How to Invest in Real Estate on an Average Salary: A Step-by-Step Guide

Martin Mägi
March 21, 2024
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Investing in real estate on an average salary is not only possible but can be a highly effective strategy for building wealth. By following these steps and implementing smart strategies, anyone can start building a real estate portfolio, even in today's unpredictable housing market.

Step 1: Organize Your Finances

Your salary gives you a great starting point. Begin by ensuring your finances are in order. Even if your credit score isn’t perfect, there are still options available. Avoid new credit inquiries and dispute any inaccuracies on your credit report. False reporting is more common than many think, so this is a critical step.

Having some savings will also help. Contrary to popular belief, you don't need a 20% down payment. A down payment of 3% is often sufficient, which translates to about $3,000 to $10,000 for many properties across the country. Resources like the "Zero Down Kit" offer strategies for minimal down payment options and funding solutions, even for those with less than average credit scores.

Step 2: Get Pre-Qualified for a Loan

Next, you’ll want to get pre-qualified for a loan program that suits your situation. Look for mortgage lenders or brokers specializing in government-backed loans. Programs like FHA, VA, and USDA loans are excellent starting points. Conduct some preliminary research to understand these options better and prepare for discussions with professionals. Deciding on a lender with experience in government-backed loans can significantly increase your chances of approval.

Step 3: Shop for the Right Property

When shopping for your first property, remember that this is not your dream home but a stepping stone for future investments. This "springboard estate" should meet your needs temporarily and be a sound investment. Use the 28/36 rule to determine affordability: your monthly mortgage payment should not exceed 28% of your gross monthly income, and all debt payments should not exceed 36%.

If properties within your budget are scarce, consider negotiating the price or looking for properties where you can rent out part of the home. Alternatively, consider relocating to a more affordable market. Sacrificing a prime location temporarily can pay off significantly in the long run.

Step 4: Finance the Purchase

Once you have a property under contract, work with your lender to finalize the purchase. Government-backed loan programs often require minimal down payments, sometimes as low as 3.5%. Utilize gift exemptions, down payment assistance programs, and seller concessions to manage the down payment if necessary. Stick with 30-year fixed-rate loans to keep payments stable and manageable.

Step 5: Generate Income and Build Your Portfolio

After purchasing your property, generate income by renting out extra rooms or units. This additional income can accelerate your portfolio growth. Monitor the appreciation of your property, which is likely to increase over time. Property appreciation plays a crucial role in building equity, which can be leveraged for future investments.

Step 6: Scaling Up

Scaling your real estate portfolio involves using the equity from your first property to purchase additional properties. For instance, if your property appreciates significantly, you can use a refinance or home equity line of credit (HELOC) to fund new investments. By repeating this process, you can build a substantial real estate portfolio over time.

In a hypothetical scenario, if you purchase a $300,000 property at 80% of its value using an FHA loan, you can generate significant equity and income by renting out part of the property. Over five years, the appreciation can provide substantial equity, allowing you to invest in more properties.


Investing in real estate on an average salary is achievable by starting small and leveraging smart strategies. The journey may seem daunting, but with the right approach, anyone can build a real estate portfolio, regardless of salary. By organizing your finances, getting pre-qualified, shopping wisely, financing effectively, generating income, and scaling up, you can turn an average salary into a substantial real estate investment portfolio.

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Martin Mägi

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