How to invest in real estate without a lot of money

Traditional wisdom suggests that it’s generally a good decision to invest in real estate, but how can you do it if you don’t have a lot of money? After all, not everyone has large amounts of cash waiting to be spent on an investment property. Fortunately, there are a few ways you can get some advantages out of the hot real estate market, even if you only have a few hundred dollars to work with. Here’s a look at your options.

Investing in real estate through crowdfunding

With crowdfunding, you can invest directly in the ownership of a property or business through platforms that have minimums as low as $500. Since the number of wealthy investors is limited compared to those with less money, the idea is that Large sums of money can be raised quickly from a larger group of individual investors, something like a Kickstarter. There are plenty of platforms that do this, including Fundrise, PeerStreet, and RealtyMogul (Investopedia has a good overview of the options here).

In an ideal scenario, you could make a lot of money by investing in a company that then goes public. But as Nerdwallet points outThere are also many disadvantages to this method, such as annual fees that can exceed 2.5%, taxes on dividends, and the difficulty of selling real estate assets quickly. Additionally, you must be good at spotting good investment opportunities on a case-by-case basis.

Invest in a REIT (real estate investment trust)

REITs allow you to invest in companies that own commercial real estate, such as office buildings, apartments, and hotels. Many REITs are publicly traded on major stock exchanges, allowing investors to buy and sell them like stocks.

The best thing about REITS is that they must pay out 90% of their profits to investors in the form of dividends, without you having to deal with the hassle of managing a property. The downside is that REITs are vulnerable to market declines, and that impact can be worsened by those 90% payouts limiting their ability to grow by investing in more properties. Additionally, dividends are taxed as income.

On the other hand, it is easy to invest in them; You just need to set up an account with a brokerage. Depending on the type of REIT you invest in the minimum investment can be as little as $2500 or even less.

REIT Exchange Traded Funds or Real Estate Mutual Funds

Both REIT ETFs and the real estate mutual funds allow you to invest in a basket of real estate securities listed on an exchange, although ETFs are easier to treat if you are a more active investor. Costs are relatively low: $1,000 can get you started.

This type of investment can be a good option if you prefer to passively track indices for the larger real estate market, rather than more closely monitoring the performance of a specific property. Of course, as with REITS, this approach also leaves you vulnerable to market declines.

Buying a property with an FHA loan

Obviously, this is more expensive than the options above, but you can purchase a property with an FHA mortgage for as little as 3.5% down (which is equivalent to $10,500 on a $300,000 home). And because these federally backed loans are designed to help low- to moderate-income people buy homes, they have less stringent credit qualification requirements than other private mortgage lenders.

While you can’t use an FHA loan just to buy an investment property, by using one to buy your primary residence, you’ll be putting your money into an asset instead of spending it on rent, or even just freeing up cash you would have made. a larger down payment to explore one of the options above. Furthermore, there is no restrictions in renting rooms in your new home, which would allow you to generate passive income in addition to your initial investment.