15 Ways to Invest in Real Estate in Your 20s

Thinking about investing in real estate for the very first time? Maybe you've already dipped your toes into the real estate waters but aren't sure of the best ways to maximize your portfolio returns? Well, you've come to the right place.

Let's take a look at 15 ways you can invest in real estate in your 20s and beyond.

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If you want to instantly diversify your capital within the real estate space, and enjoy regular dividend payments on top of that, a mutual fund can be an excellent place to park some of your cash.

The composition of real estate mutual funds can take a variety of forms, but many of them invest in a combination of assets, including public companies operating in the real estate industry, real estate investment trusts (REITs), exchange-traded funds (ETFs), and other securities.

A defining element of any mutual fund is that its composition shifts with time as these funds are actively managed. The long-term objective of a mutual fund is to outpace the returns of the market.

ALSO READ: What Is a Real Estate Investment Fund?

There are a few key differences between real estate index funds and real estate mutual funds. In contrast to the actively managed profile of a mutual fund, index funds are managed passively.

Why is this? Well, whereas a mutual fund's performance is representative of the various securities it holds, an index fund follows a particular market index's performance.

However, like mutual funds, you can enjoy steady dividends and rapid diversification by investing in index funds. That's because your capital will be disbursed to all the companies represented by the index the fund follows.

While you won't achieve market-beating performance with an index fund, some investors prefer the consistency and lower fees these funds offer over mutual funds. The type of fund you invest in will depend on your portfolio goals and risk tolerance, but if you're looking to build a diversified portfolio, there's no reason you can't invest in both.

Another fund option that will distribute your capital across a range of assets is an exchange-traded fund (ETF). An ETF is a dividend-paying vehicle comprising various asset types, such as real estate stocks or REITs.

In terms of performance expectations, an ETF most often aligns with an individual market index. An ETF also bears significant similarities to a mutual fund. However, while you can trade an ETF at its current price at any given moment-- just like you would if you were buying shares of a specific company -- a mutual fund can only be bought at its closing price for that day.

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If you'd like to invest some of your capital in a physical property but don't want to take on the burden of being solely responsible for purchasing one, a real estate limited partnership (RELP) could be worth considering. RELPs can take a few forms.

Usually, a RELP comprises multiple investors who combine their resources to buy a property and/or rent it out or even invest in a real estate development project to maximize their overall returns.

Another way to invest in real estate without being solely responsible for buying a property is to participate in real estate crowdfunding through an online platform. Utilizing a tool like crowdfunding allows investors to diversify into various types of real estate (i.e., apartment complexes, mixed-use communities, office complexes, etc.) that might be unattainable otherwise.

The minimum investment required to participate varies by platform. A few popular platforms include CrowdStreet, Fundrise, RealtyMogul, and DiversyFund. In some cases, you can start with an investment as modest as $1,000, sometimes even less.

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Real estate investment groups (REIGs) are another option for maximizing the power of your investment capital without being the sole owner of a physical property. Combining your capital with other investors provides you opportunities to invest in various types of real estate while sharing each venture's risks (and returns). Depending on your real estate investing goals and interests, you can join an existing REIG or form your own with other investors.

ALSO READ: How to Invest in Real Estate: A Complete Guide

If your real estate investing interests center around rentals, but you're not inclined or in a position to purchase your own property to rent outright, you still have options.

Online marketplaces such as Arrived Homes and Roofstock actually allow you to purchase fractional shares of rental properties and generate income in the process. You can also buy investment properties outright through platforms like Roofstock and let their team connect you with local professionals who can help manage the property for you.

Depending on the platform you use, you could invest in single-family rentals, vacation rentals, and more. Bear in mind that these platforms often have specific accreditation and minimum investment requirements you must meet. As with any investment option, do your due diligence before taking the leap to ensure it is the right fit for your current financial situation and portfolio goals.

This is, by far, one of the most time-intensive and expensive ways to invest in real estate, but it can also be one of the most rewarding. If successful, purchasing a property to rent out can produce consistent income for years. Likewise, buying and renovating a fixer-upper and selling it for a considerably higher price is a tried-and-true formula used by many well-known real estate titans.

However, buying a house to rent or flip isn't a venture that should be taken lightly, and you can grow your real estate portfolio through other means requiring far less time and capital.

ALSO READ: The Best Real Estate Dividend Stock for a Lifetime of Passive Income

You can also take a picks-and-shovels approach to investing in real estate. There are plenty of publicly traded companies you can easily invest in through your brokerage account and that are involved in various real estate sectors. By investing in housing stocks, you can invest in companies doing everything from building homes to facilitating all types of real estate transactions.

If you're looking to invest in real estate via a less-traditional route, mortgage note investing could be an avenue to consider. Investing in mortgage notes can enable you to generate multiple income streams, with performances that can outpace traditional funds or individual equities.

As with any investment, investing in mortgage notes is not without risk. If this option interests you, you can get into buying mortgage notes in various ways, including through investment platforms, note brokers, crowdfunding platforms, note funds, and even banks.

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As with buying a house to rent or flip, real estate wholesaling is not for the faint of heart. Unsure how real estate wholesaling works? Here's a quick example.

In a real estate wholesale transaction, you (the wholesaler) find a homeowner looking to sell their home, typically a low-cost home that needs renovating. Let's say you arrange with the homeowner to sell the home for $150,000. You would then find a buyer (most often an investor) and contract with them to buy the house for $170,000, keeping the remainder.

This is a very rudimentary illustration of how real estate wholesaling works. The bottom line: It doesn't require you to buy a property or put down a big initial investment (other than time).

In addition to having considerable time to spare, you may be required to adhere to specific licensing procedures based on the area in which you live and the property is located.

ALSO READ: Real Estate Investing: Is House Flipping a Huge Waste of Time?

Another way to generate real estate income is to rent out a room in your home or even use your entire home as a vacation rental. You can create a steady secondary income source over time. Going this route will require researching your local landlord-tenant laws and zoning rules, and you will need to report any rental income you earn on your tax return.

We've briefly touched on REITs as assets frequently featured in mutual or index funds. But you can also invest in specific REITs across many sectors and forms of real estate.

On its most basic level, a REIT is an entity that generates income by owning and controlling various types of real estate or real estate-related assets. REIT portfolios can feature all types of real estate, ranging from apartment complexes to commercial buildings to industrial facilities.

As an individual retail investor, REITs can pose an attractive opportunity to enjoy returns in the forms of share price increases and consistent dividend income. And due to the way REITs are structured, by law, these entities are required to fork over at least 90% of their taxable earnings every year to investors as dividends.

There are a few different types of REITs. An equity REIT produces income by owning and leasing out various kinds of physical real estate.

ALSO READ: Are REITs a Good Investment?

Another popular type of investment vehicle is a hybrid REIT. Whereas an equity REIT holds only properties in its portfolio, a hybrid REIT holds both properties and mortgages. Investors seeking to expand their individual portfolios beyond income-producing real estate may like hybrid REITs as a way to enjoy returns from mortgage loans without investing in the actual mortgage notes.

The third and final REIT type is a mortgage REIT. Mortgage REITs generate income solely from mortgages. A mortgage REIT can do this a few ways, including by buying existing mortgage loans, serving as a mortgage loan originator, and/or investing in other mortgage-backed securities.

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Real estate investing is one of many ways to build a diversified investment portfolio that stands the test of time and generates stable returns over a period of years. When discussing investing in real estate, most people think of more traditional methods, such as purchasing a physical property to flip or rent out. While these are certainly options, there are far less time-consuming (and cost-effective) ways to invest in real estate, whatever your age, risk profile, or investment goals.

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