It’s been a decade ago since the infamous home mortgage crisis tipped off the Great Recession in 2008, and maybe you’ve been skittish to invest in real estate as a result. So that means you should never invest in real estate, right?
If you share this sentiment, it might be time to adjust your point of view toward investing in real estate. Andrew Carnegie, the world’s richest man at the turn of the 20th century, said, “Ninety percent of all millionaires become so through owning real estate…The wise young man of today invests his money in real estate.”
The Real Estate Investing Myth
Now that we have Mr. Carnegie’s opinion on real estate, the next time is to make a deal so that you too can join the millionaire’s club.
The only problem is that way too many investors think the only two ways to invest in real estate is to own rental property or flip houses which both require tens of thousands of dollars of cash that you don’t have at the moment.
These might be the two most common ways to become a real estate investor if you’re an Average Joe investor to make passive income, but they aren’t the only ways.
Even if you’re currently doing good to meet your employer 401k match at the moment and also have an extra $100 to spare each month, you can make money investing in real estate.
Investing in Real Estate With Little Money
Not everyone has the time or money to be a landlord or fix and flip houses. As a result, they think their only investment option options are traditional stocks and bonds because you only need a few dollars to execute a trade.
Below, we’ll cover a few different options with how you can immediately start investing in real estate with only a few dollars. Like any investment, don’t “bet the family farm” exclusively on real estate, but these investing ideas can be an excellent way to diversify your passive income streams.
1. Invest in Real Estate Investment Trusts (REITs)
This option is probably the most affordable because you only need to buy a single share of stock–$50 for example–and your 401k plan might offer a REIT fund option too.
Real Estate Investment Trusts (REITs) invest in many different property types including residential, commercial, or industrial. For instant real estate diversification, you can also invest in a REIT index fund that holds a small position in approximately 185 real estate stocks that invest in almost every available real estate sector.
There are two reasons to consider adding a REIT or REIT index fund to your investment portfolio:
- Earn regular dividends
- Exchange-traded REITs are highly liquid
Every REIT pays a different dividend yield, but you can earn an annual dividend yield ranging between 2% and 10% which helps you earn consistent passive income even in a down market.
Probably the largest reason to consider investing in REITs is the high liquidity because you invest in real estate on a public market; you can buy a share on Monday and sell it on Wednesday if you choose for market value.
The other real estate investing options are highly illiquid, and you can’t cash out until the project finishes or you find another investor. In either case, it can take a few months to get your money back, but you can earn a higher potential return.
2. Invest on Crowdfunded Real Estate Platforms
Investing in public market real estate through real estate stocks, ETFs, and mutual funds is the easiest way to invest in real estate when you don’t have a lot of money, but you can earn a higher potential yield by investing in private market deals.
The benefit of investing on crowdfunded real estate platforms is that you can invest directly in private real estate projects. By having direct investment access, your real estate investment income can be as high as 12% per year. And, you don’t have to worry about the fluctuating stock share prices that eat away at your dividend income in down years.
Private real estate deals used to only be available to high net worth, accredited investors with an annual income above $200,000. While many crowdfunding real estate platforms like PeerStreet and RealtyShares cater to high net worth investors, you can get started on Fundrise with a single $500 investment regardless of your net worth.
Many crowdfunded real estate platforms also let you invest via a Traditional IRA account so your dividend income grows tax-deferred to widen your profit margins even more.
3. Join a Real Estate Investing Club
It’s still possible to invest in local, physical real estate without having to invest at least $50,000 in a single project. The easiest way to buy local real estate is to join a real estate investing club that lets you invest in rental properties with a group of buyers.
You still might have to invest a larger sum than REITs or crowdfunded real estate, but you can still earn a higher potential yield compared to the first two options. And if you prefer to touch and see a real estate investment opportunity, this might be your most favorite real estate investing option. And remember, you don’t have to say “Yes” to your first deal.
How Much Can You Earn?
Several variables factor into how much money you can make investing in real estate like the local real estate market health, the potential upside of a potential investment, and the borrower default rate.
Crowdfunding real estate offers the highest potential yield with an annual 6% to 12% yield. If you have the ability to pick your own investment projects, you can earn up to 15% when you pick the right properties.
You might be able to earn more by investing in local real estate because you’re the primary investor and you can also invest “sweat equity,” instead of more money which can increase your return. But until you have the money and time to invest in large projects, investing small amounts of many in several projects can be a wiser way to earn passive income without relying entirely on the stock market or your savings account interest.
The key to any real estate investment is spreading your available capital into several projects to maximize your earning potential while minimizing your investment risk.
With crowdfunded real estate and even investing in exchange-traded REITs, it’s easier than ever to become a successful real estate investor and watch your nest egg grow!
About the Author:
Joseph Hogue worked as an equity analyst and an economist before realizing being rich is no substitute for being happy. He now runs five websites in the personal finance and crowdfunding niche, makes more money than he ever did at a 9-to-5 job and loves building his work from home business. He can also be found over on YouTube in videos like this one!