Real estate investing can be intimidating. Even if you have $10,000 to invest in real estate, there are many opportunities and strategies that will require more than just money. These nine tips offer an overview of the types of investments that might fit your needs best.
The “how to turn $1,000 into $5,000 in a month” is a way to invest your money. You can learn about the 9 ways to do this by reading my blog.
Real estate is expensive, at the risk of stating the obvious.
This makes it difficult to diversify across real estate ventures and makes it costly to invest in. The typical house price in the United States is roughly $350,000, therefore an investor putting down 20% on a median property would need to come up with $70,000. That’s not even include closing fees or property upgrades!
So, what should an investor do if they only have $1,000 to invest and want to expand their real estate portfolio?
Real estate is, without a doubt, costly. However, in today’s environment, there are many ways to invest $1,000 in real estate without having to worry about 20% down payments.
The following real estate ventures don’t take much money to get started, and you may get started with only $1,000.
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1. REITs that are publicly traded
Anyone may acquire shares of real estate investment trusts (REITs) via their normal brokerage account, which is the most conventional way on our list. These businesses are listed on public stock markets and are thus very liquid. Unlike traditional real estate, which takes months to acquire or sell, you may buy and sell instantaneously online.
There’s no financial barrier to admission since you can purchase with an extra $100 sitting in your bank account gathering dust.
The dividend yield of publicly listed REITs is both a strength and a weakness. The Securities and Exchange Commission (SEC) mandates that all publicly listed REITs pay out at least 90% of their income in dividends to shareholders each year. This keeps dividends high, but it makes it difficult for REITs to reinvest earnings and grow their assets. As a result, their development potential is limited.
Their liquidity works in both directions. They tend to fluctuate in an unsettling association with stock indices since they trade on public stock exchanges. Diversifying into another asset class is effectively defeated in this case.
Consider VNQ, the Vanguard Real Estate Index Fund ETF Shares, with broad exposure to U.S. REITs. In the pandemic-induced stock market crash of 2020, shares fell 44%. But U.S. real estate values didn’t fall at all — quite the opposite. From March 2020 to March 2021, U.S. home values actually rose 13.3% per the S&P CoreLogic Case-Shiller 20-city home price index. By late May 2021, share prices in VNQ hadn’t even fully recovered their 2020 peak, despite such strength in U.S. housing markets.
To summarize, publicly listed REITs are simple, liquid real estate assets that may be purchased for $1,000 or $10. Consider these best REITs for beginners as a starting point for real estate investment. Just keep in mind that publicly listed REITs don’t provide a lot of diversity.
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2. Crowdfunding for Real Estate: Private REITs
The most prevalent kind of real estate crowdfunding investment is a pooled fund that owns real estate directly or lends money secured against real estate, comparable to REITs.
They do, however, have two fundamental distinctions. To begin with, they are not traded on public stock markets; instead, you purchase shares directly from the crowdfunding site. As a result, they are significantly less liquid and volatile. Because they don’t move in lockstep with stock indices, they provide true diversity.
Most real estate crowdfunding companies, in fact, demand that you retain your shares for at least five years. You may normally sell shares back to them earlier, but at a lower price.
The SEC controls crowdfunded REITs differently from publicly listed REITs, which is the second distinction. Crowdfunding platforms don’t have to return 90% of earnings to investors every year; instead, they may reinvest them to increase their portfolios.
This may result in lower dividend payouts, but it also offers significantly more upside potential for stock prices.
Streitwise and Fundrise are my two favorite crowdfunded REITs. Unlike many real estate crowdfunding platforms, both enable non-accredited investors to participate. Streitwise specializes in commercial real estate in “non-gateway areas,” particularly office buildings and mixed-use developments (read: second-tier cities like Indianapolis and St. Louis, rather than the New Yorks and San Franciscos of the country). Since its founding, they’ve paid out 8-10% dividend rates every year.
Fundrise is most known for its residential apartment complexes, although they also own commercial and single-family rental properties. There are numerous REITs to pick from, some of which are more dividend-oriented and others which are more growth-oriented. In addition to physically owning properties, they also lend money against real estate to diversify their portfolio.
To be clear, I hold shares in both and am generally pleased with both. Although Streitwise just upped their minimum contribution to $5,000, Fundrise allows you to contribute as little as $10. On the bright side, Streitwise’s 8 percent+ dividends were maintained throughout the coronavirus epidemic, when most commercial real estate was struggling. In addition to cash transactions, they also enable you to invest in cryptocurrencies.
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3. Loans from Real Estate Crowdfunding
Some crowdfunding platforms take a different approach, investing in real estate-secured debt rather than actual property.
Consider Concreit. They manage a pooled fund with approximately 150 short-term real estate loans. They allow you to withdraw your money at any moment, with no loss of capital, unlike any other real estate crowdfunding site. Outside of public REITs, such liquidity is unheard of in real estate investment. Concreit yields a 5.5 percent annual dividend return, with payments made every week.
Other crowdfunding sites allow you to contribute to individual mortgage loans backed by real estate. GroundFloor is my personal fave. You don’t have to be affluent to invest since it accepts non-accredited investors. In fact, they just need a $10 commitment. Who doesn’t have an extra ten dollars? This week, skip a couple of lattes and try out a new real estate investment!
They work as a hard money lender, providing flippers with purchase-rehab loans. Flippers get short-term loans from them to purchase and remodel houses, then repay the loan when the property is sold 6-12 months later. If they follow the BRRRR method, they may refinance with a long-term rental property loan.
You get to select which GroundFloor loans you wish to contribute money to in $10 increments. They provide an A-F risk rating to the loans, with greater risk loans paying higher interest rates. Depending on the risk level, annual returns vary from 6.5 to 14 percent. To diversify and spread both your risk and earnings, you may distribute your money among as many loans as you choose.
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4. Notes to Self
Do you know any successful real estate investors?
To lend money to other real estate investors, you don’t need to use a crowdfunding platform. You might provide it to them in the form of a personal message.
A “note” is a legal instrument that both the lender and the borrower sign as a guarantee to repay the loan according to the parameters agreed upon.
I’ve given some money to a successful real estate investor couple I know. They provide me interest on our 10% debt every quarter.
It’s entirely up to you whether you put your note up as collateral. It does include filing a deed of trust with the county records office, and if your borrower fails, you’ll have to go through the lengthy and costly foreclosure procedure to recoup your funds by forcing the sale of the property.
In any case, only give money to investors you know and trust, as well as those who have a proven track record of success.
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5. Wholesaling Real Estate
Wholesalers place properties under contract but do not purchase them. Instead, they sell the contract for a profit to other investors.
Consider this scenario: you discover a $140,000 home and put it under contract for $100,000. After that, you sell the contract for $115,000 to another investor. They receive a good deal on the property, and you get a $15,000 bonus. All without ever buying a single piece of real estate.
You are not required to make a down payment or get a rental property financing. You won’t have to deal with contractors or monitor improvements, nor will you have to deal with tenant screening or lease agreements.
The earnest money deposit, which might be as low as $500, is all that is required. And you’ll get it back as soon as you find a contract buyer.
Read more about wholesaling real estate here if you’re interested.
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6. Invest in real estate
Would you want to know a filthy little secret?
These days, I prefer to invest in land rather than residential rental units.
It is not in need of repair or remodeling. It cannot be damaged by bad renters. You won’t have to bother with tenant screening, rent arrears, or the eviction procedure. Eviction moratoriums, for example, enable renters to dwell in your property for free.
My exit plan include flipping the properties and giving owner finance as an option. I don’t have to go through the typical foreclosure procedure if the buyer-borrower fails. I just recover ownership and sell it to another party. I don’t have to lock up my money for a long time when I flip since the investing time horizon is short.
Best of all, property portions may be purchased for as low as $100.
Check out how Scott Todd used land investments to replace his day job wage in 18 months, and learn how to invest in land with the Land Geek or REtipster land investing courses. Both courses are fantastic, and they teach you how to invest with little risk and good profits.
Image credit: iStock/Techa Tungateja.
7. Home Improvements
House hacking may take various forms, but the basic idea is to utilize your home to create income, which then balances your housing expenses, enabling you to “live for free.”
Buying a 2-4 unit home, living into one apartment and renting out the other is the traditional multifamily house hacking strategy (s). You may utilize a regular owner-occupied mortgage loan, such as a 3 percent down payment Fannie Mae or Freddie Mac loan, or a 3.5 percent down payment FHA loan.
Obviously, this will cost you more than $1,000. But it’s a lot closer than putting down the entire 20-25 percent on a rental property loan. Friends or family members may assist you with your down payment, but it must be a gift rather than a loan.
Renting rooms to roommates or on Airbnb, putting up an income suite, renting off storage space or parking, or even bringing on a foreign exchange student are all alternatives for house hacking. I completed the latter via the Cambridge Network, and the stipend covers almost the whole mortgage payment.
You get to live for free, and you can keep it as a buy-and-hold rental if you decide to move out.
Volodymyr Kyrylyuk / istockphoto contributed to this image.
8. Rental Dispute Resolution
What if you could develop an Airbnb empire without ever having to purchase a single property?
In the joint webinar we did with Al Williamson a few months ago, he tells you how to accomplish just that. It’s known as rental arbitrage, and it entails negotiating a long-term lease with a landlord before renting out the house on Airbnb for a short period of time.
Better still, rent it for a few months at a time as a corporate rental. There are no deposits. There will be no roof replacement or repainting. It’s just passive revenue from someone else’s asset.
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9. Use credit lines to finance the down payment.
Typical mortgage lenders will not allow you to borrow the down payment. Private rental property loans, on the other hand, enable it.
This means you can theoretically borrow a rental property loan from a portfolio lender and then borrow the down payment from a credit line opened through credit concierge services like Fund&Grow.
Fund&Grow helps you open $50,000-$250,000 in unsecured business credit lines and credit cards. No collateral is necessary, and real estate investors count as businesses. You can then tap into these credit lines and cards for down payments, for renovation costs or even to finance properties entirely.
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How to Make a $1,000 Stock Investment
Are you interested in both stocks and real estate?
Stocks are intimidating to many new investors. They’re less intuitive and more intellectual than real estate. However, since you can utilize a robo-advisor to plan your investments for you, stocks are actually simpler to invest in than real estate.
When you start an account with a robo-advisor, they ask you a series of questions to figure out your objectives, risk tolerance, and the best investment plan for you. They offer an asset allocation based on your responses, and if you accept, they invest your money appropriately. Instead of choosing individual equities, they employ low-cost, passive exchange-traded funds (ETFs) to provide you wide exposure to the stock market. This diversifies your portfolio and lowers your risk.
For them to invest, you may set up automatic recurring transactions into your robo-advisor account. They rebalance your account for you to keep your asset allocation on track when some assets outperform others.
If you want more personal administration of your investing assets, mutual funds also provide for simple diversification with modest amounts of money.
It’s that easy. Your stock investments run on autopilot, with no action required on your part.
Check out SoFi Invest or Schwab Intelligent Portfolios for a free robo-advisor. I personally use Charles Schwab, but be aware that a $5,000 minimum commitment is required. Start with SoFi Invest if you have less.
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Last Thoughts
Rather of stressing about where to put $1,000, simply start investing.
There are no ideal investments. Try GroundFloor, Streitwise, or Fundrise if you wish to invest fully passively. Look into home hacking if you want to live for free, but keep in mind that it will need more expertise, effort, and money on your side.
Alternatively, for great returns and little risk, enroll in the Land Geek or REtipster land investment courses. They do, however, need additional knowledge and effort on your side.
Don’t get paralyzed by analytical paralysis. Choose one of the $1,000 investment alternatives above, and you’ll rapidly gain confidence in investing to develop long-term wealth.
Because when you have enough passive income, you can achieve financial independence and stop working.
MediaFeed.org syndicated this story, which first appeared on SparkRental.com.
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The “how to invest $1,000 in real estate” is a guide that lists 9 ways you can invest $1K or less. The article also includes a list of the pros and cons of each investment strategy.
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