You might think that you need at least a few hundred thousand dollars to invest in real estate, but that's really only true if you're doing it the old-fashioned way - buying a turnkey rental property that you can start earning passive income from right away. The truth is that's only one way to invest in real estate.
If you don't have much extra money to invest, you can still add real estate holdings to your portfolio. You can invest in real estate investment trusts or Delaware statutory trusts. You can buy a multi-family unit or a property with lots of bedrooms, and live in the property while also renting out portions of it. You can buy a house that needs a lot of work, fix it up, and flip it. Let's take a look at some of your options to get into real estate investing with very little money.
Buy REITs or Delaware Statutory Trusts
Real estate investment trusts (REITs) are companies that own, manage, and finance real estate. REIT holdings usually include things like shopping centers and hotels, hospitals and medical offices, warehouses, data centers, cell towers, and things like that. You can buy shares in a REIT just like you would buy shares in a stock or mutual fund. Plenty of REITs are publicly traded, and those are the best ones to invest in because they're the easiest to sell (although there are also REITs that aren't publicly traded).
Shares in REITs are pretty affordable for most investors, and you can earn higher dividends from them because the holdings are in property, which appreciates in value and generates passive income for the REIT. REITs offer investors a way to cash in on some of the financial benefits of owning real estate, without some of the obligations and drawbacks. You won't need to worry about repairing and maintaining properties, or being someone's landlord, and if you buy the right REIT, you can liquidate your shares easily instead of waiting months for a house to sell.
A Delaware statutory trust is similar to a REIT in that it allows investors to pool their money in a trust in order to invest in real estate. If you invest in a Delaware statutory trust, you can defer capital gains taxes when you sell your shares by swapping them for shares in another piece of real estate of a similar value under a 1031 exchange.
Try House Hacking
Some people get into real estate investing by buying a property that they can live in and earn rental income from at the same time. It's known as house hacking. You can either buy a unit with lots of bedrooms, and rent out the extra bedrooms to lodgers, or you can buy a multi-family unit and live in one of the units while renting out the others.
Some properties are even optimized for house hacking - for example, student style accommodations that provide ensuite bathrooms for every bedroom are usually affordable and perfect for the homeowner that wants to get into renting but doesn't have the extra cash for a dedicated rental property.
Flip a House
If you have some DIY skills, you can buy a house that needs some love and fix it up yourself. Then you can sell it at a profit - at least you can if you choose the right house in the right area, which can be tricky. To save on housing costs, live in the house while you're flipping it.
Of course, living in a house you're in the process of flipping will mean living in a construction zone, and if you rinse and repeat a few times, it could be years before you're living in a house that isn't filled with dust and drop cloths. You'll also need to be able to do most of the work yourself, because paying contractors can easily eat up all your profits.
And you'll need a nose for buying houses that can turn a profit. If you buy a house that ends up needing a lot more work than you originally supposed, you could lose a lot of money. You'll need to be able to make accurate repair estimates before you buy the house, and you'll need an understanding of how much equity you can earn from a given house, based on the comparative value of the houses around it.
If you want to add some real estate to your investment portfolio and don't have much money, don't worry. You have options, and you can build substantial wealth over time, even if you don't have much to start out with.
