How to Start Investing in Real Estate: Beginner’s Guide 2021

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Investing in real estate doesn’t mean you have to invest $100,000’s and join the high roller club with the Bentleys and Maserati’s. 

In fact, you can start investing in real estate with as little as $10 and still make a pretty nice return on your investment. 

One of the most proven strategies to building passive income and growing your wealth (aside from investing in the stock market) is investing in real estate.

Check out this crazy statistic, below:

percentage of millionaires created by investing in real estate statistic

Image: The Millennial Money Woman | Source: The College Investor

So if you want to learn how to start investing in real estate then you’ve come to the right post. 

Let’s dive right in.

Accredited vs. Non-Accredited Investor


Before I cover how to invest in real estate, I want to make sure I cover 2 very important concepts: Accredited investors vs. non-accredited investors.

Why is it important to know the difference?

You may be limited on the number of real estate investment choices you have, if you are a non-accredited investor. 

So here’s the difference:

Accredited Investor Non-Accredited Investor

Income limits?

Yes

No

Net worth test?

Yes

No

Increased investment restrictions?

No

Yes

If you’re wondering whether you make the cut as an accredited investor, take a look at some of the requirements below:

Requirements Accredited Investor

Income limits?

Individual = $200,000

Couple = $300,000

Net worth test?

$1,000,000+ (not including your primary home)

For individuals, you must have earned $200,000 every year for the past 2 years and expect to earn $200,000 again this year.

My husband and I did a quick net worth calculation (excluding our home) and we determined that we did not [yet] fall into the millionaire category, according to the accredited investor definition.

That said, let’s start by looking at the real estate investing options for non-accredited investors.

How to Start Investing in Real Estate for Non-Accredited Investors


Below is a list of real estate investing options for non-accredited investors:

How to Invest in Real Estate For Non-Accredited Investors

Let’s get started.

Real Estate Investment Trusts (REITs)


Real estate investment trusts aka REITs (pronounced ree-ts), are a very popular way to invest in real estate without actually having to do the work. 

There are 2 main ways to invest in REITs:

  • Buy into private REITs
  • Buy into publicly-traded REITs (on the stock market)

Here’s the general definition of a REIT:

The neat thing about REITs is that you can own real estate and you don’t have to do any of the work – the REIT does it for you, you just collect the money.

The reason why many investors gravitate toward REITs is because REITs diversify your portfolio.

Instead of just investing in stocks and bonds, a REIT allows you to invest in real estate – and chances are, even during a recession, you’ll still collect income from the REIT because people will likely pay rent. 

Take a look at some of the pros and cons of REITs:

Pros Cons

Portfolio diversification

Typically high fees

Steady source of passive income

Sector-specific risks

Could outperform stocks during a recession

Long term investment focus

Easy way to invest in real estate without doing the work

It often takes time to access money

If you’re a bit more experienced when it comes to investing – and if you’re willing to take on higher risk (for a higher potential return), then you may want to check out Fundrise.

Fundrise is a private REIT that gives you a peek into private real estate deals for a minimum investment amount of $500 (which is really nothing, considering most private real estate deals start at a minimum of $5,000 to $100,000+).

A few things to keep in mind before investing with Fundrise:

Fundrise

Average return

8.76% to 12.42% (assuming you reinvest)

Average fee

1%

Account minimum

$500

Investor requirements

None

Other notes

Highly illiquid and long-term investment

As you can see, there are significant risks – but also significant rewards – that go along with Fundrise.

Now, if you want to participate in real estate crowdfunding but want a more proven model, you may want to consider investing with RealtyMogul.

RealtyMogul is a proven and well-known real estate crowdfunding platform, offering real estate investments for both accredited and non-accredited investors. 

RealtyMogul’s main focus is on lower-risk real estate investments.

Some sectors RealtyMogul invests in, include:

  • Hotels
  • Multifamily housing
  • Apartment buildings

According to RealtyMogul, it offers lower-risk investments because of its high standards: Less than 1% of proposed deals meet RealtyMogul’s strict requirements – and that should give you some peace of mind. 

The downside?

The minimum investment for non-accredited investors is pretty high, at $5,000. 

Plus, non-accredited investors can’t participate in crowdfunding – they are only limited to investing in REITs.

A few things to keep in mind before investing (as a non-accredited investor) with RealtyMogul:

RealtyMogul [Non-Accredited Investors]

Average return

Limited data, so no concrete numbers. 2020, a difficult year, saw no losses.

Average fee

1% to 1.5%
(plus many smaller, additional fees could apply)

Account minimum

$5,000

Investor requirements
[Non-Accredited]

Private REITs (non-publicly traded)

Other notes

Illiquid and long-term investment

All I can say is do your research first before you financially commit.

Real Estate Crowdfunding


Real estate crowdfunding platforms have become very popular in the past few years as a means to diversify your portfolio and tune into some nice profits.

Here’s the general definition of real estate crowdfunding:

Essentially, crowdfunding is similar to a matchmaker platform: You’re connected with people who may be looking for you.

With real estate crowdfunding, investors (like you) “pool” their money together to fund a project in the hopes of a future payout (and profit). 

Unlike most real estate investments, where you’ll see a pretty high barrier to entry (ie – you’ll need $10,000’s or even $100,000’s to start investing), crowdfunding offers you insight into real estate investing without high minimums.

The reason why many investors gravitate toward real estate crowdfunding is because crowdfunding diversifies your portfolio.

Instead of just investing in stocks and bonds, real estate crowdfunding platforms give you the option to invest your money in opportunities you may have otherwise not been able to invest in.

Take a look at some of the pros and cons of crowdfunding:

Pros Cons

Portfolio diversification

Typically high loan default rate

High-profit potential

Illiquid investments

Potential for steady income and equity appreciation

Long term investments

If you’re a more experienced investor and if you’re willing to take on higher risk (for a higher potential return), then you may want to check out the crowdfunding platform GROUNDFLOOR.

GROUNDFLOOR is one of the few real estate crowdfunding platforms offering short-term loans to home flippers.

The best thing about GROUNDFLOOR is that it has an extremely low minimum of $10, so virtually anyone can be involved with this passive real estate investing option. 

With GROUNDFLOOR, your money will typically be used for:

  • New construction projects
  • Renovation or “flipping” projects

Typically speaking, once the property is completed, it would then be sold or rented so you’ll receive your loan plus profit. 

A few things to keep in mind before investing with GROUNDFLOOR:

GROUNDFLOOR

Average return

10.5%

Average fee

None

Account minimum

$10

Investor requirements

None

Other notes

Highly illiquid and risky

As you can see, there are significant risks – but also significant rewards – if you invest with GROUNDFLOOR.

All I can say is do your research first before you financially commit.

Rent out your Room or Home


One of the easiest ways to jump into the shallow end of real estate investing is by renting out either your home or your room.

It’s such a great way to earn a few extra dollars and cut down on your monthly costs. 

Now, if you’re thinking of renting out your room and want an easy, stress-free experience then check out RentRedi.

RentRedi is real estate software that helps you, as a self-managing landlord, complete many of the tasks that you probably don’t want to worry about. 

For example, RentRedi can help you:

  • Screen new tenants
  • Collect monthly rent
  • Manage your tenants
  • Send in-app notifications
  • List properties to Realtor.com and Doorsteps

It’s a good real estate app especially for landlords who are introverts (like me) and don’t want to deal with tenants face-to-face.

Take a look at some of the pros and cons of RentRedi:

Pros Cons

Easy to use

Unable to customize app

Low price

Tenants must download the app as well

Easy to collect monthly rent

Customer service support may not always be responsive

Easy to manage tenant requests

Unable to see which tenant made maintenance request, only which unit

If you’re a bit wary of letting people into your home, you may want to start inquiring about potential tenants in your circle of friends. 

Chances are, your friends will know what you like in a tenant and what you don’t like, and they may know someone who could fit your personality and style.

Some great places to start searching for potential tenants include:

  • Your friends
  • Your community
  • Your work colleagues

Ask around and see if they have anyone looking for an apartment to stay in. 

Just remember that once you receive those extra monthly rent payments, start investing the extra cash or start paying off debt.

Buy a Rental Property


If you’re someone who has extra cash and is serious about real estate investing, you may want to consider buying a physical property and renting it out.

Now, there are many pros and cons about buying an actual home and renting it out.

Arguably, this real estate investment option is one of the riskiest but likely also one of the most rewarding, especially if you can occupy your home with reliable, rent-paying tenants.

The worst-case scenario would be if your tenants can’t make the monthly payments, you have to go through the legal process of evicting them and then you have to go through the process of finding new tenants.

You can’t make money without tenants. 

To ensure you receive a steady stream of income with your rental property, there are several ways you can invest:

  • Manage the property yourself
  • Use a property manager (takes about 10% of your monthly rent)
  • Use platforms like Roofstock where you buy a home with tenants already inside the home
  • Invest in a multi-family complex and live in one of the buildings yourself to better manage the property

The main reason why many investors tend to gravitate toward real estate is simply because real estate diversifies their portfolio. 

I know people who swear by real estate investments and refuse to invest in stocks, because they want their money to be invested in something tangible (like property).

…But I think it’s also important to not be what is known as: Cash poor and asset rich.

"Avoid falling victim to being cash poor and asset rich."

In other words, make sure you don’t use all of your spare change to buy a rental property – you still want to leave a majority of your assets invested in the stock market.

Take a look at some of the pros and cons of investing in rental property:

Pros Cons

Property appreciation

Illiquid

Portfolio diversification

High entry costs

Potential for passive income stream

Maintenance costs

Increased opportunity for financing

Long term investment

If you’re someone who is starting to consider investing in rental real estate, I would suggest you think long and hard before you actually buy a property to rent out.

Trust me, I’ve heard some horror stories with tenants refusing to move out of homes and not paying rent, tenants damaging homes, etc.

If you have a large chunk of cash, have invested in the stock market and want to buy a rental property with tenants to earn some passive income, then check out the platform Roofstock.

Roofstock is a real estate investment platform where you can buy or sell your rental home – while tenants are in the house!

All you have to do after closing on the property is sign the paperwork and start collecting your monthly rental income.

A few things to keep in mind before investing with Roofstock:

Roofstock

Average return

11% to 12% (gross)

Average fee

$0 to set up an account

0.50% of the contract price or $500 – whichever is greater

Other costs (e.g. closing costs, property management, maintenance, etc.) apply

Account minimum

Typically 20% of the cost of the rental property (equal to the downpayment)

This translates to about a $20,000 minimum for most rental properties

Investor requirements

None

Other notes

Typically, you don’t physically see the rental home before you buy it

Roofstock follows a certification process to screen the real estate/tenant deals, but it is still recommended you do your own research

As you can see, there are significant risks – but also significant rewards – if you invest with Roofstock.