How to Invest in Real Estate with Little to No Money

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Contributor, Benzinga
Updated: June 2, 2021

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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).

  • CrowdStreet
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    Best For
    Accredited Investors
    Overall Rating
    Read Review
    securely through CrowdStreet's website
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  • Diversyfund
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    Best For
    Low Cost Real Estate Investing
    Overall Rating
    Read Review
    securely through Diversyfund's website
    More Details
  • Roofstock
    More Details
    Best For
    Investing in Homes
    Overall Rating
    Read Review
    More Details
  • Streitwise
    More Details
    Best For
    Small Account Real Estate Investing
    Overall Rating
    Read Review
    securely through Streitwise's website
    More Details
  • Fundrise
    More Details
    Best For
    Beginner real estate investors
    Overall Rating
    Read Review
    securely through Fundrise's website
    More Details

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.

  • TD Ameritrade
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    Best For
    Options Trading
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    securely through TD Ameritrade's website
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  • Webull
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    Best For
    Intermediate Traders and Investors
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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.

  • Figure HELOC
    APR
    from 3.00% to 3.25% APR*
    Overall Rating
    Read Review
    securely through Figure HELOC's website

    * Our APRs can be as low as 3.00% for the most qualified applicants and will be higher for other applicants, depending on credit profile and the state where the property is located. For example, for a borrower with a CLTV of 45% and a credit score of 800 who is eligible for and chooses to pay a 4.99% origination fee in exchange for a reduced APR, a five-year Figure Home Equity Line with an initial draw amount of $50,000 would have a fixed annual percentage rate (APR) of 3.00%. The total loan amount would be $52,495. Alternatively, a borrower with the same credit profile who pays a 3% origination fee would have an APR of 4.00% and a total loan amount of $51,500. Your actual rate will depend on many factors such as your credit, combined loan to value ratio, loan term, occupancy status, and whether you are eligible for and choose to pay an origination fee in exchange for a lower rate. Payment of origination fees in exchange for a reduced APR is not available in all states. In addition to paying the origination fee in exchange for a reduced rate, the advertised rates include a combined discount of 0.50% for opting into a credit union membership (0.25%) and enrolling in autopay (0.25%). APRs for home equity lines of credit do not include costs other than interest. Property insurance is required as a condition of the loan and flood insurance may be required if your property is located in a flood zone.

  • Get Matched with a Lender
    Avg. Days to Close Loan
    10-40
    Minimum Credit Score
    600

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.