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Investing guide · Updated November 2026

Real estate investing: how to start, in plain English

Real estate investing means buying property to earn money from rent, from a higher price when you sell, or both. Most people start one of four ways: a rental home, living in one unit of a small multifamily and renting the rest, a short-term rental, or a fix-and-flip.

Written by the AXEN Realty team. This is general education, not tax, legal or loan advice. How we write and check our guides.

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Your options

What are the main ways to invest in real estate?

The main ways are long-term rentals, house hacking, short-term rentals, flips and REITs. Rentals pay you every month. Flips pay once, when you sell. REITs let you own a slice of big properties through the stock market, with no tenants to manage. Each one takes a different amount of money, time and risk.

Long-term rental

You buy a home and rent it out for a year or more at a time. Rent should cover your costs, and the home may go up in value over time. It is the most common first step.

House hacking

You buy a 2- to 4-unit building, live in one unit and rent the others. Because you live there, you may qualify for a home loan for owner-occupants, like an FHA loan. The tenants help pay the mortgage.

Short-term rental

You rent by the night, like a vacation home. It can earn more per night, but it takes more work, and many cities and HOAs limit it or ban it. Check the rules before you buy.

Fix and flip

You buy a home that needs work, fix it, and sell it. You profit only if the sale price beats what you paid plus repairs, loan costs, taxes and selling costs. Repairs almost always cost more than planned.

REITs (real estate investment trusts) are companies that own income property and trade like stocks. The SEC explains how they work at Investor.gov.

Run the numbers

How do you know if a rental will make money?

A rental makes money when the rent is more than every cost of owning it. Add up the loan payment, property taxes, insurance, HOA dues, repairs, months it sits empty and property management. What is left each month is your cash flow. If it is below zero, you pay to own it.

Find the real rent. Look at what homes like it actually rent for nearby, not the asking price. Your agent can pull rent comps.
List every cost. Loan payment, taxes, insurance, HOA, repairs, a set-aside for big items like a roof, empty months and a manager if you will not do it yourself.
Subtract. Rent minus all costs is your monthly cash flow. Plan for a few bad months, not only good ones.
Check the cap rate. It compares the income to the price, before any loan, so you can compare homes side by side.

Cap rate, for example. Say a home costs $300,000. For example, it rents for $24,000 a year, and taxes, insurance, repairs and empty months cost $9,000 a year. That leaves $15,000 of income before any loan. $15,000 divided by $300,000 is a 5% cap rate. This is only an example. Your numbers will be different.

Paying for it

How do you finance an investment property?

Most investors use a loan. A loan for a home you will not live in usually needs a bigger down payment and stronger credit than a loan for your own home. Living in one unit of a 2- to 4-unit building can open more loan options. A loan officer can tell you what fits your case.

Before you shop, get pre-approved so you know what you can borrow and what lenders will count as income. Lenders may count part of the expected rent from the property. Ask how they figure it.

Compare at least two lenders. Each one must give you a Loan Estimate, so you can line up costs side by side. The CFPB explains how to shop for a mortgage.

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NEXA Mortgage, LLC (NMLS #1660690) is the lender; AXEN Realty does not make loans. AXEN Realty and NEXA Mortgage are affiliated companies. You are never required to use NEXA Mortgage or any AXEN-affiliated lender. Compare lenders, and ask your agent for the written Affiliated Business Arrangement Disclosure before you choose. Rates, programs and approval depend on your credit, income, property and lender guidelines. Equal Housing Lender.

Before you buy

What rules should you check before buying a rental?

Check three sets of rules before you make an offer: your city's rental rules, the HOA's rules and your state's landlord-tenant law. Many cities require a permit or license for short-term rentals, and some HOAs ban rentals or set a minimum lease length. These rules can turn a good deal into a bad one.

City rules

Look up rental licenses, short-term rental permits, inspections and local taxes on the city's website. Rules change, so check close to when you buy.

HOA rules

Read the HOA's rules, called CC&Rs, before you are bound to buy. Look for rental caps, minimum lease terms and any ban on short-term rentals.

Landlord-tenant law

Each state sets rules on deposits, notices, repairs and evictions. HUD lists tenant rights by state, and fair housing law applies to every landlord.

Insurance

A rental needs a landlord policy, not a regular homeowner policy. Get a quote before you offer, because insurance can change the math a lot.

Taxes

How are rental properties taxed?

You report rent as income, and you can usually subtract the costs of owning the rental, like repairs, insurance and loan interest. The IRS also lets you spread the cost of the building over many years, called depreciation. Rules are detailed, so talk to a tax pro before you buy and before you sell.

The IRS explains rental income, expenses and depreciation in Publication 527, Residential Rental Property.

When you sell an investment property and buy another, a like-kind exchange can let you put off paying tax on the gain if you follow strict rules and deadlines. The IRS explains it on its like-kind exchange page. A home you live in does not qualify.

This is not tax advice. A CPA or tax pro can tell you how the rules apply to you.

How we help

How can a real estate agent help you invest?

A local agent helps you find deals, check the real rent and catch problems before you buy. They pull rent comps, look up recent sales, flag HOA and city rental rules, and negotiate the price and repairs. They also connect you with a loan officer who handles investment loans, if you want one.

Set your goal. Monthly cash flow, long-term growth, or a home you live in and rent part of.
Get pre-approved. Know what you can borrow for an investment property. Start here.
Pick an area. Your agent shows rents, sales and rules for the neighborhoods you like.
Run the numbers on each home. Cash flow and cap rate, with real rent and real costs.
Offer with protection. Inspection, HOA review and loan approval before you are locked in.

Find an AXEN agent near you

More reading: home buying guide · home financing guide · real estate glossary

Straight answers

Real estate investing questions, answered

How do I start investing in real estate with little experience?

Start with one property you understand, like a long-term rental or a 2- to 4-unit building you live in. Get pre-approved, learn the real rents in one area, and run the numbers on every home before you offer. A local agent can pull rent comps and sales for you.

What is house hacking?

House hacking means buying a 2- to 4-unit building, living in one unit and renting the others. The rent from the other units helps pay the mortgage. Because you live there, you may qualify for loans made for owner-occupants.

How do I know if a rental property is a good deal?

Add up the real rent, then subtract every cost: loan payment, taxes, insurance, HOA dues, repairs, empty months and management. If what is left each month is positive with room for bad months, the numbers work. The cap rate helps you compare homes before any loan.

Is it harder to get a loan for an investment property?

Usually, yes. A loan for a home you will not live in normally needs a bigger down payment and stronger credit than a loan for your own home. A loan officer can tell you what fits your case and how much of the expected rent they can count.

Do I pay taxes on rental income?

Yes. You report rent as income and can usually subtract the costs of owning the rental, including depreciation of the building. IRS Publication 527 explains the rules. Talk to a tax pro about your own situation.

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