4 Min Read | Updated: January 29, 2024

Originally Published: February 14, 2020

How to Invest in Real Estate

Real estate investing can potentially earn you money or diversify your investment portfolio. There are big, medium, and small ways for you to get involved in the market.

how to invest in real estate

This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.


If you want to start investing in real estate, you can consider a very hands-on or hands-off approach.

“Active” investors might manage their own rental properties or buy, renovate, and resell houses.

“Passive” investors might instead buy real estate company shares online or on the stock market.

How does real estate investing work? There are actually many different ways you can get started. You might pick up your checkbook and your tool belt, for example – or your smartphone and digital wallet. The options range from restoring and reselling houses to crowdfunding properties online. 


Investing in real estate can help put money in your pocket or help diversify your investments beyond stocks and bonds. To meet your real estate investment goal, one of the first choices you’ll want to make is whether to be an active or passive investor. Active investing means hands-on involvement in buying and managing properties. Passive investing mainly involves transactions on paper or online in which you buy into companies that do the active part for you. 


Let’s break down the different types of active and passive real estate investing.

Hands On: How Does Active Real Estate Investing Work?

You can be actively involved in real estate in big, medium, and small ways. Starting small lets you walk before you run, learning the ropes before deciding whether to get more involved. Options range from online room rentals to buying and managing commercial properties. 


Room sharing: While renting out your second bedroom on a room-sharing marketplace is considered more of a side gig than an investment, it can also be rewarding. In a recent survey, nearly half the people putting rentals on one room-sharing platform said they made over $500 a month.1


House hacking: Wading deeper into real estate investing, you could buy a duplex or other multifamily home, live in one of the apartments, and rent the other one to cover your own mortgage payments. Like room sharing, this can provide relatively low-risk experience in being a landlord – from marketing your property to screening tenants, fixing their problems, and collecting rent. 


House flipping: Here’s where you get out that tool belt – or set up a network of painting, electrical, plumbing, and other contractors. Flipping means buying a house, renovating it, and then selling at a higher price. By one national estimate, house flippers sold at a price that was 27.5% higher than they’d paid, on average, in the second quarter of 2023.2 That figure doesn’t factor in the cost of improvements, though, which vary widely. 


Renting out houses: Investing in single-family rental homes can pay off in two ways: First, home values tend to increase over time and, second, you’re collecting rent from your tenants. Investment returns vary by location, which is true of many real estate transactions. On average, though, a 2023 analysis of single-family house rentals showed that rent payments alone represented a 7.5% annual return on the purchase price of the house.3 Your actual profit could be higher or lower because that analysis doesn’t take into account any upside in the home’s market value nor any downside from the costs of managing and maintaining the property. 


Multifamily buildings and apartments: You could choose to manage these yourself or outsource many of the management responsibilities. Returns from investing in these properties were reported to be down about 1% in the second quarter of 2023.4


Commercial and industrial real estate: Office buildings, storefronts, and warehouses also present opportunities for people looking to invest in a big way.

Hands Off: How Does Passive Real Estate Investing Work?

Most of the above types of real estate investments can also be made passively through real estate investment trusts (REITs) or crowdfunding. 


REITs: These are companies that own, operate, or finance real estate. They focus on specific types of property, such as apartment buildings or warehouses. When they are publicly traded you can invest in them and in their portfolios of properties by buying their stocks. Or you could buy into mutual funds and exchange traded funds that hold REITs. Investors usually earn dividends and typically benefit from any increase in the REIT’s share price.5


Crowdfunding: These online platforms allow individuals to make investments in real estate companies and their portfolios of properties much like publicly traded REITs.6


Turnkey rental properties: You could also passively invest in “turnkey” rental properties. Turnkey property companies acquire, renovate, and manage rental properties for investors looking to cash in on lucrative markets.7

The Takeaway

You can potentially put money in your pocket or diversify your investment portfolio through real estate investments. How real estate investing works for you will depend on whether you prefer active investing, such as managing your own rental properties, or passive investing, such as buying real estate shares online or on the stock market.

Karen Lynch

Karen Lynch is a journalist who has covered global business, technology, finance, and related public policy issues for more than 30 years. 


All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

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