How to invest in real estate to build long-term wealth

• Investing in real estate takes time, patience, and most importantly, cash.
• You probably shouldn't invest in real estate until you have an emergency fund, no debt, and are saving automatically in a retirement account.
• If you have enough cash to buy a multi-unit property, living in one unit and renting out the others can be a great way to start generating passive income.
• If you don't have cash to buy a property, try investing in a real estate investment trust (REIT). You'll get exposure to the real estate market and get paid in the form of dividends.
• Visit Business Insider's homepage for more stories.

Real estate can be a very lucrative investment, but it requires a huge time commitment, patience, and most importantly, cash.

While there are options for novice investors to get into real estate, the big returns are found in the big investments - for example, buying and managing a multi-unit building or fixing up a single-family home and selling it for a profit.

Here are a few ways to get into real estate investing:

How to invest in real estate to make money

1. First, get your finances in order

Before getting in to any type of real estate investment, get the rest of your financial house in order - establish an emergency fund, pay off consumer debt, and automate your retirement savings.

Real estate is a particularly expensive investment, so you need to have cash on hand for a down payment (or to buy the property outright) and a reserve to dip into if and when something needs fixing, which should be entirely separate from your everyday emergency fund.

2. Try investing in an REIT

If you want to wade into real estate, investing in a real estate investment trust (REIT) will provide exposure to the market without the time and cost commitment of buying your own property.

Equity REITs, the most common type of REIT, allow investors to pool their money to fund the purchase, development, and management of real estate properties. An REIT focuses on a specific type of real estate, such as apartment complexes, hospitals, hotels, or malls. Ninety percent of annual earnings - usually in the form of rental income - are returned to the investors as dividends.

If you want to keep your investment liquid, stick to publicly traded REITs. You can buy shares through a brokerage firm, IRA, or 401(k).

If you're willing to part ways with your money for the potential to earn greater returns, consider investing in the private real estate market through an online broker like Fundrise.

Fundrise helps you invest in real estate projects around the US without having to actually manage them. Investors can choose a portfolio to invest in based on their goals - either supplemental income, balanced investing, or long-term growth - and earn dividends quarterly. Fundrise says its platform is best for investors who have a time horizon of at least five years.

3. Get to know the local housing market

If you do plan on buying your own investment property, start by getting to know the local market - or better yet, stay in your own neighborhood.

Talk to real estate agents and locals; find out who lives in the area, who is moving to the area, and why; and analyze price history. In short: Do your research.

4. Build a local team

Successful real estate investing is as much about what you know as who you know, said Boston-based realtor and real estate investor Dana Bull.

"I think if you really want to get into real estate investing, you need to focus on building relationships with people - because that's what real estate is, it's a relationship-based business," Bull previously told Business Insider.

Build a team of real estate agents, contractors, attorneys, and accountants who can all help your business run smoothly, she said.

5. Keep it simple

A simple strategy can go a long way in real estate investing. If your goal is to generate passive income, don't be fooled into believing you need to go big to make it happen. Early retiree and real estate investor Chad Carson of CoachCarson.com says it's best to start small and keep your expenses low.

"In my mind, the game of rental properties is eventually getting it free and clear of debt, so that you have a very low-risk, high-income investment that allows you to go to Ecuador and do whatever else you're going to do with your life - leave your job or have a little independence to do other things," he said on an episode of the Mad Fientist podcast.

6. Buy a single-family home and rent it out

Buying a single-family home and renting it out will only generate income if overhead costs are low. If your tenant's rental payment doesn't cover the mortgage, insurance, taxes, and maintenance, you're effectively losing money. Ideally, your monthly mortgage payment will be relatively fixed, while rent prices rise, increasing the amount of money you pocket over time.

You can even shop for rental properties online through a site like Roofstock, which allows sellers of vacant homes primed for renters to list their properties, facilitates the buying process, and assigns a property manager to the new buyer.

7. Try 'house-hacking'

Carson got started in real estate investing through a strategy he calls "house-hacking."

He bought a four-unit building with a mortgage, and lived in one unit himself and rented out the other three. This cut down his own living expenses and generated enough income to cover his mortgage payment, taxes, and insurance every month, he said. He put any leftover money into savings, which he used to take care of inevitable maintenance costs and roll into his next investment.

8. Buy a multifamily building and sell off the units later

Bull calls this a "condo conversion," wherein you buy a multifamily building, rent out the units, and then later turn the units into condos and sell them off individually.

"So the idea is, you buy the building for a little bit of a discount, and then eventually you're able to sell for top dollar," Bull told Business Insider.

"I call it the triple-headed monster," she said. "You have cash flow in the short-term, appreciation in the long-term for building wealth over 15 or 20 years, and then ... ways to force appreciation if you need to get out."

If you get into a bind and can't afford to stick around, Bull suggests making "affordable but thoughtful upgrades to the property to unlock value" before you sell - think fresh paint, new countertops, and refacing cabinets.

9. Buy a fixer upper and flip it

While the fixer upper strategy has been glorified by popular culture, it remains one of the most time-consuming and costly ways to invest in real estate - but it also has the potential to produce the biggest gains.

Buying a home, renovating it, and reselling it can be a hit or a miss. You should always be prepared for unexpected problems, budget increases, time-inducing mistakes, a longer renovation timeline, and issues selling on the market.

It's especially important to build a team of experts you can trust and make sure you have the cash reserves to troubleshoot.

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