Real estate is a solid long-term investment option. It’s like a savings account that you can see every day—almost. When you invest in real estate, you buy an asset that produces cash flow over time because it’s someone’s home or office and they pay rent on a regular basis to use it. Investing in real estate isn’t as expensive as you might think. Even if you have little money to start with, there are ways to get started with small amounts of capital. Or, with smaller investments of capital, you can build up your portfolio over time and become an even bigger landlord than you thought! There are several ways to invest in real estate without breaking the bank. We’ll go over some options and offer some tips for investing in real estate no matter what your budget is.
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Buy With a Partner
If you can find a reliable partner, buying an investment property together is one of the simplest ways to dip your toes into the real estate market. You’ll both share the responsibilities of being a landlord: You may have to do some maintenance, take care of rental inspections, and collect rent—or your partner will. There are a few things you’ll want to discuss before making a purchase together: What are your goals for the investment? How long can you wait to break even (i.e., when will you start seeing a profit)? What are your exit strategies if it doesn’t go according to plan? How will you finance the purchase? What percentage of the investment are you each contributing? You may have a lot of questions, but it’s important to get these details straight from the start.
Use an Investment Property Trust
An investment property trust (IP trust) is a popular way for younger real estate investors to get started. It’s like a retirement fund for real estate investors. And, just like retirement funds, the amount of money you can put into an IP trust is based on your age and income. If you’re younger, your income will be lower, so you can put in more money. If you’re older, you may want to put less money in since you may need to rely on that money sooner. An IP trust allows you to invest in a large pool of residential or commercial properties. You’ll receive a percentage of the profits from the properties in the pool, just like you would with a profit-sharing retirement fund. IP trusts are managed by fund managers, so you don’t have to be a landlord or even visit the properties to see a profit.
Estimate ROI Before You Buy
Before you spend money on an investment property, you’ll want to calculate the return on investment (ROI) to make sure the property is worth it. You can do this by calculating the cash flow of the property—how much money you’ll make from rent and other sources of income. If the cash flow is positive, it means you can make a profit on the property. You can also use this method to figure out how much you can spend on a property. Let’s say you want to buy a property for $100,000 and you want a 12% cash flow. You can solve for the monthly rent: $100,000 divided by 12% is $833.33. There are many calculators online where you can plug in these numbers to get a precise estimate of the cash flow of a property.
Try Real Estate Crowdfunding
Real estate crowdfunding might just be the best way to get your feet wet in the world of investing. It’s also a great way to diversify your portfolio—if you choose the right platform. With real estate crowdfunding, you invest in a property and then collect the rent or other income from it. The nice thing about this model is that you can buy a smaller share of the property with less money. This lets you invest in a wider range of properties, including those that may be out of your price range. You can also diversify across a number of crowdfunding platforms so you aren’t relying on one source of income. Real estate crowdfunding is an ever-changing field, so it’s important to do your research and find a platform that’s trustworthy and has high-quality properties.
Invest in Renovations
If you’re not sure if you want to commit to long-term rental properties, consider investing in some short-term renovations instead. You can get in on the ground level of a renovation project by partnering with a renovation company. These renovation companies let you invest in their projects as an equity investor. This means you’ll get a percentage of the profits once the renovations are complete. There are a few things to keep in mind when investing in renovations. First, you’ll want to research the area and potential projects to find one that has a high likelihood of success. Second, you’ll want to consider the types of projects you’ll invest in. Some projects are riskier than others, so you may want to steer clear of tenant-occupied properties or projects like adding an addition to a house.
Bottom Line
Real estate investing is a long-term game, so you’ll want to be sure you’re picking the right projects for your first few investments. Once you find a successful strategy, you can increase your risk tolerance and scale your investments. All real estate investments are risky, but you can mitigate those risks by doing your research and making sure you have a sound investment strategy. You can start investing in real estate with a small amount of capital, but you’ll want to make sure you’re picking the right projects so you can maximize your profit.
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