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How to Invest in Real Estate with Little Money

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Every real estate investing for beginners course should begin with the following 3 lessons:

  1. Never let a good crisis go to waste.
  2. You make your money on the buy, not the sell.
  3. You do not need a huge pile of money to become a real estate investor.

We are in the middle of a pandemic, which you might think would stop all real estate investing in its tracks. The reality is quite to the contrary. The Mortgage Broker’s Association reports that existing home sales rose by 21% in June 2020 over the previous May. This represents the biggest month-over-month jump since they started keeping records. What’s more, the June closings really represent contracts in the previous 2 months, negotiations closed while the economy was closed and everyone was still in a remote panic.

The historically cheap money flooding the market will soon be accompanied by lower prices. The federal eviction moratorium is ending, potentially affecting 12 million renters. It is reported that 30% of homeowners didn’t make house payments in June. Landlords who are getting no money and owners who don’t have any money will soon flood the market with distressed properties, which will likely push prices down. This is likely, actually. The median price of an existing home sale in June 2020 was $295,300, the highest ever recorded.

And now we get to your money. With low interest rates already here, lower home prices coming and a government desperate to keep the economy going to avoid anarchy in the streets, money should be the least of your worries if want in on this market. You have choices. Let’s take a look. 

Option 1: Real Estate Crowdfunding

Who said you have to come up with all of the money for a property on your own? You can crowdfund real estate with other like-minded people just like you crowdfund any other product. On some platforms, you can get in for as little as $500. The real advantage here is the ability to diversify into real estate with the same amount of money that would normally buy 1 property. Instead of leveraging yourself to the hilt and worrying about your credit score over $10,000, that down payment now puts you in 10 properties.

There are pitfalls to avoid. You are well-advised to read the terms of service for any crowdfunding scheme to ensure the following:

  • You can get your money out when you want it.
  • The fund manager isn’t paying himself exorbitant fees that you actually pay for.
  • There is a timeline for payback or interest.
  • There are a set and transparent interest rate or equity stake.

Depending on the platform you choose, you can self-direct your investments or rely on a team to place your money for you. Keep in mind that the herd mentality may not pay off here. With such small amounts of money, you will likely not be doing business with accredited investors. Conduct your own due diligence on any property before investing in it.

Best Real Estate Crowdfunding Platforms

Take a look at the feature set of these real estate crowdfunding platforms. Their services differ based on how much money you have and the kind of service you want (hands-on versus a more passive agent approach).

Minimum Investment
$10,000
Fees
1% – 1.75%
Get started securely through CrowdStreet’s website
Minimum Investment
$10,000
Fees
1% – 1.75%
1 Minute Review

CrowdStreet is a commercial real estate investing platform where people can invest directly in commercial projects. Unlike a brokerage firm, CrowdStreet isn’t a middleman. Instead, the platform acts as a marketplace where investors can pick and choose the best deals for their time horizon and strategy.

Available investments range from family living spaces to office buildings to storage facilities and investors can sign up for a free membership. Your investment options are limited to what’s live on the Marketplace and you’ll need capital to build a diverse real estate portfolio. Only accredited investors can access deals through CrowdStreet.

Best For
  • Investors looking for diversification away from stocks
  • Real estate investors interested in new opportunities
  • Accredited investors with lots of capital at their disposal
Pros
  • Unique opportunities available
  • Makes real estate accessible and understandable
  • Investors can devote capital to both debt and equity offerings
  • Offers quality education materials and answers to FAQs
Cons
  • Real estate is highly illiquid
  • Most properties require a minimum $25,000 investment
  • You’re limited to what’s on the CrowdStreet Marketplace
Minimum Investment
$500
Fees
No management fees
Get started securely through Diversyfund’s website
Minimum Investment
$500
Fees
No management fees
1 Minute Review

DiversyFund isn’t your average crowdfunding platform. You’ll find that the company puts a twist on the traditional everyday crowdfunding platform, beyond anything you can find online with a simple Google search. You only have to look under DiversyFund’s skin one layer to surmise that DiversyFund is a conscientious developer and sponsor and helps hedge risk through improved vetting.

DiversyFund offers a multifamily real estate investment trust, the DiversyFund Growth REIT, and its main goals are to increase cash flow and resale value. It’ll automatically give you access to multi-million dollar real estate assets.

Best For
  • Those looking for an alternative investment beyond stocks and bonds
  • Individuals who aren’t sure they want to be landlords in the traditional sense
  • Investors who aren’t accredited
Pros
  • Only need to pony up $500 to get started
  • Open to investors all over the world
  • No expensive broker fees
Cons
  • You’ll only be able to access “blind pool” investments, which means that you can’t opt out of specific properties
  • There’s only one real investment option, the DiversyFund Growth REIT
Minimum Investment
$5,000
Fees
Between 8% and 10% of the purchase price.
Get started securely through Roofstock’s website
Minimum Investment
$5,000
Fees
Between 8% and 10% of the purchase price.
1 Minute Review

Roofstock is a registered real estate broker and marketplace specializing in single-family rental properties. Unlike its competitors, Roofstock isn’t selling shares of properties through trusts or LLCs — they’re connecting buyers and sellers directly. Roofstock properties are carefully vetted by a qualified home inspector and come with a rental income guarantee. That’s right, Roofstock will pay you rent even if your property stays vacant.

Financial data on each property is available even to those who are not clients and nonaccredited investors are welcome to join free of charge. Cash and financing options are available when making a purchase, but Roofstock will tack on their own fees in addition to closing costs.

As the solitary owner of your property, you’ll be expected to fund repairs out of your own pocket. Still, Roofstock is a great way to get a foot in the door of the real estate industry and their fees are much lower than most of the competition.

Best For
  • Nonaccredited investors
  • Real estate investors with limited capital
  • Investors looking for income through rental properties
Pros
  • Free to sign up
  • No investment minimum
  • Ownership of real assets
  • Low fees 30-day money back guarantee
Cons
  • Single-family homes only
  • Need to finance repairs yourself
  • Requires down payments
Minimum Investment
$1,000
Fees
2% – 3%
Get started securely through stREITwise’s website
Minimum Investment
$1,000
Fees
2% – 3%
1 Minute Review

Looking to diversify your portfolio and get into real estate? A real estate investment trust (REIT) that owns income-producing real estate may be a great place for you to start. Streitwise is a REIT that specializes solely in commercial real estate and has a low entry investment requirement of $1,000. Based in Los Angeles, Streitwise was created in 2017 by three veteran real estate investors who were frustrated that there wasn’t a good option for unaccredited investors to get into the commercial real estate market.

Streitwise focuses on investing in low-risk rental commercial real estate aimed at providing clients with consistent high-yield returns. The team invests in markets that are steadily growing and offer low-risk potential outcomes. While they’re still young and growing, the founders have built their business based on solid experience coupled with a vision for the future of investing. If you’re looking to diversify your current investment portfolio but feared real estate was too lofty a goal, Streitwise is worth exploring.

Best For
  • Investors looking to diversify
  • Investors with less than $200k in annual income
  • Passive traders
Pros
  • Consistent quarterly dividends
  • Low, transparent fees
  • Low investment minimum
  • Convenient and easy to use
Cons
  • Young company
  • Projections are uncertain
  • Limited portfolio
  • Limited technology
Minimum Investment
$500
Fees
0.85% asset management fee per year
Get started securely through Fundrise’s website
Minimum Investment
$500
Fees
0.85% asset management fee per year
1 Minute Review

Fundrise, a real estate investment platform, allows small investors to gain exposure to a diversified portfolio of real estate projects hand-picked by the Fundrise team. Investors can choose between a starter plan and three advanced plans, all designed to meet certain investing goals. Each plan gives you an exposure to a specific portfolio which comes in a form of eREITs and eFunds, custom-made products which are not traded on security exchanges.

Best For
  • Small real estate investors
  • Passive investors
  • Long-term investors
  • Beginners
Pros
  • Allows small investors to get exposure to commercial real estate
  • Diversification in the real estate sector
  • Goal-oriented investing
  • Relatively low fees
  • 90-day guarantee
Cons
  • Liquidity issues as eREITs and eFunds are not exchange traded

Option 2: REITs

One of the best passive real estate investment opportunities is the REIT, or real estate investment trust. The REIT either manages, owns or finances real properties that generate income. Think of the REIT as the mutual fund of real estate with many similarities to the crowdfunding model.

Like crowdfunds, the REIT pools investor capital. Unlike crowdfunds, REITs may be publicly traded. They also have a wider spectrum of investments and may include data centers, warehouses, medical offices, retail locations and cell towers along with the traditional apartment building.

Mortgage REITs do not take ownership of real estate although they do finance it. The income from REITs is made up of the interest on the investments. REITs also have to meet certain requirements in order to qualify for the distinction:

  • Be a taxable corporation. 
  • Derive 75% or more of its gross income from sales, rents or interest on mortgages.
  • Pay out 90% of its taxable income annually in shareholder dividends.
  • Build at least 100 shareholders in 365 days.
  • Have less than half of its shares in the hands of 5 or less people.
  • Have a board of directors or trustee management team.

There are 3 major types of REITs:

  • Mortgage REIT – The mortgage REIT facilitates mortgages to property owners or acquires mortgage-backed securities. It earns its profits through the net interest margin.
  • Equity REIT – This is the default REIT type. They manage and own real estate that produces income, primarily through rents.
  • Hybrid REIT – The hybrid REIT takes strategies from both the mortgage and equity REITs.

You can invest in REITs through the public stock market if it is public. If a REIT is private, you will have to go through a broker with access to these exclusive markets.

Best Brokers for REITs

If you like the structure of the REIT, here are a few of the most reputable brokers in the business.

Commissions
$0 $6.95 for OTC Stocks
Account Minimum
$0
Get started securely through TD Ameritrade’s website
Commissions
$0 $6.95 for OTC Stocks
Account Minimum
$0
1 Minute Review

This publicly listed discount broker, which is in existence for over four decades, is service-intensive, offering intuitive and powerful investment tools. Especially, with equity investing, a flat fee is charged, with the firm claiming that it charges no trade minimum, no data fees, and no platform fees. Though it is pricier than many other discount brokers, what tilts the scales in its favor is its well-rounded service offerings and the quality and value it offers its clients.

Best For
  • Novice investors
  • Retirement savers
  • Day traders
Pros
  • World-class trading platforms
  • Detailed research reports and Education Center
  • Assets ranging from stocks and ETFs to derivatives like futures and options
Cons
  • Thinkorswim can be overwhelming to inexperienced traders
  • Derivatives trading more costly than some competitors
  • Expensive margin rates
Commissions
$0
Account Minimum
$0
Get started securely through Webull’s website
Commissions
$0
Account Minimum
$0
1 Minute Review

Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit.

Webull is widely considered one of the best Robinhood alternatives.

Best For
  • Active traders
  • Intermediate traders
  • Advanced traders
Pros
  • Commission-free trading in over 5,000 different stocks and ETFs
  • No account maintenance fees or software platform fees
  • No charges to open and maintain an account
  • Leverage of 4:1 on margin trades made the same day and leverage of 2:1 on trades held overnight
  • Intuitive trading platform with technical and fundamental analysis tools
Cons
  • Does not support trading in options, mutual funds, bonds or OTC stocks

Option 3: HELOCs

HELOC stands for home equity line of credit. HELOC can also be known as a second mortgage. Many individuals will get started in real estate investing by taking a line of credit from their residential property after paying it off or building substantial equity in it.

A HELOC is a revolving line of credit and usually has lower interest rates than many other common types of loans. You may also be able to deduct the interest you pay on a HELOC loan from your taxes. 

Your interest is low because you are borrowing against the equity that is already in the home you own. The home is collateral, and the available credit in a HELOC is replenished instantly right after you pay it. You have the freedom of borrowing as much or as little as you wish with no prepayment penalties. There is usually a draw period of some years when you don’t have to pay anything back until the repayment period begins.

Your credit limit on a HELOC is usually around 85% of the equity you have in your home. Although the loan is secured through your home, your lender may look at your credit score to set your interest rate. The default interest rate on a HELOC is variable, but you may also be able to qualify for a fixed-rate loan.

Best Lenders for HELOCs

You are already in the driver’s seat if you have equity in your home. Build your wealth with the right HELOC partner. Look for low-interest rates and good service.

APR
3.49%*
Loan Amounts
$15,000 – $150,000
Get started securely through Figure’s website
Avg. Days to Close Loan
10-40
Minimum Credit Score
600
Get started securely through Get Matched with a Lender’s website

Investing in Real Estate Without Money

When it comes to pandemic real estate investing, don’t slow down just because your cash pile isn’t where you think it should be. New technology and new processes mean new opportunities. Use the financial vehicles above as templates to explore the world of alternative investments — investments that can keep your money working for you no matter how much you have.

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