According to ATTOM, an analytics firm, real estate investors saw a major gross profits increase in 2024, from $67,486 from the previous year to $72,000. The average return on investment was reported to be 29.6%!
This just further proves what we should all know by now: Real estate investment remains to be one of the most trusted ways to build wealth and diversify your financial portfolio.
If it brings in profits, why venture somewhere else, right?
This guide will walk you through the different types of real estate investments, the benefits they offer, common pitfalls to avoid, and how to get started the right way—especially if you're considering using a bridge loan to fund your next deal.
Types of Real Estate Investments
Real estate investment isn’t one-size-fits-all. Here are the most common types of real estate investments, each with its own risk and reward profile:
1. Residential Properties
Residential properties include single-family homes, duplexes, and multifamily units up to four units. Many California investors purchase fixer-uppers, apply for short-term bridge financing, renovate, and sell at a profit (“fix-and-flip”).
ATTOM’s abovementioned report showed that 297,885 single-family homes in the United States were flipped in 2024.
2. Commercial Properties
Office buildings, retail spaces, warehouses, and apartment buildings with five or more units fall under commercial real estate. These properties often come with higher income potential and longer lease terms, which makes them appealing for experienced investors.
3. Vacation or Short-Term Rentals
With California being a tourism hotspot, vacation rentals (like Airbnb properties) are a popular option. Airbnb currently has a 20+% market share of the vacation rental industry, with an average host earning $13,800 annually.
With no signs of stopping, the short-term rental market is a type of real estate investment beginners can get into.
However, cities like Los Angeles and San Francisco have tight regulations, so it’s crucial to understand local ordinances.
4. Raw Land
Buying raw or undeveloped land can be a strategic long-term investment, especially in high-growth areas of California. Investors typically purchase land with the intent to develop it or sell it later at a higher value.
However, this approach demands thorough due diligence—including zoning laws, environmental restrictions, and access to utilities.
It also tends to have a longer timeline for returns, making it better suited for patient investors with a clear development or resale strategy.
5. Real Estate Investment Trusts (REITs)
REITs offer a way to invest in real estate without owning physical property.
By purchasing shares in a REIT, investors gain exposure to income-generating properties—such as apartment buildings, shopping centers, or industrial parks—while receiving regular dividends.
REITs are especially appealing for those seeking passive income with lower capital requirements and liquidity. They can be a smart entry point for new investors or a way to diversify beyond direct property ownership.
5 Benefits of Real Estate Investments
Whether you’re a seasoned investor or just starting to explore real estate as a way to grow your wealth, the benefits of property investing are hard to ignore—especially in a high-demand market like California.
From stable appreciation to flexible financing options, real estate continues to be one of the most effective vehicles for long-term financial success.
Here are five reasons why real estate investment remains a smart strategy:
1. Tangible Asset with Long-Term Value
Real estate is a physical asset that holds intrinsic value and historically appreciates over time.
Unlike stocks or cryptocurrencies, which can be highly volatile, property values tend to grow steadily—especially in high-demand areas like California.
Since 2000, California real estate has appreciated by over 271%, averaging 5.44% annually, according to NeighborhoodScout.
2. Passive Income Potential
Rental properties can generate steady monthly income. Many investors use bridge loans to acquire a property quickly, rehab it, and then refinance into long-term rental financing once it's stabilized.
In California’s competitive market, many investors use bridge loans to quickly acquire properties, renovate them, and refinance into long-term financing once stabilized.
This short-to-long term strategy can be especially effective in high-rent areas where demand remains strong.
3. Leverage & Financing Options
With bridge loans and hard money lenders readily available in California, investors can fund projects fast—even with less-than-perfect credit or unconventional properties.
If you already have a property in mind, consider working with premier hard money lenders like SDC Capital. They offer competitive bridge loans with funding up to 70% loan-to-value (LTV) under flexible terms.
4. Significant Tax Advantages
Real estate investors can take advantage of numerous tax benefits, including deductions for mortgage interest, depreciation, property taxes, insurance, and maintenance costs.
Additionally, using a 1031 exchange, you can defer capital gains taxes by reinvesting the profits into another qualifying property—helping you grow wealth more efficiently over time.
5. Portfolio Diversification
Adding real estate to your investment mix reduces risk and helps buffer against market volatility.
While stocks and bonds are sensitive to broader economic swings, real estate often performs well in different cycles, especially in supply-constrained markets like California. It’s a smart way to balance your risk and stabilize long-term returns.
Common Mistakes to Avoid with Real Estate Investing
Many first-time investors get excited by the potential profits and overlook key details. Here are the top mistakes to avoid:
1. Skipping Due Diligence
Jumping into a deal without doing your homework is one of the fastest ways to lose money in real estate. When investing, thorough due diligence is non-negotiable.
Before making any investment, take the time to research:
Neighborhood trends: Is the area appreciating? Are nearby properties being renovated or sold quickly?
Comparable sales (comps): What are similar properties selling for? Are prices trending up or down?
Zoning laws and development plans: Check local zoning ordinances to ensure your intended use is allowed. Future developments (like new transit lines or commercial centers) can significantly affect property values.
Crime rates and school ratings: These are especially important for residential and multifamily investments. Even in urban markets like Los Angeles, San Diego, or Oakland, data can vary drastically by zip code.
Neglecting these details can result in buying an overpriced property, facing legal hurdles, or ending up in a market with poor long-term potential.
2. Underestimating Costs
One of the most common mistakes first-time real estate investors make is focusing only on the purchase price.
The reality is that a successful investment requires careful budgeting for all associated expenses, including:
Renovation and repair costs
Closing fees
Property taxes
Insurance
HOA dues (if applicable)
Utility bills and carrying costs
Potential vacancies between tenants
Bridge loan borrowers should account for interest-only payments during the loan term, which can affect your short-term cash flow.
Since bridge loans are designed for speed and flexibility, they typically come with higher interest rates and shorter repayment windows—making it essential to have your exit strategy (like a refinance or property sale) clearly mapped out.
💡 Tip: If you’re considering a bridge loan, line up a list of trusted hard money lenders before you even make an offer. That way, when an opportunity arises, you’re ready to move quickly—without delays in funding.
Experienced lenders like SDC Capital can fund in as little as 7 days, helping you stay competitive in California’s fast-moving market.
3. Overleveraging
Overleveraging means stretching your finances too thin—taking on multiple loans or high loan-to-value (LTV) ratios without enough reserves or a clear plan to repay.
If property values dip, interest rates rise, or your refinance or sale falls through, you may find yourself underwater.
Here’s how to avoid it:
Always have an exit strategy: Whether it's a refinance, a sale, or converting the property to a rental, your path forward should be clearly defined before you close.
Build in a safety buffer: Don’t borrow to your max limit. Budget for unexpected costs, delays, or a temporary drop in value.
Know your numbers: Ensure your projected returns justify the level of debt, especially if you’re using short-term financing like a bridge loan.
4. Ignoring Legal & Regulatory Issues
California has some of the most complex and investor-impacting housing regulations in the country—and ignoring them can be costly.
From tenant protections to rent control and short-term rental restrictions, the legal landscape is layered, and enforcement is strict.
Key areas to watch include:
Tenant Rights
Short-Term Rentals
Zoning & Permits
Failure to comply can result in hefty fines, lawsuits, delayed projects, or loss of rental income.
How to Get Started with Real Estate Investment
Here’s a step-by-step path for borrowers and investors looking to start their real estate journey:
1. Define Your Investment Goals
Every successful real estate strategy starts with a clear goal.
Are you looking for quick profits through fix-and-flips? Do you want to build steady, long-term income from rental properties? Or are you aiming for diversification through passive options like REITs?
Clarifying your objective helps determine everything from the type of property you pursue to the financing you’ll need and the markets you target.
2. Assess Your Financing Options
Your financing strategy can make or break a deal. Here are the most common funding options for real estate investors:
Bridge Loans: Perfect for time-sensitive purchases or properties needing rehab. These short-term loans typically close within days and help investors stay competitive in California’s fast-moving market.
Traditional Loans: Useful for stabilized rental properties or long-term holds.
Private Capital: Some investors use self-directed IRAs, partnerships, or joint ventures.
3. Research the Market
Successful real estate investing depends heavily on knowing where to buy and what to expect. California’s markets vary widely from county to county—so digging into local data is essential.
Start by studying:
Neighborhood trends: Look for areas with rising home values, new developments, or infrastructure improvements.
Property types: Some markets favor single-family homes, while others have stronger demand for multifamily units or mixed-use spaces.
Rental demand and vacancy rates: High rental demand typically signals better cash flow potential.
Local regulations: Know the zoning laws, rent control rules, and permitting processes specific to your target area.
Consider high-growth regions like Sacramento and select neighborhoods in Orange County. These areas continue to show strong appreciation and tenant demand—without the extreme price tags of coastal metros like San Francisco or Los Angeles.
4. Build a Team
Real estate investing isn’t a solo sport. In California, regulations are complex, and competition is fierce.
Building the right team gives you the expertise, speed, and support you need to make informed decisions and protect your investment.
Here are the essential members of a solid real estate investment team:
A real estate agent or broker
A general contractor
A real estate attorney
A property manager (if you’re planning to rent)
Don’t wait until you’re in escrow to assemble your team. Build these relationships early, so you’re ready to move fast when the right deal comes along.
5. Start Small & Learn
You don’t need to take on a massive project to get started. In fact, starting small is one of the smartest ways to reduce risk, build confidence, and learn the ins and outs of real estate investing.
Begin with a manageable property—such as a single-family home or a duplex in a market you’re familiar with.
Once you’ve completed a successful deal and refined your process, you’ll be better prepared to scale up to larger multifamily properties, commercial spaces, or multiple projects at once.
6. Track Performance & Adjust
Real estate investing isn’t a “set it and forget it” strategy. To grow your portfolio successfully, you need to regularly evaluate your investment’s performance and make data-driven decisions.
Keep a close eye on:
Cash Flow: Are your rental incomes covering your expenses and generating profit?
Return on Investment (ROI): Are you hitting your financial goals based on your initial capital outlay?
Vacancy Rates & Tenant Turnover: Are you retaining quality tenants, or is there room to improve your screening and management?
Repair & Maintenance Costs: Are unexpected repairs eating into profits? Consider preventative maintenance strategies.
Once you have enough data, you can then use this to decide when to:
Refinance or sell underperforming properties
Raise rents or reduce expenses
Reinvest profits into new opportunities
Pivot your strategy (e.g., switch from short-term flips to long-term rentals)