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Investing in real estate has historically been a reliable way to build wealth. Property values tend to increase over time, and real estate investing often comes with . Plus, real estate helps you diversify beyond asset classes like and .

Fortunately, there are plenty of ways to invest in real estate, no matter what your budget or preferred level of involvement. Here are eight ideas to get you started.

Buying a primary residence is how many beginners get their start as real estate investors. You build home equity every time you make your monthly mortgage payment. Given that real property tends to appreciate over time, owning a home is often a good investment when you stay put for the long term. An owned residence is the most valuable investment for many households in the U.S.

Though a 20% down payment used to be the norm, a typical down payment for first-time home buyers is around 9%, according to the National Association of Realtors. However, you may be able to put down as little as 3% (or 0% if you’re a veteran who qualifies for a ).

Be prepared for lenders to scrutinize your finances if you’re . Many lenders want to see that your total housing expenses – meaning your mortgage, plus your property taxes and insurance – .

If you want to generate income through your real estate investments, becoming a landlord could be a logical move. You could rent out a home you already own or buy an investment property.

But think carefully about your financial goals before making this leap. Many people think becoming a landlord is a good way to earn passive income. But many experienced landlords will tell you that renting out properties is anything but passive. You’ll need to research your local market to determine rent, advertise your property, screen potential tenants, handle maintenance and repairs, and deal with legal issues if your tenants stop paying rent or damage your property.

If you want to be a landlord but don’t want to deal with day-to-day issues, you could hire a property manager. The average property management company charges between 8% to 12% of monthly rent, though, so be prepared for these costs to take a bite out of your profits.

Pro tip: Many lenders require a down payment of at least 15% if you’re buying an investment property.

House flipping is a real estate investment strategy where you buy a property with the goal of reselling it at a profit in a short timeframe, often less than a year. Some house flippers buy a fixer-upper, undertake renovations and repairs and then sell the home at a higher price. Others look for homes in areas where home values are rapidly rising, aiming to profit from strong local market conditions.

Many house flippers who buy fixer-uppers follow what’s known as the 70% rule. Essentially, the purchase price and the cost of repairs shouldn’t add up to more than 70% of the home’s after-repair value (ARV), which is the amount you believe the home could be worth after renovations.

Say you estimate a home’s ARV will be $200,000, but it requires $50,000 worth of repairs.

Under the 70% rule, you’d calculate the maximum price you’re willing to pay as follows:

• $200,000 (estimated ARV) x 0.7 = $140,000

• $140,000 – $50,000 (estimated repairs) = $90,000 maximum purchase price

House hacking is a real estate strategy where you buy a home and live there while also using it to generate rental income. House hackers typically buy a multifamily property, like a duplex or triplex, and live in one unit while renting out the other(s), using the rental income to cover their and other housing costs. Of course, you have to be willing to be a landlord to people living close to you.

Here are some common house hacking strategies:

• Buy a multifamily property. The most common approach to house hacking is to buy a multifamily property and live in one unit while renting out the others. For example, say you took out a 30-year fixed-rate mortgage at a 6% interest rate for $300,000 to buy a triplex. Between principal and interest, taxes, property insurance, and private mortgage insurance (PMI), your mortgage payment is around $2,600 per month. But if you find two renters who are each willing to pay $1,500 in monthly rent, you could cover your housing expenses and pocket an extra $400 per month.

• Build an accessory dwelling unit. An accessory dwelling unit (ADU) is a secondary housing unit on a single-family home property. Some house hackers buy a primary residence where they can build an ADU and use it to generate rental income. An ADU can be a garage apartment, or it can be an existing space, like a basement that you convert into a rental space. You could also build a detached structure, like a backyard cottage or tiny home. Just make sure you find out what’s allowed under your local zoning codes if you want to try this real estate investment strategy.

• Rent out extra space on Airbnb or VRBO. If you have extra bedrooms or living space, you could try using a short-term rental platform, like Airbnb or VRBO, to earn extra money. Again, find out what’s permitted under local laws before you post your listing. Also, many homeowner associations (HOAs) have strict rules around short-term rentals. For example, some HOAs require a minimum lease of 30 days or one year.

• Get roommates. If you’re willing to share your living space with others, getting roommates is probably the simplest way to become a house hacker. But be sure to have your roommate sign a contract that spells out their rent and household rules before you hand over the keys.

A real estate investment trust, or REIT, allows you to invest in real estate without actually buying properties.

A REIT is a security that owns (and typically operates) income-producing properties like apartment buildings, office complexes, warehouses, or data centers. They’re bought and sold on stock exchanges in the same way you buy and sell shares of stocks, which makes it easy to invest in publicly traded REITs using your brokerage account or individual retirement account (IRA).

Real estate investment trusts tend to be popular with investors seeking dividend income. Due to their tax structure, they’re legally required to pay out 90% of their annual taxable income to shareholders through dividends.

It’s also possible to invest in multiple REITs with a single investment through exchange-traded funds (ETFs). Many real estate ETFs are passively managed index funds that track the performance of the overall commercial real estate market in the U.S. or a large swath of it.

Online real estate crowdfunding platforms allow you to pool your money with other investors to fund real estate development projects. Many platforms offer crowdfunded REITs, which are often privately held. That means their shares don’t trade on the stock market.

Like publicly traded REITs, crowdfunded real estate can be a good source of But many platforms charge high fees and require significant minimum investments. Fundrise, for example, only requires $10 to start investing in real estate, but many crowdfunding sites have minimum upfront investments of $1,000 or higher.

A growing number of startups now allow you to buy . These investing platforms are similar to crowdfunding sites in that they allow multiple people to combine their money for a real estate investment.

The big difference is that when you buy fractional shares of real estate, you choose the individual property you want to invest in. Also, you’ll generally invest in single-family residential or vacation homes instead of commercial properties.

A is a group of private individuals who pool their money and expertise to invest in properties. Because you’re combining your resources with other investors, you can often invest in larger projects that may not be feasible for individual investors. Each REIG has its own criteria for membership, but many have an upfront minimum investment of $5,000 to $50,000, but requirements vary.

Like any investment, real estate comes with risks and rewards. Here are some pros and cons to consider before adding real estate to your investment portfolio.

• Property appreciation. Property values and rents tend to increase over time, making real estate a viable way to build wealth. One reason property values usually trend upward is that it’s impossible to create a larger supply of land in response to growing demand. Long-term appreciation can make investing in real estate a good hedge against inflation.

• Potential stream of income. Real estate can produce steady cash flow, whether you’re collecting monthly rent as a landlord or passively investing through REITs and earning dividends.

• Diversification. Investing in multiple asset classes, like stocks, bonds, and real estate helps you diversify your portfolio and spread out your risk. Though it’s possible for home prices or commercial real estate values to drop, the real estate market tends to be much less volatile than the stock market.

• Tax advantages. Real estate comes with a bevy of tax advantages. For example, homeowners who can deduct mortgage interest, while if you own rental property, you can deduct depreciation. You can also exclude up to $250,000 of capital gains for tax purposes (or up to $500,000 if you’re married filing a joint tax return) if you sell your main home at a profit.

• High up-front costs. You typically need a decent sum of cash for a down payment to buy physical real estate, particularly if you’re buying investment property. If you’re buying distressed properties with the goal of flipping them, you may need to pay cash, as lenders may be unwilling to provide financing.

• Ongoing expenses. If you own property, you’ll be responsible for maintenance and repairs, along with property taxes and insurance. It’s also essential to have enough savings to cover an emergency. Unexpected repairs can get expensive quickly. If you want to rent out your property, you also need savings in case your tenants fail to pay rent.

• Illiquid investment. Physical property is an illiquid investment, meaning you can’t easily cash in on your real estate holdings without incurring substantial costs.

• Interest rate sensitivity. High interest rates generally spell bad news for real estate because it costs more to borrow money. When mortgage rates are high, real estate prices don’t necessarily drop in response. Many homeowners may avoid listing their houses because they’ve locked in low mortgage rates and don’t want a new loan at a higher rate. Due to the low inventory, prices often remain high, creating a challenge for first-time buyers.

• Lower returns than the stock market. Though real estate is usually less volatile than stocks, the S&P 500 index has historically produced higher average annual returns than real estate.

• Tax liabilities. Though there are generous tax breaks associated with real estate investing, you could incur a large tax bill, particularly if you flip houses or make other short-term investments. For example, if you sell a home you owned for less than a year, your profits are treated as short-term capital gains and taxed at ordinary income rates. Rental income is also taxed as ordinary income, though many property owners can take advantage of tax deductions to reduce their liability.

You can invest in real estate by purchasing shares of REITs, using a crowdfunding platform, or joining a real estate investment group (REIG). You can also invest in real estate by buying physical property. Buying a primary residence, purchasing a rental property, and house hacking are examples of ways to invest in physical real estate.

Real estate refers to land and any physical structures attached to it. There are four main types of real estate:

• Residential real estate. Real estate where people can live, such as houses, apartments, and condominiums.

• Commercial real estate. Property that’s used for business purposes, like office space, stores, and restaurants.

• Industrial real estate. Land and buildings that are used for things like manufacturing, warehouses, data centers, and distribution.

• Vacant land. Land that doesn’t have property attached to it that you can develop and build structures on, as long as you comply with local regulations, such as zoning codes.

Expect a minimum down payment of 15% if you’re buying an investment property, though each lender has its own requirements. Lenders will also consider other factors, such as your , debt-to-income ratio, cash reserves and whether you have other mortgaged properties in setting the terms of your loan.

Real estate can be a good investment because properties tend to appreciate over time. Investing in real estate also provides diversification and tax advantages. However, investing in physical property comes with high upfront costs and low liquidity. In the long term, investing in U.S. stocks tends to produce better returns than real estate.

The 2% rule in real estate investing is a common rule of thumb for setting monthly rent. The rule states that investors are likely to generate positive cash flows if they can charge monthly rent of at least 2% of the purchase price. For example, if you purchased a $150,000 home, you’d aim to charge $3,000 per month in rent ($150,000 x 0.02 = $3,000) under the 2% rule.

Some house flippers use hard-money loans to finance home purchases. A hard-money loan is a short-term loan where the property you’re purchasing serves as collateral. The interest rates are usually higher than traditional mortgage rates. You’ll probably need to work with a private lender to obtain a hard-money loan, as few banks and credit unions offer them. Other options for financing house flipping include using a or a on your primary residence or saving money and paying cash.