We all know that real estate is one of the best investments for growing and storing wealth. From Buffet, to Trump, to Richard Branson, millionaires and billionaires use real estate as a way to maintain their empire.
But for us “Average Joe’s”, the greatest difficulty seems to be getting started. How do you invest in real estate with little money? Is it even possible to invest in real estate before you’re a millionaire?
I’ve actually invested in property four different ways – without being worth anywhere near a million! So there certainly is hope for all of us.
Although the real estate markets are a lot higher than they were a few years back, if you’re intelligent with your investing, it is certainly possible to make a decent return. Start by reading up on the topic, including this great FREE guide by the creators of the Bigger Pockets podcast – then consider a few of these traditional and “round-about” ways to invest.
And while I recommend reading multiple books from the Rich Dad Poor Dad series, just be careful about leveraging your finances too much. Some investors recommend borrowing as much as you can to buy as much as you can. This is incredibly risky and should only be done if you know what you’re doing and are willing to lose everything.
- Free tool: To keep track of all of your finances, investments, and budgets in one place for free, check out Personal Capital.
If you want to start making money from real estate before you’re rich, consider these four strategies:
1. Invest in Publicly Traded REITs. Minimum Cost: $5
A Real Estate Investment Trust (REIT) is a corporation that is entirely made up of real estate investments – either by directly owning property or by owning mortgages.
The beauty of owning a portion of an REIT is that they are required to pay out 90% of what they earn every single year. This means that a rental property bringing in $1 million will have to pay out $900k to shareholders – ensuring a consistent a healthy dividend.
The drawback to publicly traded REITs is that anything traded on the public market is going to be limited to an average return because the stock price will increase/decrease based on the change in the dividend paid out.
However, the plus side is that you can buy into many REITs that cost under $10/share and have a decent return of 5-20%.
There are many great ways to invest. The key is to find the right one for you based on how much you plan to invest and what features interest you most.
- Related Article: All of My Favorite Investment Tools
2. Invest in a Private eREIT Thru Fundrise. Minimum Cost: $1000
One of my newest and favorite investments is the Fundrise eREIT – which allows anyone to invest as little as $1000 into a private REIT.
Just like a publicly traded REIT, you own shares in real estate or mortgages. Unlike a traded stock, you are buying in at the initial offering price – which ensures that your return will likely be higher. Furthermore, because it’s not publicly traded, there are fewer costs – meaning higher returns for investors.
The beauty of both public and private REITs is that you don’t have to handle any of the management or maintenance of the property itself – you simply enjoy your monthly/annual dividend.
Right now the annual return on my investment in Fundrise is just over 9.5%. And they’re about to launch a new REIT that they expect to make close to a 20% annual return (for longer-term investors).
- Learn more: Read up on the Fundrise eREIT and projected returns.
Now, real estate is always risky, but the benefit of a Fundrise REIT is that the investments are diversified across multiple properties – meaning that you won’t lose everything if one market or property is negatively impacted.
3. Buy Your Own Rental Property. Minimum Cost: $15,000+ (or $0 – Depending on Your Method)
Although you might think that owning your own rental property is out of the question (after all, you aren’t a millionaire yet), don’t completely throw it out.
There are a couple of ways you can go about being a landlord, and it doesn’t have to cost a fortune.
Become a Traditional Landlord
First, the traditional landlord route of owning a property that you rent out to others on a long-term basis is pricey, but doesn’t have to be exorbitant if you play your cards right. Consider one of these three strategies:
1. Buy an Inexpensive Fixer-Upper
If purchasing a property at regular price isn’t within your budget. Consider a fixer-upper.
In some parts of the country (like Michigan) you can purchase a house for as little as $10k. If you’re willing to spend some time fixing the property up, you’ll have yourself a nice little rental in no time!
This is actually something that my brother and I did while in graduate school. We won a Michigan home action for $2,500 (which the bank negotiated up to $10k). We spent a year living and fixing this property, and now have a rental that will pay for itself after about 6 years.
You want to do your research before getting involved in buying fixer-uppers so that you don’t get something in need of major structural repairs. But it’s amazing how much a home’s value will increase with just a few inexpensive cosmetic repairs.
2. Buy a Personal Home with a Separate Unit to Rent Out
If you’re going to own your home anyway, why not purchase something that has an attached granny apartment – or even pick up a duplex.
By purchasing a single property with a rental already attached, you really won’t be paying much more than you would for a regular house – and you’ll find yourself making money in the process. In fact, owning a duplex may result in your tenants rent paying the entire mortgage!
I haven’t done this yet, but I always keep my eyes out for duplexes and houses with grannys/lofts when moving to a new location.
3. Add a Tiny House or RV to your Property
You’ll want to check with the legal regulations in your area to make sure you aren’t going to get fined, but it may be possible for you to subdivide your land and add a trailer or tiny home to your property as an additional rental!
Although you may have to pay $20k to purchase your rental, depending on your location, it could easily pay for itself within a year or two – and you may be able to get a loan for the tiny home or RV.
Become an AirBnB Landlord
If you don’t have a separate house to rent out, or if you don’t want to rent out your property on an ongoing basis, you may want to consider renting out your property, or even a single room, on a part-time basis via AirBnB.
- Sign up bonus: Join AirBnB today and receive a $40 credit towards your first stay.
Through this site you can state what dates the property is available and set a rate. Then, as tourists and travelers explore your area, they can book the night in your rental.
This is another method that requires a brief look at your local legislation, as some communities don’t permit AirBnB. However, if you could make an extra $30-75/night by renting out a room in your house, and you don’t mind having strangers around (AirBnB insures your belongings), why not?!
4. Setup an LLC and Buy Rental Property with Friends and Family. Minimum Cost: Likely $5,000-10,000 per Investor (but Flexible)
Another great way to invest in real estate when you can’t afford to buy the property yourself is to partner up with others. If you find 10 or 20 friend and family members each willing to pitch in $10k, you could be well on your way to owning your first piece of real estate!
Currently, I own a portion of another Michigan rental property (worth about $20k), through an LLC investment with several family members. Although we haven’t pulled any money out of this account yet, it’s slowly building up equity and we will likely use the profits from this property to purchase more in the future.
You don’t want to go into business with anyone without having a good plan – and this is especially true with real estate investments involving friends and family.
Although a smart purchase will pay off eventually, there can be a lot of surprising costs that pop up – not to mention the time involved in managing the property.
While owning and operating an LLC, depending on your state, shouldn’t cost more than $500-$1,000, you will want to have a plan for financing any additional costs that might come up (such as repairs or payments when the property isn’t rented out).
If you set up a clear agreement, have a plan for who will manage the property and how they will be compensated, and build up a bit of a cash reserve, a joint LLC can prove to be a great investing tool for everyone involved.
Seek legal advice before pursuing this option.
Real estate investing requires some work and money to get started – but it doesn’t have to be overwhelming.
By implementing one of the four investing strategies listed above, you can start making money from real estate without tremendous risk, work, or cost.
- Further reading: How I Invest My Money
- Further reading: 100 Ways to Make Money in Your Spare Time
- Further reading: 6 Ways to Live on Under $10,000 a Year
For the comments: What are your thoughts and recommendations regarding real estate investing? Have you tried any of the methods above? Do you know of any other ways to invest in real estate before you’re rich?