allows you to get paid to learn real estate investing while living in your investment. By experiencing landlording first hand, but on a smaller scale, you develop crucial skills in tenant selection, property maintenance and rental management that will become invaluable as you expand your portfolio in the future.
Buy to let investments
Traditional rental properties remain a solid entry point for those with slightly more capital available.
Approach:
- Purchase a single-family home or small multi-unit building
- Rent to long-term tenants for monthly cash flow
- Build equity through loan paydown and potential appreciation
- Consider starting in affordable markets, even if not local to you
Key metrics to evaluate:
- Cash flow: rent minus all expenses, including mortgage, taxes, insurance, maintenance and a vacancy allowance
- Cash-on-cash return: annual cash flow divided by total investment
- Cap rate: net operating income divided by purchase price
- Potential appreciation: based on local market trends
This big difference in returns illustrates why savvy investors often look beyond expensive coastal cities to smaller markets where property prices are lower and rental yields higher. By focusing on cash flow first and appreciation second, buy-to-let investors can create stable passive income while simultaneously building equity, a powerful combination for long-term wealth creation.
Real Estate Investment Trusts (REITs)
For those asking “How can I become a real estate investor with minimal capital or time?” REITs offer an excellent solution.
What they are: Companies that own, operate or finance income-producing real estate across various sectors.
Here’s why they work for beginners:
- Can start investing with as little as $500
- Instant diversification across multiple properties
- No direct management responsibilities
- High liquidity compared to direct property ownership
- Regulated entities with transparency requirements
Types to consider:
- Equity REITs: own and manage properties
- Mortgage REITs: Provide financing for real estate
- Hybrid REITs: Combine both equity and mortgage strategies
- Publicly traded REITs: Buy and sell through standard brokerage accounts
- Private REITs: Typically require higher minimum investments but may offer higher returns
The Nareit 2023 REIT Performance Report shows that equity REITs provided an average total return of 9.6% annually over the past 20 years, outperforming the S&P 500’s 8.2% return during the same period.
Partnering in joint ventures
If you lack certain resources but still want to become a real estate investor, partnerships might be your answer.
Partnership in a joint venture means:
- You can pool resources with partners who complement your strengths
- One partner might provide capital while another handles operations
- You can create clear legal agreements specifying roles, profit distribution and exit strategies
- You can start small with trusted connections before expanding
These pathways demonstrate real estate investing is accessible through various channels. The key to success is matching your strategy to your resources, risk tolerance and goals.
