Versions of real estate advertising can be seen everywhere you look. From luxury apartments for sale, or vacation rentals advertised online, the push to buy a house is constant.
Even when relaxing in front of the TV, you can expect to see DIY shows or home renovation programs that further whet your appetite to own a home.
The only problem is, many of these homes and the renovations cost hundreds of thousands of dollars — funds you simply might not have.
There are however ways to own a real estate property with limited funds and some good financial planning. From short-term rentals to passive investments, here are ways to get into real estate investments with a fairly small amount of money.
If you can offer just $50,000, these are some of the best ways to get started in real estate investment.
But before setting your sights on real estate investing, make sure it is the right choice for you.
You will need to look to compare how different investment types match your risk levels and liquidity needs. Instead of real estate investing, shares are your other obvious option to invest your $50,000.
So first, let’s look at the pros and cons of investing $50,000 dollars in either the stock market or real estate.
Real Estate vs. Stocks — Which is the Better Investment Option?
At the beginning of any investment journey, everyone wants to make the right choice, and the question usually is “Should I invest in real estate or stocks?”
Here is a quick summary of each one:
|The value of property can fluctuate and appreciation is not guaranteed.||Can fluctuate with inflationary risks but tend to provide inflation-beating returns.|
|Requires contact monitoring by the investor unless investing passively.||Easy to monitor online and track performance.|
|Will normally need a lot of funds to invest in real estate although options are opening up.||Can invest with smaller amounts of money or monthly allocations.|
|Tax advantages are gained when inflation reduces the value of your property.||Recognized as tax-investment savings so investors are eligible for tax benefits.|
|Low liquidity levels and cannot be cashed in easily.||Fairly easy to liquidate and easy to buy and sell.|
|Opportunity to earn constant rental income and recover your investment.||Can be added to tax protected retirement accounts, and dividends can be earned.|
|Requires thorough research and work.||Easy to buy through fund managers and brokerages.|
Any investment choice is a very personal decision, and depending on your requirements and specific situation, you can decide either on shares or real estate.
But since you are here, we can help you make a more informed decision before investing in real estate with your well-earned $50,000.
Here are a few options of how to succeed in the housing market as a real estate investor.
Buy a Bargain Rental Property
Before buying a rental property with your $50,000, you must find property with a wide gap between the sale price and value. Ideally, you’re paying less than 80% of the home’s value when all costs are included. This should include the full purchase price, renovations, and closing costs.
Once you have your 1st property, it’s quite possible to grow your real estate portfolio, and here’s how!
You have $50,000 cash, and buy a long-term rental property worth $60,000. You then rent it out for $500 per month then refinance it at 80% of its value.
The bank will give you back your original $50,000 from the initial investment. The rent income won’t be much after you refinance, but if tenants pay down your debt, your equity will increase.
Some assumptions are that the property value will increase yearly, and rents do not decrease. So if everything goes in your favor, you will be able to buy another similar property the next year.
If you repeat this process for the next ten years, you will make more than $200,000, and well over $1 million after another ten years.
Even if property prices fluctuate, so long as you work with the correct percentages and follow the same investment strategy, your $50,000 will keep working for you, and even better, you will be a rental property mogul.
Long-term rentals are a good way to enter the real estate market with $50,000. They provide monthly rental income, usually appreciate in value, and allow you to leverage your debt.
Before you proceed, make sure to consider all monthly expenses, including vacancies, maintenance, property taxes, insurance, and management fees. This will affect your bottom line, and how much income you make, so consider your risks carefully before buying any type of property.
Explore Investing in REITs
Real Estate Investment Trusts, known as REITs, is a company that owns, operates, or finances real estate. They make long-term investments in income-producing commercial real estate or investing in real estate debt such as mortgage payments.
So how do you invest in REITs?
You can invest in REITs individually, through mutual funds or exchange-traded funds (ETFs), most of which are publicly traded and can be bought from most brokerages for as little as the price of one share.
There are also public non-traded REITs that usually have a minimum investment requirement of between $1,000 to $2,500. You may have trouble finding them on online brokerage forms, so it is advisable to consult a third-party broker.
REITs have a tax incentive to provide at least 90% of their taxable income to investors. This means they aim to provide a steady stream of dividend income to their investors, so you can expect steady returns on your investment.
They are a good investment for those who don’t need rapid growth as share prices may not change in the long run.
Commit to a Real Estate Limited Partnership
Known as RELP, it is an aspect of real estate where investors pool their capital together to buy, develop, or lease property.
You can look for an existing partnership, or form one with people you trust, to create a limited partnership (LP). In contrast to a limited liability partnership (LLP), an LP is made up of two or more partners, one of whom is the general partner.
The general partner who oversees and runs the business has unlimited liability for the business’ debt. The other partners’ liability is limited only up to the amount of their personal investment.
When it comes to RELPs, the general partner is usually a corporation, a real estate development firm, or a property manager. So you would join as an outside partner into the RELP and use your $50,000 as financing in exchange for returns.
In addition to properties, the general partner will look for profitable investments in the real estate industry including REITs, real estate-focused investment funds, and other options to increase the portfolio.
Although they have a more significant risk than other options, they can provide higher returns than these other options.
Make sure you understand and agree to the general terms including fees, minimum investments, partner voting rights, and investment decisions.
Some groups leave the core management decisions to the general manager, while you can opt for a partnership where you will also be involved in the active management of the business.
Generally, RELPs accept investments from $5,000 up to $50,000 making it a perfect option for you if you can find the right group. It will let you own part of a unit with your fellow investors that you cannot afford alone with limited funds.
Remember, you will have to pay tax on the distributions you receive as income throughout the year.
Finding a Reliable Estate Syndicate
With a structure similar to RELPs, real estate syndications are likely one of the easiest ways to invest your $50K, and you might not even have to invest the full amount.
They both use the same method of pooling resources from many real estate investors to fund huge investment properties.
However, a real estate syndication involves a syndicator. This is the person who is responsible for the search, acquisition, and management of the income-producing rental property.
They are also responsible for obtaining cash investments for the purchase — and that’s where you come in. You invest part, or all of your $50,000 (we advise you to join a few different syndicates), and own a percentage of the property.
There are however some pros and cons that you should know:
Advantages of Real Estate Syndication
- Great for passive investing: This is ideal for you if you have a full-time job, and do not have the time to find properties and manage them. You will receive passive income and just need to cash your monthly or quarterly checks.
- Shared risk: By investing with multiple people, you reduce your individual risk and split it amongst yourselves.
- Access to bigger investment opportunities: By pooling funds, you are able to own part of rental properties in a more profitable asset class than you would have been able to afford alone. These usually include commercial or multi-family rental properties.
- Ability to diversify: By buying multiple properties, you benefit from diversification and protect yourself from risk and financial loss.
Disadvantages of Real Estate Syndication
- No control: If you are keen to play an active role in the investment process, you will not have the opportunity to do so with this type of investment.
- Low liquidity: Your investment in syndicates is not easily traded so do not rely on these funds in the case of an emergency because cashing out is almost impossible.
Before you jump into syndication, make sure to look at the choices either online or in your area.
You will need to look at the company’s track record, investor relations, exit strategy, property management systems, and more importantly, the profit split agreements.
Look Into Real Estate Crowdfunding
Crowdfunding is similar to both syndication and REITs working with the same concept of pooling your funds with other investors to invest in various projects.
The difference with crowdfunding is the method of investment and payment. The first method is making the normal property investment, in exchange for equity. In exchange, you receive quarterly payouts on the rental income.
Crowdfunding also allows you to also choose to invest in debt. This means you are investing in the mortgage loan associated with a specific property. When the loans are repaid with interest, you as the investor will receive a percentage of the payback either monthly or quarterly.
Equity investments offer higher returns, but also have a higher risk and will usually have a longer holding period. The debt investment is relatively safer, but your returns will be determined by the interest rate of the loan.
Crowdfunding is a perfect way to invest in real estate even for non-accredited investors who make $100,000 annually.
Consider Property Wholesaling
Although it will not specifically get you in the traditional real estate market, this special niche of investing still lets you make money in the field without much capital.
In fact, you never have to buy a property, but while it still has expenses, the whole investment is cheaper than most.
To wholesale a property, you will need to find an off-market seller, and contract their property to be purchased at a set price.
This is usually quite a low value. You will then need to find a third-party buyer with cash to buy the property and assign the contract to them at a higher price. Your profit is the difference between the higher property sale price, and the lower purchase price agreed to by the buyer.
Wholesaling is an active form of investment, meaning you will be working to find, acquire and sell the property. You will also have marketing and transportation costs, as well as investing a lot of time researching and learning about wholesaling properties.
It is a good starting point for those willing to learn and get their foot in the door of investing in real estate with little money. If you manage to complete enough wholesale deals, you may have enough to purchase your own property.
Make the Most of Your $50,000 Real Estate Investment
It’s always helpful to gather as much reliable information as possible before making a real estate investment. It is a long-term decision that will bind your money and is not easy to reverse.
The Short Term Shop is full of our experts in real estate education, real estate brokerage, and property management. Our only job is to help you create a successful investment strategy, help you make more money, and become property owners.
We will keep you in the loop with industry news, investment opportunities and provide advice.