Many people believe you need thousands at a minimum to invest in real estate, whether it is residential or commercial. That is not always the case. You can invest in real estate with little money. This may sound like this is not possible or like there is a catch. It is possible, but each way has a catch. These creative ways to own real estate do not let you own real estate in the traditional way. However, the traditional way of owning real estate does not let you actually own real estate, arguably, not even when it is paid off. These ways can help you start out in real estate with next to no money.
Rent Out What You Already Own
Ok I am cheating a little here as this requires traditional purchasing. But I did say these are creative ways to invest in real estate and while people may buy their homes to live in many do not actually think of turning their home into an asset. Usually when people buy real estate they think it will either be a personal home or someone else’s. It can very easily be both.
Things To Consider
I have heard of multiple people renting out space in their homes and with not as much trouble as you may believe. However, note that usually the home you buy is mortgaged, meaning as one of my favorite comedians said: “well the bank owns it, they just let me keep my shirts there while I pay it off.” In other words you cannot just put out a ‘For Rent’ sign and write up a lease. I highly recommend you to inform your lender and make sure the legal agreement allows it. While you already put money down on you home and are transforming it this is not a way to invest into real estate with very little money. Your lender can and may change your mortgage rate in this case and you may need different insurance.
Some say they even rented their place out to friends. I know someone who rented out to a friend once. Apparently they are no longer friends. Either way note that even if the renter is someone you know, your relationship may change from one based off friendship to one based off transactions. I personally may try this in the future with my future home, however I have other ideas for my home including business ideas it which may deter renters assuming that my business ideas do not straight up forbid renting out space.
Real Estate Investment Trusts
Also known as REITs these are essentially companies which invest in income producing real estate. Wait…are these stocks? Kind of. Instead of literally owning real estate by purchasing a share of an REIT, you receive a certain amount back in dividends, much like owning a share in a company that provides dividends, in fact 90% of the REIT income fuels these dividends. These dividends can easily exceed 5%. Some REITs even pay dividends monthly. Just to put this into perspective, I own a “high-dividend” stock in which just barely exceeds 5% and it pays out quarterly.
Things To Consider
However, there are differences with corporate and REIT shares. Corporate shares can and frequently do reinvest in the company on top of their dividends so there is room for growth. However, with REITs only 10% of the income can return to the company instead of the investors, therefore, there is little chance for growth.
This is more the direction I want to go for investing in real estate. It is fairly stable, has excellent returns, and is probably the only truly passive way to invest into real estate. Furthermore, shares frequently cost less than $100, much less than the thousands for the down payment and thousands in repairs and fees, you could get started on your next pay-check if you live even remotely frugally.
There are risks like any other investment and they will reflect the real estate market.
Crowdfunding are essentially REITs that are not federally regulated. There are many forms of crowdfunding which can be found almost anywhere online. Crowdfunding works very similarly to REITs. However, in REITs, you own a stake in the company that owns properties where as with crowdfunding there is usually a more direct stake in the property. There are massive chances of returns with the potential of 25% return.
There are two common types of crowdfunding: equity investments, and debt investments.
Equity crowdfunding gives every payer a stake in the property. Income is earned from rent profits and sales. There is a larger risk in equity crowdfunding.
Debt crowdfunding does not give a stake to investors. Income is earned from interest income and mortgage payments. There is a smaller risk in debt crowdfunding.
Things To Consider
You do not need to invest as large of an amount for crowdfunding as for traditional real estate investing. There will be more access to different properties. This may give you less control in the real estate. However, there will be percentage fees, usually 1-2%. Since these are not regulated by the government you can easily lose everything.
Real Estate Partnerships
Like practically any other business, you can partner up with others to invest in real estate. Apparently it is illegal to advertise real estate partnerships so it will be hard to find or form. Considering that I cannot find much information on real estate partnerships and the piece I found mentions that advertising for it is illegal I will not advise any further on it, just note that it is an option.
There are multiple ways to invest in real estate with little money. They just require research, knowledge, and creativity to invest in them. The routes mentioned utilize all three, but they do not allow you to own property in a traditional way. However, since these are the non-traditional routes, you should make sure that the risks are worth it. Most of these investment ideas have high financial risks, but also some potential legal risks. Make sure everything is in line to be on the path to forge your wealth.