How to Buy Real Estate for Investment Purposes

Real estate has made more people wealthy than just about any other investment type or class in history. It’s one of the linchpins of wealth generation. And the good news is that it’s accessible to everyone. But in order to buy real estate for investment purposes, there are some things you need to know.

Primary Types of Real Estate Investments

One of the best things about real estate, as an investment vehicle, is that there are so many different types. This allows you to pursue investments in niches or sectors that align with your investment goals or interests. While by no means a comprehensive list, here are some of the most common types of real estate that investors plug their money into:

  • Residential properties. For first-time real estate investors, residential properties are usually the easiest. This is simply due to the availability and familiarity that people have with residential real estate in their personal lives. Within this category, there are several different types of properties – single-family homes, multi-family homes, and vacation rentals (to name a few).
  • Commercial properties. As you build an investment portfolio, you might also consider commercial properties as a way to get a different type of exposure and upside. This includes office buildings and retail spaces. 
  • Industrial properties. One real estate investment speciality with huge upside is industrial real estate. This includes warehouses and distribution centers, which yield long-term growth and a track record of stability.
  • Raw land. While it might not be as attractive to someone who doesn’t know much about real estate, raw land can make for a great investment. Some of these investments are purchased for the purpose of reselling later to a developer. Other raw land investments consist of timberland or farmland, which can produce cash flow.

Again, there are certainly other real estate investments you can make – including mobile home parks, storage facilities, etc. – but these are a few of the most common. And if you’re just getting started, it’s likely that your first investment will happen in one of these categories.

Key Investment Strategies

If you’re buying real estate for investment purposes, there are several different strategies you can use to generate a return on your investment. Some strategies focus on short-term immediate cash flow, while others are more geared toward long-term property appreciation. And then there are some that act as a “hybrid” of sorts, generating some cash flow now while also allowing you to benefit in growth over time. Here are a few key investment strategies:

  • Buy and hold. If you have the intention of holding a property for several years, this would classify as a buy and hold investment. Depending on the type of investment, it might be a “pure” hold – where you’re just sitting on a piece of raw land for several years. Or it could be a buy and hold where you lease the property out in the short term and generate monthly cash flow.
  • Fix and flip. With a fix and flip, you purchase undervalued or distressed properties, renovate them, and then turn around and sell it for a profit as quickly as you can. This strategy is not as easy as HGTV makes it seem, however, it can be quite profitable if you have the knowledge and renovation skills. The big benefit here is that you can generate a healthy ROI in a short amount of time. However, it’s also possible to make mistakes with your calculations and end up underwater. 
  • REITs. If you’re looking to get real estate investment exposure without actually owning the property, you might look into real estate investment trusts (REITs). These are publicly traded companies that own, operate, or finance income-producing real estate and then pass those profits on to the investors. This approach offers diversification and liquidity with lower capital requirements than directly owning the property yourself. This is suitable for investors who want passive income without lots of responsibilities.

There’s no such thing as a “one size fits all” real estate investment. The strategy you use will depend on your time horizon, down payment, financing strategy, location, etc.

Are You Ready to Buy Real Estate for Investment Purposes?

Before diving headfirst into any real estate investment, you have to understand your own financial picture and whether or not you’re ready to buy something. This starts with evaluating your personal finances. 

Begin with a detailed budget so that you can understand your cash flow and identify areas where you can save more to increase your investment fund.

You’ll also need to look at your credit score and mortgage options. Your credit score significantly impacts your ability to secure financing for your real estate investment. A higher credit score typically means better loan terms, such as lower interest rates and higher loan amounts.

Don’t forget to budget for initial and ongoing costs as well. 

  • Initial costs include the down payment, closing costs, and any necessary repairs or renovations to make the property rentable or sellable. 
  • Ongoing costs encompass property taxes, insurance, maintenance, and property management fees if you decide to hire a management company. These expenses can add up quickly, so it’s important to budget accurately and ensure you have sufficient funds to cover them without straining your finances. 

Additionally, setting aside money for unexpected expenses or vacancies is wise for anyone considering buying real estate as an investment, as this can impact your cash flow and overall investment returns.

One final word to the wise: You’ll want to have an emergency fund for your real estate investments. The market can be unpredictable, and having a financial cushion can help you navigate tough times without having to liquidate your assets prematurely. 

An emergency fund gives you a safety net to cover unexpected repairs, legal issues, or periods of vacancy where rental income might be reduced or nonexistent. Ideally, this fund should cover at least six months of operating expenses, though any amount is better than none at all.

Finding the Right Real Estate for Investment Purposes

Once you know what type of property you want to invest in, the strategy you’re going to use, and your financial readiness, it’s time to actually dig in and evaluate deals that you encounter. Here are a few suggestions for finding the right property:

Work With Real Estate Agents and Brokers

Having a real estate agent or broker can streamline your property search. They have in-depth knowledge of local markets and access to a wide range of property listings. They can also help you identify properties that meet your investment criteria and negotiate favorable terms on your behalf.

Utilizing Online Resources

Online real estate platforms, such as Zillow,, and Redfin, provide a convenient way to browse property listings and gather market data. These platforms offer tools to filter properties based on your criteria, such as location, price range, property type, and size. Additionally, real estate investment websites, such as BiggerPockets, offer forums, calculators, and educational resources to help you make informed decisions.

Conduct Comparative Market Analysis (CMA)

A CMA involves comparing the property you are interested in with similar properties that have recently sold in the area. This analysis helps you determine a fair market value for the property and avoid overpaying. A CMA considers factors such as the property's size, condition, location, and amenities. Your real estate agent or broker can assist with preparing a CMA, ensuring you have accurate and up-to-date information.

Consider Rental Income Potential

For rental properties, evaluating potential rental income is crucial. Research local rental rates for similar properties to estimate the income you can expect. Consider the property's occupancy rate, as high vacancy rates can significantly impact your cash flow. Also, do your research and make sure the potential rental income covers your mortgage payments, property taxes, insurance, and maintenance costs while providing a reasonable profit margin. Investors refer to this as your capitalization rate, or “cap rate.”

The more detailed you are on the front end, the less risk and variability there will be once you actually enter into an investment. And while no amount of research can protect your downside completely, it can certainly prevent you from ending up in a situation where you get totally burned on a deal.

Financing Your Real Estate Investment

Very few people are buying real estate with 100 percent cash. And even the people that can, rarely do. That’s because it makes a lot more sense to leverage your cash with strategic financing. 

You can get extremely creative with how you finance real estate and the different methods you use to put deals together; however, there are two categories that most investors operate within:

  • Conventional loans. As the name suggests, this is the kind of mortgage that comes backed by a bank, credit union, or mortgage lender. They are not insured by the federal government and, as a result, usually require a higher credit score and larger down payment in order to qualify. Many lenders require a minimum of 20 percent down for investment properties.
  • Private/hard money lending. Because of the strict requirements that conventional lenders put in place, a lot of real estate investors opt to use private money lenders or hard money lending companies. These lenders use their own money to back deals, which allows them to offer more flexible terms and less strenuous approval processes. However, the investor usually pays for this flexibility via much higher interest rates.

Again, as with most things we’ve discussed on this page, there are additional options that exist outside of these categories. But if you’re trying to think about financing through the lens of the most common approaches, most deals are tied to conventional financing or private/hard money lending.

Making the Purchase

When it comes to making the actual purchase of an investment process, be prepared for lots of swinging and missing. Making smart offers is the name of the game. And when you make smart offers, you’re often going to get outbid by other investors who act on impulse or emotion. But that’s okay – because you’ll eventually find a deal that makes sense.

Always make investments with your brain and not your heart. Assuming you’ve done your CMA with thorough due diligence, you can approach the negotiating table with confidence. You’ll need to work with your real estate agent to prepare and submit a good offer. At that point, there will likely be some back and forth negotiation to see if you can put a good deal together.

Once an offer is accepted, there will be a period for inspections and due diligence by both sides. Assuming everything goes as planned, documents will be signed, funds will be transferred, and the property becomes part of your real estate investment portfolio.

Build your Real Estate Investment Portfolio With

If you’re looking to buy real estate for investment purposes, can help you get connected to the right properties so that you’re able to build a portfolio that aligns with your goals and needs. 


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Real estate can be an important part of a holistic investment and retirement portfolio.