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What do most millionaires have in common?
They invest in real estate.
It can seem daunting to invest in real estate because of high prices, changing markets and complex regulations.
However, technology has leveled the playing field, which helps all investors (accredited or not) gain exposure to this time-tested asset class.
For example, you can use crowdfunding platforms like Arrived Homes to invest directly in real estate projects for as little as $100. You can also start investing in publicly traded real estate investment trusts (REITs) commission free with brokers like Fidelity or TD Ameritrade.
Below, you’ll learn about other ways to invest in real estate with little or no money
What Are the Benefits of Investing in Real Estate?
Some of the most common benefits of real estate investing include:
- Owning a Tangible Inflation Hedge
Real estate is a tangible asset that can’t be printed out of thin air. As a result, rents and property values tend to increase at or greater than inflation.
- Above Average Yields
The average dividend-paying stock yield is just 2%. The average REIT yields around 5%+, with some even offering double-digit yields.
- Tax Breaks
If you own real estate, you can reduce your taxable income by deducting line items like property taxes, depreciation and maintenance expenses.
You can also take advantage of these tax deductions if you directly own real estate shares via a crowdfunding platform like Arrived Homes or HoneyBricks.
Real estate investments, especially non-traded or private REITs, aren’t as susceptible to the whims of the general stock market. These asset classes are inversely correlated to stocks, meaning that they can appreciate while stocks depreciate and vice versa, which provides diversification.
How Has Real Estate Investing Changed?
It’s no secret that buying a single property can be intimidating because of the high prices that have drastically increased over the last decade. After all, the average U.S. home price was $265,700 in January 2012 and is now $544,000 in 2022.
To add insult to injury, the federal reserve has also drastically increased interest rates to combat record-high inflation. As a result, the average interest rate on a typical 30-year mortgage is approximately 7%, when it was around 3% just a few years ago.
Higher mortgage rates translate into higher mortgage payments for the same-priced home.
On a brighter note, it’s become easier to invest in real estate thanks to crowdfunding and fractional real estate platforms. Crowdfunding helps you invest in real estate with little or no money since you can buy fractional shares of a physical property.
You can also buy shares of REITs with ease, which are companies that manage various types of real estate. Investing in a REIT is essentially buying a slice of a bunch of property and it comes with most of the same benefits as traditional real estate.
For example, you can trade Innovative Industrial Properties Inc. (NYSE: IIPR) online and commission-free with TD Ameritrade. You can earn a 6.31% yield with this REIT and gain exposure to not just real estate, but the booming legal cannabis market.
What to Look for in the Best Real Estate Investment Platforms
Here are a few key factors to look for in each real estate investing or crowdfunding platform:
- Ease of Use
Be sure to work with a company that has an easy application process, accessible support via different methods and a modern user interface.
- Accredited vs. Nonaccredited
Some real estate platforms only want to work with accredited investors if they offer riskier but potentially higher reward investments. Accredited investors must have an annual income of $200,000 per year ($300,000 if married) and/or a liquid $1 million net worth, excluding their primary residence. Sometimes, these platforms allow nonaccredited investors to invest in specific projects while restricting access to only accredited investors for other projects.
- Minimum Investment
If you have a limited budget, look for real estate platforms that have lower minimums. For example, Arrived Homes has a low minimum investment of just $100.
- Redemption Periods
Often, more sophisticated real estate investments have redemption periods that tie up your investment to keep funds with the platform. This rule could prevent you from cashing out in the first year but would give you a pro-rata investment the longer you stay with the platform. So, you might have to wait 3-5+ years before you can completely cash out.
How to Invest in Real Estate for Little or No Money
These five strategies have been proven to help investors from various backgrounds invest in real estate for little or no money.
Arrived Homes is a popular real estate crowdfunding platform that lets all types of investors gain exposure to single-family homes for as little as $100. You can invest in these projects with an IRA and earn income via rents and property appreciation.
Since you’d own a direct share in the property, then you’d also be able to take advantage of tax deductions like depreciation and maintenance expenses.
Most offerings on this platform have redemption periods of 5 to 7 years. Only invest funds that you could afford to keep locked up for this time period.
Like Arrived Homes, HoneyBricks is a real estate crowdfunding platform. However, it mainly focuses on commercial properties, not single-family homes (though it offers some of both).
With HoneyBricks, you’d invest in commercial properties using the Polygon crypto network. This network also improves transaction speeds and reduces costs. This platform has a minimum investment of $1,000 but is only available for U.S. and non-U.S. accredited investors. It’s reserved for accredited investors because of the complex regulatory environment in the U.S.
REITs can either invest in properties (equity), the mortgages on those properties (debt) or a mix of the two (hybrid). These REITs can also niche down into shopping malls, self-storage or healthcare.
Some of the main advantages of REITs include diversification, above-average yields and liquidity.
REITs can be a great introduction to real estate, but some of them, especially some debt REITs, can be especially sensitive to interest rates. While they have high yields, they’re taxed at higher ordinary rates.
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REIT exchange-traded funds (ETFs) invest in various REITs. One example of a REIT ETF is Vanguard Real Estate Index Fund (NYSEARCA: VNQ). Like REITs, these ETFs provide diversification with lower fees.
For example, VNQ has an expense ratio of just 0.12%, while many actively managed real estate funds charge 1% (or greater).
This last option has a higher barrier to entry than investing in a crowdfunding platform, REIT or REIT ETF. With house hacking, you can buy a duplex or triplex and rent out the additional unit.
When done properly, this process can greatly reduce your housing costs so that you could even live rent/mortgage free. House hacking is easier to do in cheaper real estate markets, and you could put as little as 3.5% down with an FHA loan.
How to Invest in Real Estate With an IRA
With an IRA, you can invest in real estate on a tax-deferred or tax-free basis (Roth). You can open an IRA online in just minutes with a partner like Fidelity or TD Ameritrade.
From there, you can trade REITs and REIT ETFs with an IRA, commission free. It’s also recommended to have REITs in an IRA since their yields are taxed at higher ordinary rates.
With a self-directed IRA, you can invest directly in real estate while still retaining various tax advantages. It’s possible to use this account to hold your shares of a real estate crowdfunding project or even an entire physical property.
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Should You Invest in Real Estate With Little or No Money?
It might seem harder to invest in real estate because of high home prices and steep mortgage rates.
It’s much easier to gain real estate exposure through real estate crowdfunding platforms like Arrived Homes and HoneyBricks. It’s even easier to invest in real estate with little or no money by trading REITs or REIT ETFs with a Fidelity or TD Ameritrade IRA.
Regardless of how you invest in real estate, assess your risk tolerance and time horizon. If you invest via a crowdfunding platform, confirm its minimum investment, accessibility to nonaccredited investors, ease of use, support systems and redemption periods.
Frequently Asked Questions
Should you invest in real estate with little to no money?
Investing in real estate with a small portfolio through crowdfunding platforms or REITs may be a good idea because they can give you the same benefits as traditional real estate
Can I invest small amounts into real estate?
Yes, real estate investing with small amounts of money is now easy with crowdfunding platforms and REITs.
Accelerate Your Wealth
Arrived Homes allows retail investors to buy shares of individual rental properties for as little as $100. Arrived Homes acquires properties in some of the fastest-growing rental markets in the country, then sells shares to individual investors who simply collect passive income while waiting for the property to appreciate in value over 5 to 7 years. When the time is right, Arrived Homes sells the property so investors can cash in on the equity they've gained over time. Offerings are available to non-accredited investors. Sign up for an account on Arrived Homes to browse available properties and add real estate to your portfolio today.