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How To Invest In Real Estate With Little Money

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Investing in real estate might seem like a tempting practice. Putting your money into some sort of property is likely to keep it safe and get you fairly decent returns if all goes well. However, there’s always the matter of getting the money to get started in this department. 

With real estate investing in particular, there are several factors to consider. You have closing costs, maintenance costs, repairs, down payments, and a whole lot else to deal with before your bank balance can see any money from your investments. 

Some might say that you simply can’t get started with real estate investing without a down payment of at least 20 percent and a large financial reserve of money besides that. This might be the conventional stance, but it’s far from relevant now. While it's easier to invest in real estate when you already have money, just a little bit of cash can start you off as well. Apart from seller financing, here are some tips to follow for successful investing in real estate when you’re short of money:  

How To Invest In Real Estate With Little Money

1. Making Rental Income from a Home

When you start off with real estate investing and can’t go for seller financing just yet, there could be a way to make rental income through your very own rental income. This is also called house hacking, and is one of the best ways to begin investing in real estate. 

One of the classic ways to go about house hacking is to get a small property with multiple units. This could be a 4-plex, a triplex, or duplex. You and your family live in one unit and rent out the rest of the portions to earn money. 

Even if you can’t afford to move right now or purchasing multi-unit property is too expensive, there are still creative ways to house hack. If there are spare bedrooms at home, try renting them out to friends or acquaintances. There might be a guest house in your backyard or a basement apartment that could work for earning rental income as well. 

If nothing else, you might want to look into renting out space on your property to an RV or trailer home. Make sure it’s all legal in your region. 

While seller financing might not apply here, there might be owner-occupant financing available for you to purchase the property.

2. Looking at Lease Options and Master Leases

If you want to start off real estate investing with even less money, it might be possible to rent the property instead of buying it outright. That’s right; you can rent a property and sublease the extra units or bedrooms. Earning money this way might sound too good to be true. But then, you also have to be responsible for any complaints from tenants and stay alert for any suspicious people. 

Master leasing might even cost you very little money in the beginning. See if it’s possible to start negotiations about security deposits, offers for repairs, or prepaid rent. 

You may also get an option to purchase here. This will give you the chance to purchase the rental property for a certain amount of money for a length of time. Once you purchase the property, you might want to keep it for the increased value or flip it as soon as possible for a quick profit and good closing costs. 

3. Making Your Home a Flip

Flipping houses means that one buys a house, makes some improvements to it, and then, sells it forward for a profit. Earning money this way is a great method for starting real estate investing. 

If someone doesn't have enough money to purchase a new piece of property, they can take a look at the home they’re living in right now. There’s a method called a live-in flip, which takes advantage of certain profitable tax laws within the United States. 

What you do here is buy a home (or perhaps, you already live in your own place), and stay there for around two out of five years. You can then sell off the home, earn the profit, and not have to pay taxes up to the amount of $250,000 (or $500,000 if you're a couple filing taxes jointly).

4. Living In, Then Renting

A close alternative to house hacking is the live-in-then-rent method. This means that you buy a house, move into it, and essentially make it attractive enough to rent out. Later on, you can move out and keep the property as a way to earn money through renting out. 

For this purpose, even a modest home will work fine as long as you can fix it up properly. You’d be able to benefit from the owner-occupant loans this way, which have small down payments. On the other hand, there’s also the advantage of not being so close to your tenants. This might be preferable for many investors, as living right next to or with your tenants comes with its own share of problems and closing costs. 

Another difference between this money-making method and house hacking is that a house is usually bigger than units in a duplex or an apartment. This means that you can rent out to tenants with families and also charge more money as rent. 

When you start with real estate investing, doing three or four live-in-then-rent properties will hopefully be enough to make a decent rentals portfolio. 

5. Real Estate Crowdfunding

When seller financing or other options don’t seem too viable at the movement, you might want to give real estate crowdfunding a go to collect some money. 

This method is relatively new when it comes to real estate investing. It involves investing a small amount of money, such as $2000 or $5000 along with several other investors. 

Such crowdfunded investments can then become rental properties, even large multi-unit options.

The companies and legal structures for this method are still quite new, so you’d have to tread a little cautiously here. It might be best to keep such investment at a fairly low percentage of what you can afford. 

Also, one has to be an accredited investor for the crowdfunded method. This means that their net worth should be above a million dollars, not counting the worth of their home. Alternatively, they should have an income over more than $200,000 annually for at least the past two years (if the investors are a couple, they can squeak by with a joint income of over $300,000). 

Certain crowdfunding platforms might not require accreditations. However, their investment style will also be a bit different. It’ll be more like a REIT, which we’ll be discussing below. 

6. Real Estate Investment Trusts or REITs 

REITs are a lot like mutual funds. When we get stock in an REIT, we own a miniscule part of several income-earning, commercial properties. A managerial team will supervise the investment and you'd have to pay them a fee for this service. 

REITs are a kind of passive investment, much like when you put your money into real estate crowdfunding. The main difference here is that REIT shares are more liquid than when you have a part in a crowdfunded property. You can sell off the REIT shares quite easily and get money when required, much like a mutual fund or regular stock. 

7. Renting Through AirBnB

We’ve already discussed how one can earn money by renting out their property or part of their property to other people. Within this option, one of the more modern solutions is to put the place on the AirBnB Inc (NASDAQ: ABNB) platform. 

If you’re not already aware of this, AirBnB is an online marketplace which lets users find places to rent and stay for a short time. It connects them with people who want to leave their place for some time as well. For instance, a person goes on a vacation to another city or country. They can have a nice, comfy home to stay in that might cost just a fraction of the usual hotel expenses. Having their own kitchen, living room, and other amenities is also very welcome. 

On the face of it, AirBnB certainly seems like an inexpensive, win-win solution for starting in real estate investing. However, there's always the risk of letting strangers into your home or onto your property. Make sure to follow the guidelines and be very careful in selecting who gets to stay in your space. 

If you play your cards right with AirBnB, you might be able to turn this into a part-time or full-fledged business. Many real estate investors have also ended up purchasing property just for the sake of short-term rentals on AirBnB. While they might not be able to partake of seller financing this way, they’d still be earning a tidy income for a long period of time. 

8. Find a Partner Before Investing or Buying

Many folks won’t start any kind of business unless they have one or more partners by their side. The same strategy might be good for when you want to look at real estate investing with little money. 

Among the simplest ways to partner up in real estate investing is a credit partnership. This involves finding a good deal, having the credit partner make the down payments and get the loan to purchase the property, and then leasing the property from the partner. 

Leasing the property will also be paired with an option for buying it back at an appreciated price. From there on, you can then sublease this property to tenants. You’d be the one handling all the managerial issues, collecting rent, and paying rent to your partner. If all goes well, you'd be able to keep the difference between the collected and paid rent.

9. Buy, Remodel, Rent, Refinance, Repeat or the BRRRR Strategy

The BRRRR strategy is a lot like the practice of flipping houses. You find a property that doesn't cost too much and needs a bit of work. With a little more investment and elbow grease, the property will hopefully increase in value and bring you more money than the amount you spent. 

With BRRRR, though, the difference is that you don’t sell the property but put it up for rent. You can then refinance in order to get your money back with a profit. 

If you want to develop a rental portfolio as quickly as possible, BRRRR is one of the best ways to go. This way, you won’t be running short of money to pay costs of several properties at one. You’d have a refinancing stream and can recycle funds in order to purchase many properties one after the other. 

Closing costs might also not apply here, so you’d be saving a few bucks. Let’s have a closer look at how this all works when you’re thinking of real estate investing: 

Buy:

The first step is to purchase a property with potential for increasing in value after repairs. Short-term purchase financing is a good way to get this property; this includes hard money, private money, or simple cash. 

Remodel:

The owner will remodel the place to make it more rentable. This includes enhancing its curb appeal and general property value (such as by adding a patio, repainting, renovating, etc.) 

Rent: 

After the upgrade, you rent the property to some decent tenants after deciding the rental rates. 

Refinance: 

While waiting for the rent to accumulate, you can refinance. 

Repeat: 

If the strategy seems to work for you, start looking at more properties and begin all over again. 

10. Become an Agent

Real estate investing has money for both the investor and the middleman. If you become a real estate agent full-time or as a side hustle, you’d be able to use very little money while also learning about transactions in real estate as well as the real estate market in general. Expenses like closing costs might also be irrelevant with this choice. 

You’d have to follow the state’s laws in order to become a practicing agent. Most of them require taking some classes beforehand, and then, passing a test and paying the licensing dues. 

From there on, one would have to seek out a broker’s office. Find a firm where the environment and business model is to your liking. 

The investment for this path might go up to a couple of thousand dollars at the most. However, you'd also be investing your time, energy, and brain juices into this endeavor. Make sure you’re up for it!

11. Scouting Out Deals for Other Investors

If you think you’re good at finding excellent deals in real estate investing but have little money to start with, look at a bird dog career. This involves sniffing out and pointing to potentially lucrative deals for people who do have the money and accreditations to go forward.

A lot of experience and money aren’t really too necessary here. You might even be able to get a start on this path while working from home. 

The money for your efforts, or the finder’s fee, will usually require a real estate license. It’s different from a real estate agent’s job, though, as one is only focusing on investor buyers here. 

Another form of being a bird dog is wholesaling. This involves finding deals with a lot of discount, and then reselling them to other investors who are also bargain hunters. The main difference here is that you actually own the property when wholesaling. An investor can start by being a bird dog and then getting into wholesaling once they have a little more money under their belt. 

While wholesaling might not be the best way to start real estate investing, it’s a nice choice for those who excel at sales. As long as the closing costs of each transaction aren’t too high, this is an excellent business model for investors with more experience. 

For purchasing a home at a discount, you might want to search ‘what is manufactured housing’ and consider that option as well. 

12. Becoming a Leasing Agent

The job of a leasing agent is to find tenants that will occupy the rentals for those investing in real estate. Going for this option will help you learn the business and get paid a nice fee as well. 

The usual rates for a leasing agent could range from half to a whole month’s rent. The closing costs are also not an expense you have to worry about. 

There’s very little risk involved; one could choose to be part of a property management company. Alternatively, they can get a real estate license and get in touch with landlords on their own for tenant placements. 

The Takeaway

Even if you have a little money to your name, real estate investing is worth pursuing. Owning or investing in real estate will enable you to earn money from appreciation, leverage, equity build-up, depreciation, and many more ways. 

Think of real estate investing as a combination of pure investment and being the entrepreneur of a small business. It might be challenging at times but it’s absolutely possible to develop your own real estate investing business from the grassroots level. With time, this business will mature and give you an investment income for life. The tips above will help you get started and in planning the next step forward. So, take a deep breath and plunge on ahead to become a successful real estate investor!

 

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