Real estate has long been a cornerstone of wealth building, but you don’t need to be a millionaire to get started. Whether you’re looking for passive income, long-term appreciation, or portfolio diversification, there’s likely a real estate investment strategy that fits your goals and budget.
Here are seven ways to invest in real estate, ordered from most hands-on to most passive.
1. Short-Term Vacation Rentals
Platforms like Airbnb and VRBO have made short-term vacation rentals a popular investment strategy. You purchase a property in a desirable location and rent it out to travelers by the night or week.
Best for: Investors in tourist-heavy areas who can achieve higher nightly rates than traditional rentals, or those who want to use a vacation home personally while generating income.
Pros:
- Higher income potential than long-term rentals (often 2-3x per month)
- Flexibility to block off dates for personal use
- Premium rates during peak seasons and events
Cons:
- Much more time-intensive than long-term rentals (constant guest communication, cleaning coordination, restocking)
- Income is seasonal and unpredictable
- Many cities have regulations or bans on short-term rentals
- Higher operating expenses, including frequent cleaning, supplies, insurance, and platform fees (3-15%)
Key considerations: Clark Howard emphasizes that vacation rentals are significantly more demanding than long-term leases: “Airbnb is not equal to doing a long-term lease because you have a lot more expenses involved with constant turnover of tenants. There tends to be more maintenance that’s going to be required and potential repairs.”
Income can be lucrative but requires intensive management, including guest communication, coordinating cleaning between stays, restocking supplies, handling booking platforms, and marketing your property. Clark advises that your business model must work at 50% occupancy or higher to generate reliable income.
Many cities and HOAs have restrictions on short-term rentals, so research local regulations before investing. You may also face higher insurance costs and more wear and tear on the property.
“If you’re buying an investment property to use as a short-term rental, make sure the math still works if you had to switch it to a long-term rental. You want to at least break even — or better — even under that scenario.”
2. Long-Term Rental Properties
Buying property to rent out on a long-term basis is one of the most traditional real estate investments. This includes both single-family homes and multifamily properties like duplexes, triplexes, and apartment buildings.
Best for: Investors who want direct control over their investments and are willing to actively manage properties or hire property management.
Pros:
- Direct control over your investment with tax benefits through depreciation
- Build equity while tenants pay your mortgage
- Predictable monthly income with long-term leases
- Leverage allows you to control valuable assets with less money down
Cons:
- Requires significant upfront capital (20-25% down payment)
- Tenant management, maintenance, and repair responsibilities
- Not liquid—can take months to sell if you need cash
- Vacancies mean zero income from that property
Key considerations: Clark uses a “1% rule” for evaluating rental properties: the monthly rent should equal at least 1% of the property’s value to be considered a solid investment. For example, a $300,000 property should generate at least $3,000 per month in rent.
Single-family homes typically require a 20-25% down payment for investment properties and attract families looking for stable housing. They’re easier to finance and sell but provide income from just one tenant.
Multifamily properties spread your risk across multiple units — if one tenant moves out, you still have rental income from others. Properties with 2-4 units can qualify for residential financing, while buildings with 5+ units require commercial loans. They often provide better cash flow and are more efficient to manage since all units are in one location.
Clark notes that managing rental properties is equivalent to having a job: “You have to deal with repairing them. You have to deal with recruiting tenants. You have to deal with a tenant maybe not paying rent.”
3. House Hacking
House hacking means living in a property while renting out a portion of it to offset your housing costs. This could mean buying a duplex and living in one unit while renting the other, renting out bedrooms in your single-family home, or building an Accessory Dwelling Unit (ADU) on your property.
Best for: First-time investors who want to reduce or eliminate housing costs while building equity and learning real estate investing.
Pros:
- Lowest barrier to entry (as little as 3-5% down with FHA loans)
- Rental income can cover most or all of your mortgage
- Learn landlording firsthand with lower financial risk
- Easy to manage since you’re on-site
Cons:
- Reduced privacy with tenants nearby or in your home
- Must be comfortable being an on-site landlord
- May outgrow the living situation as life changes
- ADU construction can be expensive upfront ($100k-$300k)
Key considerations: This is one of the most accessible ways to start real estate investing. You can purchase with a lower down payment (as low as 3-5% with FHA loans) since you’re owner-occupying, and the rental income can cover part or all of your mortgage payment.
ADUs (also called granny flats, in-law suites, or backyard cottages) provide a separate living space for tenants while maintaining your privacy. Many cities are relaxing zoning laws to encourage ADU construction.
The main downside is sharing your property with tenants, though ADUs and duplexes offer more separation than renting out bedrooms. This strategy requires you to be comfortable being a landlord while living on-site, but it’s an excellent way to start with minimal capital.
4. Real Estate Limited Partnerships (RELPs)
A RELP involves a general partner who finds, acquires, and manages real estate investments, while limited partners provide capital but have no management responsibilities or control.
Best for: Accredited investors seeking passive real estate investments with professional management.
Pros:
- Completely passive — no management responsibilities
- Access to larger, institutional-quality commercial deals
- Professional expertise in managing your investment
- Cash distributions during holding period plus profits at sale
Cons:
- High minimum investments (typically $25,000+)
- Very illiquid — money often tied up for 5-10 years
- Must be an accredited investor (income $200k+ or net worth $1M+)
- Fees can be significant (2-3% annually plus profit sharing)
Key considerations: These typically require substantial minimum investments of $25,000 or more. As a limited partner, you have no say in day-to-day decisions and limited liquidity — your money may be tied up for 5-10 years. However, you benefit from professional expertise and can access larger commercial deals without any management responsibilities.
RELPs are generally marketed privately, often to accredited investors. If you work with a financial advisor, they may have access to offerings.
5. Real Estate Crowdfunding
Online platforms allow investors to pool money together to invest in real estate projects, from residential developments to commercial properties. You can invest in individual properties or diversified portfolios.
Best for: Investors who want to diversify across multiple properties with relatively small amounts of capital.
Pros:
- Very low minimums (as little as $10 on some platforms)
- Access to institutional-quality deals previously unavailable to small investors
- Passive investment with professional management
- Open to non-accredited investors on many platforms
Cons:
- Highly illiquid — money typically tied up for 3-7 years
- Fees vary widely and can be high (1-4% annually)
- Platform risk if the company fails or changes terms
- Limited track record for newer platforms
Key considerations: While Clark understands the appeal of crowdfunding platforms for those wanting real estate exposure without property management, he has reservations about the high fees these companies often charge. He notes that these platforms “often charge high fees and lock up your money for years at a time,” and that “boring is better when it comes to long-term investing.”
Minimum investments typically range from $10 to $25,000, depending on the platform and whether you’re an accredited investor.
Popular platforms include Fundrise (minimum $10) and Yieldstreet (minimum $10,000).
6. Real Estate Investment Trusts (REITs)
REITs are publicly traded companies that own and operate income-producing real estate. When you buy REIT shares, you’re investing in a company’s portfolio of properties without directly owning any real estate. They trade on stock exchanges just like regular stocks.
Best for: Investors wanting real estate exposure without property management, with the ability to buy and sell easily.
Pros:
- Highly liquid — buy and sell instantly during market hours
- Low minimum investment (cost of one share, often $50-200)
- High dividend yields (required to pay out 90% of income)
- No maintenance, tenant, or property management hassles
Cons:
- Subject to stock market volatility
- No direct ownership tax benefits like depreciation
- Dividends taxed as ordinary income (not qualified dividends)
- Sensitive to interest rate changes
Key considerations: REITs are highly liquid — you can buy and sell shares instantly during market hours. They’re required by law to distribute 90% of taxable income to shareholders as dividends, making them attractive for income investors. You can invest with as little as the cost of one share (often $50-200).
Popular individual REITs include Prologis (PLD) for industrial warehouses, Realty Income (O) for retail properties, American Tower (AMT) for communications infrastructure, and Public Storage (PSA) for self-storage facilities.
7. Real Estate ETFs and Mutual Funds
Real estate exchange-traded funds (ETFs) and mutual funds invest in a basket of many different REITs and real estate company stocks, providing instant diversification across the entire real estate sector with a single purchase.
Best for: Investors wanting the broadest possible real estate exposure with maximum simplicity and liquidity.
Pros:
- Maximum diversification (50-150+ REITs in one purchase)
- Extremely low fees (expense ratios often 0.07-0.40%)
- Most liquid option — trade anytime like stocks
- Simplest approach — no research on individual REITs needed
Cons:
- No control over which REITs are included
- Less targeted exposure — can’t focus on preferred sectors
- No direct ownership tax benefits
- Lower dividend yields than individual REITs due to diversification
Key considerations: Clark, a long-time real estate investor himself, strongly recommends this approach for most people. His advice on real estate investing emphasizes limiting fees, minimizing risk through diversification, and taking a long-term approach. He thinks most people who want to invest in real estate should focus on low-cost, well-diversified REIT index funds or ETFs.
These funds hold dozens or hundreds of different REITs, spreading your investment across multiple property types and geographic locations. They trade like stocks with very low expense ratios (often 0.07-0.40%). You get immediate diversification without researching individual REITs.
Popular real estate ETF examples include Vanguard Real Estate ETF (VNQ) with 150+ REITs and a 0.13% expense ratio, Schwab U.S. REIT ETF (SCHH) with 120+ REITs and a 0.07% expense ratio, and Real Estate Select SPDR Fund (XLRE), which holds only S&P 500 REITs with a 0.08% expense ratio.
Which Real Estate Investment Is Right for You?
The best real estate investment depends on your available capital, time commitment, risk tolerance, and investment goals.
If you’re willing to put in the work and want maximum control, long-term rentals or house hacking offer the best starting points. If you want passive income with minimal involvement, REITs and real estate ETFs provide easy access to real estate returns. Crowdfunding and RELPs fall somewhere in between, offering passive investing with potentially higher returns but less liquidity.
For most investors, Clark’s recommendation is clear: Focus on low-cost, well-diversified REIT index funds or ETFs. While they may not be as exciting as “get rich quick” real estate schemes, they offer the diversification, low fees, and liquidity that make them suitable for the vast majority of people.
Remember that all real estate investments carry risk. Do thorough research, understand the costs involved, and consider consulting with a financial advisor before making any major investment decisions.
The key is to start somewhere. Real estate investing has created wealth for countless individuals, and with these diverse options, there’s a strategy that can work for nearly any budget and lifestyle.
