Contrary to popular belief, investing in real estate does not have to be expensive. Whether you have $100,000 to invest or $10,000 it is possible to become a real estate investor.
According to the US Bureau of Economic Analysis, National Income and Product Accounts, spending within the US housing market accounted for 17.5% of GDP in 2020.
This figure can be broken down with:
- Residential fixed investments accounting for around 4.2% of GDP at $885 billion. This includes the construction of single family homes and multi-family duplexes, residential remodeling, and brokers’ fees.
- Housing services accounting for 13.3% of GDP at $2.8 trillion. This includes rent and utilities by both homeowners and renters.
If done right, you can tap into this huge market, and start earning money from your real estate investments.
Based on your experience and expectations, you can look at different types of investments. These can be online or direct, active or passive.
An easy way to invest in real estate with $10,000 only, is to look for online real estate ventures.
By using online platforms you do not need to step out of the door and only need access to a reliable internet connection and a device.
Real estate investing online usually come in three forms, namely:
- Real Estate Crowdfunding
- Real Estate Investment Trusts (REITs)
- Real Estate Syndication
Let’s look at each of these briefly...
Real Estate Crowdfunding
The 2012 Jobs Act paved the way for formalized real estate crowdfunding. This is a process of pooling money together with many different investors.
It is a way to invest with a minimal amount of cash - even less than $10,000. You can invest as little as $1k or $5k.
Online crowdfunding platforms give you the option of investing in multiple projects and the chance to diversify your portfolio by spreading out your 10k.
You can make money by selling your share of the investment to other investors or wait for your share to mature when the property sells.
By looking at minimum investment amounts, returns, fees, and site interfaces we have found those crowdfunding real estate opportunities that will make the most of your $10,000
Here are some of 2021’s top real estate crowdfunding platforms.
Founded in 2012, Fundrise is one of the biggest crowdfunding companies with more than $5.1 billion of real estate in the U.S.
They manage equity for more than 150,000 investors worth more than $1 billion.
Their returns are also lucrative. They have given out over $100 million in net dividends to investors since their inception.
Fundrise is ideal if you want to invest $10,000 as they offer packages that start from a minimum investment amount of $500.
Four other plans include:
- Basic - $1,000
- Core - $5,000
- Advanced - $10,000
- Premium - $100,000
Some disadvantages however are the:
- complicated fee structure,
- difficulty in withdrawing funds, and
- the length of time it takes to see returns.
Although it is one of the smaller crowdfunding sites, Diversify Fund is ideal for first-time investors who can open an account for as little as $500.
There are also no management fees and it is open to non-accredited investors.
Your money however is not available until the property sells, and there are limited investment options.
For those without any experience in investing in property, you will not have to worry as they handle everything for you.
There are no decisions to be made about your investment. Instead you just wait for your returns until they sell the property.
This company specializes in commercial real estate that is known to be more lucrative than other types of real estate.
Offerings often start from as little as $5,000, but typically, can reach up to $10,000. The length of investment is also an added advantage as you can get returns in as little as 6-months.
You do however have to be an accredited investor and the ideal investment has a duration period of five to ten years.
You may also struggle to sign up to access their information as well as their fee structure.
Real Estate Investment Trusts (REITs)
REITs own, operate, and finance income-generating properties or mortgages on these properties. Common investments include malls, skyscrapers, and other types of commercial estate. Around 24% of REITs are in shopping malls and retail properties.
It is a way to invest passively and has many advantages. This includes high returns and investors receive a fair share of the profits.
Historically, REITs are one of the highest performing asset classes with an average return of 9.5% between 2010 and 2020.
They performed even better than S&P 500 (9.07%), and Russell 2000 (6.45%) between late 2017 and 2020 giving a return of 11.25%.
Because REITs are publicly traded companies, they work like other companies in the stock market.
The 5 major types of REITs include:
To begin using REITs, you can buy individual stocks but it is safer to buy into a mutual fund or an exchange-traded fund (ETF) that invests in REITs.
If you are not comfortable buying stocks, you can ask a financial advisor or broker to recommend REIT investments.
Take a look at the major pros and cons of REITs.
Pros of REITs
- High average returns and dividends
- Offers portfolio diversification in many different investments and properties
- High liquidity and easy access to your funds
Cons of REITs
- Sensitive to changes in interest rates
- Some properties (hotels) have higher risks based on economic challenges
- Dividends are taxed the same as ordinary income
Real Estate Syndication
A real estate syndication deal is a form of passive real estate investing that brings together a group of investors who pool their money to buy large commercial assets.
A syndicator will scout, purchase and manage the property. The investor will provide most of the funding and take on a passive role. The syndicator will earn a management fee.
The investor and syndicator will often form a limited liability company, becoming limited partners, and managing members respectively.
Each member of the company owns a percentage of the property and rent earned from the building is shared among the partners.
You can protect your investment by structuring a deal with preferred returns to investors. This means a minimum amount will have to be reached before the syndicator is paid. This gives them an incentive to ensure a successful deal.
If you choose to invest in real estate with $10,000 by joining a syndicate, there are some helpful tips that will ensure your investment gives you high returns.
- Tip 1: Decide on your role
Will you be a passive investor or a syndicator? Look at your experience, skills, capital, risk tolerance level, and net worth.
If you do not have much experience and want to invest $10,000, then being a passive funder is your best option.
- Tip 2: Find trustworthy partners
Perform due diligence on your syndicator because they will be managing the building.
Look for an experienced property manager with a proven track record who you can trust.
- Tip 3: Check your contract
Before signing any agreements, make sure you are getting the best returns for your money. Request for preferred return clauses so you keep your investment safe.
- Tip 4: Consider the acceptable risk level
When making any investment decision, you need to consider the level of risk you are willing to take on.
Syndication typically offers less risky investments, but you will still need to do your research and know exactly what the risk level is.
If you wish to make money from rental property, you may not be able to due to the often high initial investment costs.
Syndication is the perfect way for you to invest in a rental property.
Another way to invest 10k is to buy property tax liens. When a homeowner fails to pay property taxes, a lien is held on the property that real estate investors can buy.
Here is how it works:
- A lien is created on a piece of property.
- The lien certificate is auctioned off.
- The investor buys the lien certificate.
- The investor makes arrangements with the property owner for repayment.
- The repayment rate can range from 5% - 35%.
- If the certificate was bought at a premium, that premium can also be charged against the lien.
- Although rare, if the owner does not pay, the investor can foreclose on the property
To invest in a tax lien you will need to understand the rental property market, as well as have a thorough knowledge of the property itself.
Get the Best Advice For a Short-Term $10,000 Investment
Investing does not have to be a hassle. With the right advice and help from professionals, you can make sure that when you invest your $10k, you don’t lose your money.
You might want to delve into the short-term rental property investment industry but have no idea where to start.
The Short Term Shop is the perfect place to get started in your investment journey. We have numerous listings of homes, condos, and foreclosure properties across the country. We also offer access to local service providers.
We are a team of professionals who promise to guide you on this journey in real estate that can sometimes be treacherous.
Our happy clients are proof of the dedication we offer our clients. We’re sure we can successfully help you invest your $10k too - and hopefully even more in the future.