Most of the experts tell us that diversification is a key component to any wise investment plan.
However, when exploring your available options for diverse investments, you might immediately toss out the idea of real estate investing if your available funds for investing are limited.
Unfortunately, this may end up becoming a mistake that could cost you thousands in potential return on your money. You don’t want to miss out on what could be the perfect investment opportunity to fit your unique financial situation. Luckily, there are actually several ways to invest in real estate without a lot of cash on hand.
Investing in real estate without having a lot of money to start with might seem impossible, but it helps if you think of it as similar to investing in stocks, bonds, or any other type of investment. In other words, you don’t have to buy the whole cow to enjoy the benefits of eating a steak.
Through crowdfunding, you can pool the money you have available to invest with a large number of other qualified investors so you all share a portion of the profits. This can be achieved over the internet through a Real Estate Investment Trust, or REIT.
An REIT is a company that models mutual funds by providing investors of all kinds the ability to further diversify their investments and gain a regular stream of income. Each of these crowd funded platforms has a management team made up of experts who develop real estate strategies and then invest the pooled money into investment options that would not normally be achievable to an individual investor. Fees are applied for this service, of course, but a minimum of 90% of the taxable income must be paid out from an REIT through dividends to its shareholders.
There are a number of companies offering crowdfunding real estate investments, and one such company is Fundrise. This company spreads its crowdfunding real estate investments over several properties to reduce risk and increase the potential for growth and liquidity. They allow you to withdraw money four times a year without penalty and only require a minimum investment of $1,000. Another bonus is that if investments aren’t performing well, Fundrise will waive your fees.
Without a lot of investment capital, you can still make an investment in a multiunit property.
A first-time buyer can go through FHA and get a loan with a down-payment of only 3.5% instead of the usual 20% that is normally required on a property with up to four units.
For example, if the purchase price is $120,000 then a down-payment of 3.5% would be only $4,200. Getting a traditional bank loan with a 20% down-payment, mean you would have to put down $24,000. That’s a huge difference for a first-time buyer without a large amount of money saved up. And the best part is, even if you and your family occupy one of the units, you are still generating income from the others to help pay your mortgage payment and other costs. This is a great way to begin your real estate investing without having a large amount of start-up money.
Investing with a partner you trust can be another way to get started with your real estate investing when you don’t have a lot of money available. By combining your money with a trusted relative, friend, or business partner, you may be able to generate the down-payment required to purchase your first commercial or residential rental or flip property.
Of course, there are drawbacks. The management decisions in a partnership are shared, which can be good or bad depending on the situation. You also need to consider the future. What if at some point your partner wants out? Will you be able to afford to buy them out? These are just a few of the things to consider before entering into a real estate investment with a partner. Like any partnership, you should have a contract or partnership agreement in writing before doing business together.
Can you think of other ways to invest in real estate without a lot of dough?