Investing in real estate is a great way to grow your wealth, but it usually needs a big upfront payment. But, with smart strategies, you can start with little money. We’ll look at ways to begin in real estate without spending a lot.
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Real estate is seen as a top long-term investment, chosen by 36% of investors over stocks, gold, savings accounts, and CDs. Thanks to online brokers and robo-advisors, getting into real estate is now easier, with ratings from 4.3 to 4.9 out of 5 stars.
If you’re new to investing or want to grow your portfolio, the strategies we’ll discuss can help. We’ll cover buying Real Estate Investment Trusts (REITs) and the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) method. These will give you the knowledge and tools to make smart choices and start building a successful real estate portfolio.
Buy REITs (Real Estate Investment Trusts)
REITs are companies that own and manage commercial real estate like office buildings and apartments. They let investors get into real estate without the work of managing properties themselves.
What are REITs?
REITs must give out at least 90% of their earnings to shareholders as dividends. This makes them great for those looking for regular income. They’re also popular for retirement savings because of their high dividends.
Benefits of Investing in REITs
REITs bring many benefits, like spreading out your investments, having experts manage them, and getting into different real estate types. They often do well over time, beating the overall stock market. The FTSE NAREIT Equity REIT Index has given an average return of 6.93% each year for the last 10 years as of March 2024.
How to Buy REITs
You can buy REIT shares through brokerages or ETFs and mutual funds for easy access to many REITs. When picking REITs, look at their net asset value, debt levels, and the quality of their properties.
Adding REITs to your investment mix can help you grow your money and get regular income. They offer a way to invest in real estate easily and diversify your portfolio. REITs are a strong choice for anyone looking to invest in real estate passively.
Use an Online Real Estate Investing Platform
Investing in real estate doesn’t have to be hard or need a lot of money upfront. Online real estate investing platforms make it easy for both accredited and non-accredited investors to get into the market. They link developers with investors, letting you finance projects with debt or equity. You can earn money every month or every three months.
Many real estate investing platforms are for accredited investors. But, Fundrise and RealtyMogul welcome non-accredited investors too. The amount you need to invest can be as little as $1,000 or as much as $100,000 or more. This depends on the platform and the investment.
If you’re new to investing or experienced, online real estate investing platforms offer a simple way to join the crowdfunding real estate market. Always look into the investment details, risks, and fees before you decide.
Consider Investing in Rental Properties
Looking to grow your wealth through real estate? Investing in rental properties could be a smart move. But, you need to know the duties and challenges of being a landlord. Think about “house hacking,” where you buy a multi-unit property and live in one unit while renting out the others.
House Hacking Strategy
House hacking lets you use FHA or VA loans, which need less down payment than usual. By living in one unit and renting out others, you can lower your mortgage payments. This is a smart way to start investing in real estate with less money.
Buying and Renting Out an Entire Investment Property
You can also buy a property just for renting it out. This method needs more money upfront, as lenders want a 15% to 25% down payment. But, you could make more money by renting out the whole property. Be ready to manage it yourself or hire a company, which charges 8% to 12% of the rent.
Choosing either path, do your homework on the local rental market. Figure out your possible income and costs. Make sure you can afford repairs or times when the property is empty. With the right plan and preparation, rental properties can help you build wealth over time.
How to Invest in Real Estate: Flip Investment Properties
Flipping houses can be a great way to make money in real estate. You buy a home for less, fix it up, and then sell it for more. In 2022, flippers made about $67,900 per house, with a 26.9% return on investment.
Risks of Flipping Properties
But, flipping houses also has big risks. Not knowing the repair costs or holding onto the property too long can cut into profits. To avoid these problems, work with experienced partners like skilled contractors.
Tips for Successful House Flipping
Being patient is key to flipping houses successfully. Experts wait for the right property, make smart choices, and use their building skills to make more money. New investors often rush, which can lead to financial losses. Getting renovation loans or using cash can help fund your project.
With big lenders showing more interest in flipping and the chance to boost property value with an accessory dwelling unit (ADU), flipping houses is still a tempting investment. But, it requires careful handling of risks and challenges.
Rent Out a Room or Part of Your Home
Renting out a room or part of your home is a simple way to start in real estate. It cuts down your housing costs and lets you profit from your property’s value increase. It also makes paying your mortgage easier, especially for young homeowners. If you don’t want a long-term tenant, try short-term rentals on Airbnb.
“House hacking” means renting out a room or part of your home for passive income. It’s great for those with little money, needing less upfront investment than buying a rental. By using your home’s space, you can lower your mortgage and living costs, making owning a home easier.
Choosing between long-term or short-term renting out a room or Airbnb rentals, you can earn steady passive income. Just remember to check local laws and keep a good living space for you and your tenants.
Leverage Your Home’s Equity
If you own a home, you can use its equity to finance an investment property. You can do this with a home equity loan, a HELOC, or a cash-out refinance. These options let you use your home’s equity for a down payment or to buy a property without using your own cash.
Home Equity Loan
A home equity loan gives you a lump sum based on your home’s equity. It’s great if you need a set amount for an investment or other goal. The loan has a fixed interest rate, making your monthly payments predictable.
Home Equity Line of Credit (HELOC)
A HELOC lets you borrow against your home’s equity as you need it. It’s good if you’re unsure of how much you’ll need. The interest rate can change, so your payments might go up or down.
Cash-Out Refinance
With a cash-out refinance, you swap your old mortgage for a new, bigger one and get cash back. It’s a good choice if you want a lot of equity for an investment or other use. The interest might be lower than other options, but it requires refinancing your mortgage fully.
Choosing to use your home’s home equity can help finance an investment property or other real estate. But, think about the risks and if you can handle the payments for a HELOC or cash-out refinance.
Buy a Multi-Family Home with an FHA or VA Loan
Investing in real estate doesn’t have to be expensive. You can start with investment properties by buying a multi-family home. Live in one unit and rent out the others. This method, called “house hacking,” makes owning investment properties easier. Government-backed loans like FHA and VA loans need less down payment for homes you live in compared to just renting them out.
VA loans let you buy properties with up to four living units. Two eligible veterans can even finance a property with up to six living units and one business unit. Lenders count up to 75% of rental income towards your income. They subtract about 25% for empty units and upkeep costs. You must move into one unit within 60 days of buying it. You also need cash saved for at least six months of mortgage payments.
The Federal Housing Administration (FHA) also offers great deals for buying multi-family homes. Homes with up to 4 units are seen as single-family homes. The FHA lets you buy a home with up to 4 units using their mortgage program. You get to pay less down and enjoy lower interest rates than usual. You also face less strict checks on your income, credit score, and debt-to-income ratio.
Choosing an FHA or VA loan is a smart move for starting in real estate with little money. By living in one unit and renting out the others, you create rental income. This income can help pay for your mortgage and grow your wealth over time.
How to Invest in Real Estate: BRRRR Strategy
The BRRRR method is a smart way to grow your real estate portfolio. It starts with buying distressed properties, fixing them up, and renting them out. Then, you refinance to get cash to buy more properties.
This strategy needs a good grasp of real estate and doing each step well. You must find properties that need work, manage the renovations, and find good tenants. After the property is stable, refinancing lets you get cash for more investments.
One big plus of the BRRRR method is growing wealth through equity and rental income. By putting the refinancing money back into more properties, you can increase your portfolio and earn steady income. But, there are risks like properties not going up in value, finding tenants, and managing properties.
To make the most of the BRRRR strategy, check your numbers carefully. Stick to the 70% rule and make sure rent covers costs. Getting the right financing for buying and refinancing is key to success.
Knowing the BRRRR method and its pros and cons helps investors make smart choices. This strategy can help build a diverse and profitable portfolio over time.
Conclusion
Investing in real estate is a great way to build wealth and earn passive income, even with little money. This article looked at various strategies. From easy options like REITs and online real estate to more hands-on methods like renting out properties or flipping houses.
By using home equity and government-backed loans, you can start in the real estate market. This can lead you to financial freedom.
It’s important to think about your goals, how much risk you can take, and your finances. This will help you pick the best real estate investing strategy for you. Whether you want to grow your portfolio, earn rental income, or increase your wealth through property value, there are many opportunities in real estate.
When starting your real estate investing, keep up with the latest news, get advice from experts when you need it, and be patient and disciplined. With the right strategy and a long-term view, real estate investing can change your financial future for the better.
