Creative Ways to Invest in Real Estate for Beginners

In a typical real estate deal, you find a property listed on the multiple listing service (MLS) or through a real estate agent, get a loan from the bank to buy it, rent it out, and then wait for its value to go up before selling. However, there are many more creative ways to invest in real estate.

These nontraditional real estate investment methods are especially great for those who don’t have a lot of cash for a down payment, need help finding good deals, or just have unique situations. Here, we’ll cover some creative real estate investing methods (with their pros and cons) and explain how they can benefit first-time investors.

Why should I invest in real estate?

Adding real estate to your portfolio can be a smart move because it diversifies your investments, potentially reducing risk. Real estate can provide steady rental income, and properties often appreciate over time, boosting your overall returns. Plus, real estate can act as a hedge against inflation, protecting your wealth.

Whether you rent out your properties for extra cash or hold onto them until you can sell for a big profit, you can build a strong investment portfolio by just putting down a small percentage of the property’s total value upfront.

However, keep in mind that real estate investments come with both potential gains and risks, and the market can fluctuate.

What is creative real estate investing?

Creative real estate investing involves using unconventional methods to buy, sell, or manage properties. This can include strategies such as house hacking, crowdfunding, and tax lien investing besides investing in REITs and REIGs. All these allow investors to enter the market with less capital or find unique ways to generate returns.

What are some creative ways to invest in real estate?

Buy rental properties

Owning rental properties is a good investment option if you’re handy and can invest the time needed as a landlord. Moreover, you’ll have to market the property and handle maintenance. And, don’t forget, you’ll have to deal with tenants who don’t pay rent on time. Even though you can get a mortgage with a low down payment, you’ll still need a good amount of cash for initial maintenance and to cover periods when the property is vacant. And, the best part is that once you start making money, you can use that income to buy more properties. Over time, you can build a nice stream of income from multiple rentals.

Pros

Provides regular income and potential for property value to increase
You can leverage one property to buy more
Many expenses are tax-deductible

Cons

Managing tenants can be a hassle
Unexpected costs can cut into your income
Long-term vacancies can reduce your income

Flip a house

House flipping is an ideal option for those who know a lot about real estate, marketing, and home renovations. How it works is that house flippers buy undervalued properties, fix them up, and sell them quickly for a profit. Of course, there is a certain amount of risk if you can’t sell the property fast enough. Especially if you do not have the cash to hold onto it for long. Some flippers just buy and sell without making improvements, but others renovate to add value.

Pros

It’s generally a profitable way to tie up your money for a short time
Has the potential for a big return on investment (ROI)

Cons

Requires a deep knowledge of the real estate market
It is subject to market fluctuations which can change suddenly

Invest in Real Estate Investment Groups (REIGs)

REIGs are perfect real estate investments if you have some money and want to own rental properties without managing them yourself. These groups work like a small mutual fund. They pool money from investors to buy or build apartments or condos. The group manages everything for the investors – from home maintenance to finding tenants. And, for these services, they take a cut of the rent. This way, you still earn income even if your unit is vacant.

Pros

It’s less hands-on than owning rentals
Provides income and potential for value appreciation

Cons

There’s a risk of vacancies
Fees can be high
There may be a risk of bad management

Consider Real Estate Investment Trusts (REITs)

REITs are great if you want to invest in real estate without buying properties. REIT uses investors’ money to buy and operate income properties. Keep in mind that they are big players in the real estate industry – with access to commercial properties such as malls or office buildings, which are hard to buy on your own. What’s unique about them is that they are traded on stock exchanges and are quite liquid. Moreover, these REITs must pay out 90% of their profits as dividends to investors. Therefore, they become a good choice for regular income.

Pros

Pays dividends regularly
Core holdings are usually long-term, income-generating assets
Many are traded on exchanges and are liquid

Cons

There is a risk of real estate market downturns
Some REITs can be hard to sell if they’re not traded publicly

Read more: REIT vs REIGs

Engage in house hacking

House hacking is one of the most interesting and creative ways to invest in real estate. It works when you live in one unit of a multi-family property and rent out the others. This approach can help you generate rental income to significantly offset your mortgage payments and living expenses.

Pros

There is good income generation which can cover some part of your mortgage payments.
You can live for free or at a very low cost while also building equity in your property.
It gives you real-world experience in property management and real estate investing.

Cons

Dealing with tenants can be challenging and time-consuming.
Living close to your tenants may require compromising on privacy.
You’ll be responsible for the upkeep and maintenance of the entire property, which can be demanding.

Utilize online platforms for real estate crowdfunding

These platforms let you join others to invest in large real estate deals. It’s a way to get into this industry with a smaller investment. They work by connecting property investors with real estate projects that need funding.

Pros

It’s a good opportunity to invest in specific projects or a portfolio
Offers geographic diversification

Cons

Can face long lockup periods
High management fees can reduce profits

Consider tax lien investing

Tax lien investing involves buying tax liens from local governments. When property owners don’t pay their property taxes, the government places a lien on the property and sells it to investors. The property owner must repay the lien with interest, or the investor might end up acquiring the property.

Pros

Can provide significant returns due to high interest rates on unpaid taxes.
Offers the chance of property ownership at a discounted price if the lien isn’t repaid.
Investing in tax liens can diversify your real estate portfolio with relatively low initial costs.

Cons

There’s always a risk the property owner will not repay the lien. This may lead to potential legal and foreclosure processes.
Requires understanding of local laws and complex processes.
Can take a long time to see returns, especially if you end up having to foreclose on a property.

What are the real estate investment tips every beginner should know?

Begin by reading books and attending seminars, online forums, and courses on real estate investments. The more you know, the better equipped you’ll be to navigate the complexities of real estate. Plus, you can learn a lot from shared experiences of others’ successes and mistakes.
Keep up with the latest trends and changes in the real estate market through blogs, podcasts, and industry news.
Kick off with smaller investments to build your experience and confidence. You could buy a single rental unit, invest in a minor stake in a tax lien, or participate in a real estate crowdfunding platform.
Understand the practical aspects of real estate investing without taking on too much risk.
Engage with other investors, real estate agents, property managers, and other professionals in the field. Networking can open doors to new opportunities and provide valuable market insights.
Before you invest, do your due diligence. Investigate properties, markets, and specific investment opportunities before committing. This involves analyzing market trends, property conditions, and potential returns.
Check and verify all the facts – from the legal status of the property to the credibility of any partners. This helps mitigate risks and ensures a successful investment.
Look into various financing options – from traditional mortgages to creative methods such as seller financing, hard money loans, or partnerships. Choose the one that best suits your financial situation and investment strategy.

Creative ways to invest in real estate: Last thoughts

Starting your real estate investment journey doesn’t require a ton of money or years of experience. By exploring some creative strategies, you can find a path that fits your financial goals, risk tolerance, and comfort level.

These creative ways to invest in real estate offer strategies to enter the market without relying solely on traditional methods. They provide flexibility and opportunities for new investors with different financial situations and goals.

Profitable and creative ways to invest in real estate was last modified: January 5th, 2025 by Ramona Sinha

Written by Ramona Sinha. July 4, 2024

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.