When you first begin exploring the world of real estate investing, it’s easy to feel like there are only a few options for investing small amounts of money. Options like real estate partnerships and limited liability corporations require hefty investments that aren’t accessible to most people.
But if you only look at these as your primary options, you could miss out on some great opportunities. Fortunately, there are many ways to invest in real estate with smaller sums of money available.
While they may not offer the same level of returns as other investment strategies, they can be affordable and accessible. Each option listed here has its own advantages and disadvantages. Depending on your financial situation, personal preferences, and risk tolerance, one will likely be more appealing than another.
Real Estate Crowdfunding
If you only use one method for investing in real estate, make sure it’s real estate crowdfunding. It’s the most accessible and affordable option available for anyone with a small amount of money. Real estate crowdfunding sites connect investors with commercial real estate projects in need of funding.
The general idea is that you’re helping to finance a project in exchange for a slice of future profits. Your investment will be in the form of a loan that’s usually secured by a deed of trust in the property. Each site has its own nuances, but most offer attractive rates and terms.
And, regardless of the site, investors are almost always guaranteed to get their principal back. As a result, real estate crowdfunding is best suited for investors looking for a relatively safe bet with a reliable yield. The minimum investment amount for most real estate crowdfunding sites is typical $1000. This amount can vary based on the project, the amount being raised, and the site.
Real Estate Investment Trusts (REITs)
REITs are a type of publicly traded investment fund that specializes in real estate. They invest in commercial real estate assets like rental properties, hotels, and warehouses. The investment funds that make up each REIT are professionally managed.
The fund managers select the properties they will purchase, and they manage the properties on an ongoing basis. There are two main types of real estate investment trusts: equity and bond. Equity REITs invest in rental properties, similar to a real estate mutual fund.
The rental income generated by the properties is used to pay back the investors. Bond REITs issue fixed-income products that pay a set amount of interest every year. REITs are a lot like mutual funds when it comes to investing in real estate.
Instead of investing directly in a single property, you’re investing in a pool of properties. It may not be as hands-on as owning a single rental property, but it does come with some advantages. For example, REITs are highly diversified. So, even if one rental property is struggling, the rest are likely doing well.
Real Estate Exchange Traded Funds (ETFs)
ETFs are investment funds that trade like stocks on a stock exchange. There are several real estate ETFs you can use to invest in real estate with a small amount of money. Like an equity REIT, ETFs invest in real estate assets and use the rental income to pay back investors.
The main difference is that ETFs don’t invest in a specific type of real estate. Instead, they invest in a wide range of assets, like office buildings, hotels, and warehouses. The goal is to spread the risk and capture long-term growth in all types of investment properties.
Like any other investment, real estate ETFs don’t come without risk. They aren’t guaranteed to generate positive returns, and there’s always the chance of losing money. However, ETFs are generally considered safe. They’re diverse, low-risk, and offer steady returns over time.
Investing in real estate with a small amount of money might be easier if you are part of a network of like-minded individuals. Find a local real estate investing club or networking group and see what type of investment opportunities they have.
While many networking groups focus on lending, they may have investment opportunities available as well. Some groups specialize in small business equity loans, while others have experience investing in real estate. No matter what type of investment opportunity the group is involved in, it’s a low-risk way to get your feet wet in the world of real estate investing.
Many networking groups charge modest fees for their services. But the money you invest could get you a decent return. It will likely be structured as a loan to a small business owner. You’ll receive a fixed-interest payment each month, and you have the ability to cash out your investment when the loan is repaid.
Peer-to-peer lending (also known as P2P lending) is a method of loaning money to other people through a financial platform or website. The loaning process is facilitated by an online platform that matches investors with borrowers. Investors can pick the kind of loan and rate they want to invest in.
They can also determine certain terms and conditions for the loan. Borrowers can apply for the loan through the website, and they’ll be matched with investors based on the loan criteria they select. P2P lending is a good option if you want to invest smaller amounts of money in real estate.
While the rates of return vary, many lenders report positive returns. Borrowers pay interest rates that are typically higher than what lenders receive. As a result, it’s important to do some research before deciding to invest in a loan type.
The nice thing about P2P lending is that you can invest as much or as little money as you’d like. The minimum amount you can invest varies from site to site. However, most sites offer investment opportunities as low as $25. With smaller loan amounts, you’re likely to get a lower return. But it’s a great option for people with smaller amounts of money to invest.
Real estate investing is a smart way to build wealth. It’s also a good way to diversify your investment portfolio. Owning real estate can be a lucrative long-term investment. But it’s important to remember that it’s not without risk. When choosing how to invest in real estate, it’s important to take into account your financial situation.
You need to be able to afford the upfront costs of purchasing the real estate asset. You also need to be able to afford the monthly mortgage payments. It’s also important to remember that there’s no quick and easy way to make money. It takes time and effort to make a profit from real estate investing.