Real estate lets investors manage risk by diversifying their portfolios, provides opportunities for both reliable income and price appreciation and has special tax advantages as well. An investor with $100,000 to get started in real estate investing can choose between active and passive investments and commercial or residential assets. Opportunities range from acquiring a second home for part-time rental to joining other investors via a crowdfunding site. If you are looking for help investing $100,000 in real estate or any other assets, consider working with a financial advisor.
Real Estate Investing Basics
Real estate represents the single most valuable asset class. The world's homes, offices, factories, farms, raw land and other real estate assets were worth more than $326 trillion in 2020, according to Savills World Research. That dwarfs by a wide margin the combined value of all the stocks, bonds, commodities and other assets traded on world markets. There is plenty of room in this enormous landscape for investors who have as little as $100,000 to invest. And there are many ways to invest, even when starting with limited funds.
An investor can be active, buying and managing individual properties, or passive, which generally means purchasing shares of publicly traded companies that invest in real estate.
Investors can also get into residential properties like single-family homes or duplexes, or commercial properties such as offices, warehouses and retail spaces.
One of the first moves recommended for beginning real estate investors is assembling a team. Passive investors will generally at least consult with a financial advisor to help develop overall investment strategy. An active investor who wants to buy and manage properties may add a real estate broker specializing in residential or commercial properties, an accountant knowledgeable about tax ramifications of real estate investing, bankers, property managers, remodeling experts and others. With team in hand, the investor is ready to start considering where and how to invest.
Investing $100,000 in Real Estate
Purchasing a second home is one way to get started as a real estate investor. These are easy to finance and can generate income by being rented out for part of the year. They also have potential for price appreciation and can give investors lots of leverage. A 20% down payment of $100,000 allows an investor to control a home worth $500,000.
A single-family rental home is one step up in complexity. Because down payment requirements may be higher for properties bought purely for investment, the same $100,000 may be able to purchase a home worth approximately $333,000 assuming a 30% down payment. If the investor wants to manage the property, he or she will have to deal with repairs, rent collection and occasionally difficult tenants. Hiring a property manager to handle these details will reduce the net income, but also the hassles.
House flipping involves purchasing a single-family home that is need of some repair or renovation, spending the money to prepare it for sale, and then selling it rather than keeping it to collect rent. The key here is to find a motivated seller willing to sell at an attractive price. After that, it's important to be able to accurately estimate the cost to complete needed work and a realistic selling price for the improved property.
Commercial properties including apartment complexes, office buildings, warehouses and shopping centers can generate steady rent but are often more expensive than single-family homes. Investors with limited funds can, however, join other investors to acquire commercial properties. Part owners are entitled to a proportional share of the rental income and any gains when the property is sold. Commercial real estate brokers can guide investors to opportunities to participate in joint ventures to acquire commercial properties.
Real estate investment trusts (REITs) offer many advantages for beginning and veteran real estate investors. These publicly traded companies invest in real estate and distribute income from rent or property sales to shareholders. REITs come in many different varieties, providing high levels of diversification, and investing a lot or a little in one is as easy as buying shares of any public company.
Real estate-focused mutual funds and exchange-traded funds may be the easiest way of all to start investing in real estate. These funds invest primarily in REITs as well as real estate operating companies. They are highly diversified and cost-effective and shares can be bought and sold online with the click of a button.
Crowdfunding is yet another way to begin investing in real estate. Here investors pool their funds with others, generally facilitated by an online platform, to purchase specific properties. Crowdfunding investors receive benefits, such as cash flow from rent or gains if the property is sold, in proportion to the size of their investment. Some real estate crowdfunding platforms have minimums as low as $500 but others are for investors of more means.
Real estate represents a huge investment opportunity that welcomes investors with as little as $100,000. This amount will let an investor purchase a single property for rent or resale. Crowdfunding or joint ventures enable smaller investors to buy more costly commercial or residential properties. Publicly traded REITS and mutual funds are perhaps the easiest, most liquid and most diversified ways to enter real estate investing.
A financial advisor can help you get started investing in real estate while also ensuring that your real estate investing activities fit into your overall financial strategy. Finding a qualified financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now.
Building a diversified portfolio is important regardless of what type of investing you are interested in. Use SmartAsset's asset allocation calculator to get started.
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