Five ways to invest, compared
| Method | Money to start | Liquidity | Work involved | Main risk |
|---|---|---|---|---|
| Publicly traded REIT or REIT ETF | Price of one share (or less with fractional shares) | Sell any trading day | None | Stock-market volatility, interest-rate sensitivity |
| House hacking (live in one unit, rent others) | 3.5%–5% down on a 2–4 unit home, plus closing costs | Low | High | Vacancy, repairs, living next to tenants |
| Rental property | 15%–25% down plus reserves | Low (months to sell) | High, or pay a manager | Leverage, vacancy, repairs, concentration in one property |
| Crowdfunding / eREITs | From $10 on some platforms | Limited; early-exit penalties or one-year resale limits | None | Illiquidity, fees, sponsor risk |
| Non-traded or private REITs | Varies | Very low | None | 10%–15% upfront fees, hard to value or sell |
Source: SEC Investor Bulletin on publicly traded REITs; SEC crowdfunding bulletin; SuperMoney; BiggerPockets; NerdWallet Fundrise review.
REITs and REIT ETFs: the hands-off option
A real estate investment trust (REIT) is a company that owns and usually operates income-producing property: apartments, warehouses, cell towers, data centers, offices, shopping centers. By law it must pay out at least 90% of its taxable income each year, which is why REITs are known for dividends. Equity REITs own buildings. Mortgage REITs own real estate debt; they use more leverage and are more sensitive to interest rates.
The simplest approach is a REIT index fund, which spreads your money across more than a hundred companies. Two widely held examples, with data as of late June 2026:
| Fund | Expense ratio | Dividend yield | Holdings | Assets |
|---|---|---|---|---|
| Vanguard Real Estate ETF (VNQ) | 0.13% | 3.64% | 145 | $69.8 billion |
| Schwab U.S. REIT ETF (SCHH) | 0.07% | 2.78% | 123 | $10.0 billion |
Source: The Motley Fool, VNQ vs. SCHH, data as of June 26, 2026. Yields change daily.
You can buy either through any brokerage; our best stock brokers guide compares platforms. Keep in mind that a REIT fund moves with the stock market, not with your local home prices. It can fall sharply in a selloff even when rents are steady.
Watch out for non-traded REITs. They are registered with the SEC but don’t trade on an exchange. The SEC notes upfront fees typically run 10% to 15%, and you may not be able to sell for years. Private REITs are generally limited to accredited investors and file few public reports.
Buying a rental property
Financing
Loans for properties you won’t live in cost more and require more cash. Conventional lenders typically want 15% to 25% down on a single-unit rental and at least 25% on a 2–4 unit building you won’t occupy. Investment-property rates typically run 0.5 to 1.5 percentage points above primary-home rates. For reference, Freddie Mac’s average 30-year fixed rate was 7.28% on October 1, 2026, the highest since November 2023. Lenders also often want 6 to 12 months of payments in reserve. DSCR loans qualify you based on the property’s rent instead of your salary, usually with 20% to 25% down. Compare lenders in our mortgage lender guide.
A realistic cash-flow example
Here’s a hypothetical $300,000 single-family rental bought with 25% down ($75,000) and a $225,000 loan at 8.0%. Every input is an assumption; plug in real quotes and local numbers before you buy.
| Monthly line item | Amount |
|---|---|
| Rent | $2,300 |
| Vacancy allowance (7%) | −$161 |
| Property tax | −$275 |
| Insurance | −$150 |
| Maintenance and repairs (10% of rent) | −$230 |
| Property management (8% of rent) | −$184 |
| Net operating income | $1,300 |
| Mortgage principal and interest | −$1,651 |
| Monthly cash flow | −$351 |
Source: MoneyVerge illustration. Vacancy assumption is close to the 7.3% national rental vacancy rate reported by the Census Bureau for Q2 2026.
This property loses about $4,200 a year in cash. Managing it yourself trims the loss to about $167 a month. Rent would need to be about $2,770 to break even. The deal can still make money through principal paydown (about $1,880 in year one) and appreciation, but you’re betting on both. Its 5.2% net yield before financing is below the 8% loan rate, which is why leverage hurts here instead of helping. When the property yields less than your borrowing cost, more debt makes results worse.
Before buying, also budget for closing costs, a reserve for big items like roofs and HVAC, and the months it takes to find tenants. For context, the Census Bureau put the national median asking rent at $1,531 in the second quarter of 2026, so check local comparable rents rather than assuming.
What landlords must do
- Follow fair housing law. The federal Fair Housing Act bars discrimination based on race, color, national origin, religion, sex, familial status or disability. State and local laws may add more.
- Lead paint disclosure. For housing built before 1978, you must disclose known lead-based paint hazards, give tenants the EPA pamphlet Protect Your Family from Lead in Your Home, and include required disclosure language in the lease.
- State and local rules cover security deposits, habitability, entry notice, evictions and rental registration. Learn them before you buy.
- Insurance. Tell insurers the home will be rented and confirm the policy covers that use. See our guide to home insurance companies to compare insurers.
House hacking
House hacking means buying a 2–4 unit property, living in one unit and renting the rest. Because it’s your home, you can use owner-occupant financing:
- FHA: 3.5% down on 2–4 units. For 3–4 unit properties, 75% of the expected market rents must cover the full mortgage payment (a “self-sufficiency” test).
- Conventional: since November 2023, Fannie Mae allows as little as 5% down on owner-occupied 2–4 unit homes, down from 15% to 25% before.
Lenders can count market rent from the other units to help you qualify. The trade-off: you’re a landlord who lives next door to your tenants, and the low down payment means thin equity if prices dip.
Real estate crowdfunding
Online platforms let you buy into property funds or single deals with small amounts. Fundrise, for example, starts at $10 and charges a 0.15% advisory fee plus a 0.85% management fee, according to NerdWallet’s July 2026 review; some of its funds charge about 1% to sell shares held under five years. Rules to know:
- Regulation Crowdfunding limits. If your income or net worth is under $124,000, you can invest the greater of $2,500 or 5% of the greater of the two in a 12-month period. If both are $124,000 or more, the cap is 10%, up to $124,000. You generally can’t resell for a year.
- Accredited-only deals. Many private offerings require you to be accredited: income over $200,000 ($300,000 with a spouse or partner) in each of the past two years, net worth over $1 million excluding your home, or a Series 7, 65 or 82 license.
- Risks. Individual deals can lose everything. Sponsors control timing of sales and payouts. Read the offering documents, especially fees and redemption rules.
How real estate is taxed
REIT dividends
Most REIT dividends are taxed as ordinary income, not at lower qualified-dividend rates. However, a 20% deduction for qualified REIT dividends under Section 199A was made permanent in 2025. That lowers the top effective federal rate on those dividends to 29.6% (from 37%), or 25.6% in the 32% bracket. Holding REIT funds in an IRA avoids the annual tax entirely; see our Roth vs. traditional IRA guide.
Rental property
- Report rent and expenses on Schedule E. Mortgage interest, property tax, insurance, repairs and management fees are deductible.
- Depreciation: residential buildings (not land) are depreciated over 27.5 years. In the example, if $240,000 of the price is the building, that’s about $8,727 a year.
- Paper losses: in year one the example shows a tax loss of about $11,059 even though the cash loss is about $4,212. If you actively participate, you can deduct up to $25,000 of rental losses against other income, but that allowance shrinks by 50 cents per dollar of modified AGI over $100,000 and disappears at $150,000.
- When you sell: depreciation is recaptured, with that portion taxed at up to 25%, whether or not you claimed it. A 1031 exchange into another investment property can defer the gain.
Risks to weigh
- Leverage cuts both ways. A 10% price drop on a property bought with 25% down wipes out 40% of your equity.
- Concentration. One rental is one building, one neighborhood and one tenant.
- Interest rates. Higher rates raise borrowing costs and tend to weigh on REIT prices.
- Illiquidity. Property, crowdfunding and non-traded REITs can take months or years to exit.
- Time. Self-managing a rental is a part-time job.
Before tying up a down payment, make sure you have an emergency fund separate from your property reserves, and no high-interest debt.
Frequently asked questions
What is the easiest way to invest in real estate?
A publicly traded REIT index fund. You can buy it in a regular brokerage account or IRA, it holds many properties, and you can sell any trading day. The trade-off is stock-market volatility.
How much money do I need to buy a rental property?
For a property you won't live in, conventional lenders typically want 15% to 25% down, plus closing costs and cash reserves. On a $300,000 property, 25% is $75,000 before closing costs.
Is house hacking allowed with an FHA loan?
Yes. FHA loans allow 3.5% down on 2-4 unit properties if you live in one unit. Three- and four-unit properties must pass a self-sufficiency test where 75% of market rents cover the mortgage payment.
Do I need to be accredited to use real estate crowdfunding?
Not always. Some platforms and Regulation Crowdfunding offerings are open to everyone, with annual investment limits for non-accredited investors. Many private deals require accredited status.
Are REIT dividends qualified dividends?
Usually not. Most are taxed as ordinary income, but qualified REIT dividends get a 20% deduction under Section 199A, which lowers the effective rate.
What is depreciation recapture?
When you sell a rental, the depreciation you claimed (or could have claimed) is taxed at up to 25%. A 1031 exchange into another investment property can defer it.
Sources
- SEC Investor.gov – Investor Bulletin: Publicly Traded REITs
- SEC Investor.gov – Investor Bulletin: Crowdfunding for Investors
- SEC Investor.gov – Investor Bulletin: Accredited Investors
- U.S. Census Bureau – Quarterly Residential Vacancies and Homeownership, Second Quarter 2026
- Trading Economics – US 30-year mortgage rate (Freddie Mac PMMS), Oct. 1, 2026
- HUD – Housing Discrimination Under the Fair Housing Act
- EPA/HUD – Lead-based paint disclosure rule fact sheet
- National Tax Tools – Rental income tax guide
- WealthManagement.com – OBBBA makes permanent a tax deduction that benefits REIT stockholders
- SuperMoney – How much down payment for an investment property?
- Spark Rental – Fannie Mae and Freddie Mac rental property loans
- BiggerPockets – Housing just got way more hackable: 5% down for 2-4 units
- NerdWallet – Fundrise review 2026
- The Motley Fool – VNQ vs. SCHH: which real estate ETF is the better buy
Rates, fees and terms change often. Figures were checked in October 2026; confirm current details with the provider before you apply.