I Asked a Financial Planner How to Start Investing in Real Estate

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  • I want to start investing in real estate, but I don’t have a ton of disposable income.
  • A financial planner told me to consider house-hacking or REITs.
  • He also pointed to crowdfunding, and warned me to start slow.

At the end of 2023, I jotted down a list of things I wanted to do in 2024. One of those main goals was to finally invest in real estate. My investment portfolio is filled with stocks, mutual funds, and index funds. I wanted to start diversifying it with different types of investments.

But since I’m not a millionaire or someone with a lot of extra disposable income, I met with certified financial planner Jordan Leaman to find out a few ways that I could realistically invest in real estate, based on my current finances.

Before starting, Leaman told me not only to take a close look at my finances, but to understand market trends before getting into real estate investing. “Make sure you have financial stability and a solid foundation,” he said. “Understand what your cash flow would look like with the potential addition of real estate investment expenses.”

He then suggested spending time researching the real estate market, local trends, and identifying my personal risk tolerance. “Are you prepared for some of the fluctuation that can happen with real estate and unexpected expenses if you decide to purchase property?” he asked.

I assessed my finances and shared that I don’t have debt and I do have an emergency fund. I also started diving into resources like real estate investing books and personal finance podcasts to learn more before deciding what to do with my money.

After that, we started chatting about three potential real estate investing options. Here’s what Leaman recommended.

1. Buy an investment property or rent out your current space

The first option he shared was to buy a house that my family can live in and rent out a room to help generate additional income.

“This helps you get a sense for what it would look like to manage tenants and see if investing in properties you can rent out is something that interests you,” he said.

He also recommended a concept called house hacking, where you buy a multifamily property, live in one of the units, and rent out the others so the income pays the mortgage and allows you to build equity in the property.

“This year, mortgage companies announced that they will accept a lower down payment, 5% instead of 15-25%, for owner-occupied multifamily properties,” he said. “This makes it more affordable and accessible to invest in these types of properties.”

These options would require more of my capital and be more of a financial risk. Plus, as a current renter, I’m not sure I’m ready to buy a property yet. Instead, when I look for a bigger apartment in 2024, I plan to find one where the management company would allow me to sublease a room, or the entire apartment when I’m traveling, so I can earn extra cash.

Check today’s average mortgage rates and learn more about the amount of house you may be able to afford.

2. Buy real estate investment trusts

Since I’m not ready to buy a property, Leaman suggested an option that requires less risk and capital. He mentioned buying real estate investment trusts (REIT), companies that own or finance income-generating properties.

“If you go this route, you don’t need to know as much about real estate investing or have the capital that would be required to buy a property,” he said. “But you still get real estate exposure.”

I had heard of REITs before and decided that these would be at the top of my list to invest in. After spending a few weeks researching the ones I’d want to buy and asking a financial advisor for advice, I could put a few thousand dollars in one or two REITs through my brokerage account.

3. Invest in real estate crowdfunding opportunities

While I found myself interested in buying REITs, I wanted to find another opportunity that I could try out in 2024. Leaman said that crowdfunding through real estate investing apps is a way to invest directly in real estate projects without owning a property entirely yourself.

“You could make monthly or quarterly income distributions from providing capital in a pooled real estate fund where they own a physical property,” he said. “This could be a good way to be a real estate investor without investing in direct real estate yourself. Instead, you’re contributing money to a fund.”

Yieldstreet is one of the best real estate investing apps for those interested in real estate and alternative investments. Read our Yieldstreet review for more details.

I decided that this is an option I want to move forward with in 2024. I started looking at opportunities on platforms like Crowdstreet and Fundrise. I also started chatting with people on Reddit forums and inside Facebook groups who have done this type of investment to learn about their experiences.

While investing in real estate is a goal I will conquer by the end of 2024, it’s one that Leaman doesn’t think I should set a stern deadline for.

“Investing in real estate is trendy right now,” he told me. “You open up social media and hear people claiming that they made millions in real estate. But as a new investor, start slow and small. Don’t give into pressure to invest big right away.”