With the right knowledge and strategy, real estate investing can be a powerful way to build long-term wealth. While getting started might feel overwhelming, following a few key steps can help you avoid common pitfalls and start strong.
This guide walks through the fundamentals of real estate investing, from choosing your approach and securing financing to making your first purchase and scaling your portfolio. Based on lending data from Groundfloor Lending, which funds thousands of rental, fix-and-flip, and new construction projects nationwide each year, we’ve outlined a clear path to help you begin.
Before you purchase a property, it’s important to understand your investment options. Real estate investing comes in many forms, each with its own requirements and potential returns.
Three core strategies dominate the real estate investment landscape:
This approach involves buying homes to rent out for monthly income and long-term appreciation. It builds wealth through cash flow and equity growth. Most investors start with single-family homes and expand into multifamily properties.
Fix-and-flip projects involve buying distressed properties below market value, renovating them, and selling for a profit. This strategy requires accurate budgeting, construction knowledge, and experienced contractors.
This strategy involves purchasing land or replacing outdated structures with new builds. New construction offers high return potential but comes with added complexity. You'll need to navigate zoning laws, permitting, and contractor coordination.
Start with a strategy that matches your financial goals, experience, and risk tolerance. Many investors begin with rental properties or small flip projects before moving into new builds.
A strong market foundation is essential. Successful investors learn how to evaluate population growth, employment trends, price-to-rent ratios, and historical appreciation.
Studying market dynamics helps identify neighborhoods with real demand. Even within a single city, investment opportunities vary block by block.
Look at city planning data, local business growth, and school district performance to gain a fuller picture. Tools like Rentometer or Zillow Rental Manager can provide quick insight into rent comparables.
A strong financial foundation is essential. Organizing your credit, savings, and reserves increases your odds of securing favorable financing.
Your credit score directly affects the loan terms you receive. Here are a few ways to strengthen it:
Each of these actions shows lenders that you are financially responsible. A higher score may improve your access to better rates and terms.
Most investment property loans require 20 to 25 percent down. On a $200,000 home, that means you’ll need at least $40,000 to $50,000.
In addition, maintain reserves for:
These funds help you manage uncertainty and prevent forced sales.
You don’t need six figures to get started. There are ways to invest with less capital by using creative strategies.
House hacking involves living in one part of a property while renting the rest. This might include:
You can qualify for owner-occupied financing with lower down payments while building equity and generating rental income.
Pooling funds with others allows you to share costs and risks. Consider:
Make sure all roles, contributions, and expectations are clearly documented to avoid future disputes.
Education is the foundation of confident investing. Start learning before you buy.
Many investors gain valuable insights from:
Absorb multiple viewpoints and adapt your strategy to the market where you’ll invest.
Partnering with experienced investors can accelerate your success. Attend local networking events, offer help with research or deal analysis, and consider internships or support roles at real estate investment companies.
A mentor can offer insights into sourcing deals, analyzing risk, and avoiding beginner mistakes.
Even small investors need a trusted team. Surround yourself with professionals who understand your investment goals and can help you execute.
Essential team members include:
The right team helps avoid costly surprises and keeps your deals on track.
Once you’ve built your knowledge base and network, it’s time to buy your first property.
Define your ideal property before you start searching. You might set guidelines around:
Clear criteria help you stay focused and avoid emotional decisions.
Run the numbers using standard investment formulas. Start with the cap rate equation:
Cap rate = (Net Operating Income ÷ Property Value) × 100
Also evaluate your cash-on-cash return:
Cash-on-cash return = (Annual Pre-Tax Cashflow ÷ Total Cash Invested) × 100
Use the 1% rule (monthly rent should equal at least 1% of purchase price) and the 50% rule (estimate half of gross rent for expenses) to screen deals quickly.
These formulas keep your analysis consistent and rooted in data.
Property management directly impacts your bottom line. Decide whether you’ll self-manage or outsource to a professional.
Advantages:
Challenges:
Many investors self-manage early on, then hire professionals as they scale.
Once you’ve successfully managed your first property, you can begin to expand strategically.
Each new purchase should support your long-term goals.
Growth is good, but only if it’s sustainable.
The amount varies based on your strategy. Most investment property loans require 20 to 25 percent down, plus reserves for renovations, taxes, and holding costs. Some approaches, like house hacking, reduce your cash requirements.
Yes. Options like house hacking, partnerships, or creative financing lower the entry barrier. Many new investors buy a small multifamily and live in one unit while renting the rest.
Every investment carries risk, but first-time investors can minimize it by analyzing deals thoroughly, keeping strong reserves, and working with experienced professionals.
Most beginners start with single-family homes or small multifamily properties (like duplexes). These tend to be easier to finance and manage.
Becoming a real estate investor is about more than making your first purchase. It’s about developing the skills, systems, and support to grow sustainably.
Groundfloor Lending works with investors nationwide to fund rental properties, flips, and new construction projects. One borrower we worked with in Georgia took on a fix-and-flip project just outside of Atlanta. Things were going smoothly until an unexpected contractor issue delayed progress and added more than $8,000 in unplanned costs. Because they worked with Groundfloor and didn’t have monthly payments during the project, they had the flexibility to stay on track without draining their reserves.
That kind of financial breathing room matters, especially on your early deals.
Whether you’re ready to start or looking to expand, connect with our team to explore lending options that align with your goals.