How to Invest in Real Estate
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To get started in real estate investing, you don’t need millions or even thousands of dollars. In fact, you may be able to start with less than $100 depending on how you decide to invest in real estate.
Real estate investing can be done through real estate investment apps, buying real estate stocks or funds through a brokerage, or a more hands-on investment where you fix and flip or buy and hold investment properties. If you want to learn how to invest in real estate, you’ve come to the right place. Keep reading to learn the basics of how to invest in real estate for beginners with just a few dollars… or a whole lot more.
Look Into Online Investing Services
For beginners and new real estate investors who can’t afford or don’t want the risk of buying an entire house, apartment building, or commercial property, an online investing service is a good place to start. Online investing services teach you more about how to invest in real estate while you invest real dollars.
In most cases, these services will pick an online real estate portfolio for you for a modest fee. Similar to mutual funds, you will share the risk and ownership with other investors. Others enable you to make larger real estate purchases.
Popular real estate investing options include:
Fundrise: Fundrise operates real estate investment funds to invest in small amounts or regularly invest in increments similar to a mutual fund. I have a little over $3,000 invested with Fundrise. My funds are allocated between 98 active real estate projects. You can start with a minimum of $1,000. Fundrise charges a 0.15% management fee, which is lower than many traditional mutual funds.
DiversyFund: DiversyFund operates a REIT (real estate investment trust) with a $500 minimum investment. This fund runs 100+ multifamily apartment buildings. DiversyFund doesn’t charge direct fees to investors. Operating costs simply come out of the fund. Read our full review of DiversyFund.
Roofstock: Roofstock is a platform that helps you directly buy rental properties with their help. It includes tools to take care of financing, assess risk, and find a local property manager. Roofstock charges transaction fees when you buy or sell a property.
>>LEARN MORE: Best Real Estate Services for Beginners
When you invest in just one property or a few properties, one big problem can ruin your investment. When you invest in a diversified fund with many properties, you have less risk but may see lower potential returns.
Remember, just because these platforms are easy to use doesn’t make them risk-free. Real estate apps typically employ top-notch professionals to evaluate deals, but sometimes things don’t go as expected, and deals go belly up. This can lower returns or even lead to losses in the worst situations. Be sure to read the fine print and understand how the app works before clicking the button to send over your funds.
Consider Being a Landlord for Rental Properties
If you own your own properties, you are the landlord. There are some big pros and cons of working as a landlord managing your own investment properties. While you keep all of the profits, you’re also responsible for maintaining the property, emergency repairs, property taxes, and complying with local real estate laws.
When you buy the right property, you will earn a return from the cash flow provided by monthly rents and appreciation if the property becomes more valuable over time. But you also face potential losses if the property is damaged or if the tenant skips out on paying the rent.
This means your return on investment (ROI) can vary widely. Experienced investors target a 10% to 12% annual return on their investment or better. Remember that landlords have to keep some of their profits aside for annual taxes and capital gains on successful property sales.
Most people I know with stealth wealth earned it through property investments and running their own landlord business. If you know someone who seems to have more money than their job would provide, there’s an excellent chance they make money from rental properties.
If you start small and grow your portfolio over time, this can eventually provide enough income to quit your job and retire early if you play your cards right. You can also use the income to fund vacations, additional investments, send your kids to college, or anything else. After all, once the tenant pays the rent, it’s your money.
Could House Flipping Be an Option?
If you are wondering how to invest in real estate, you may have seen those house flipping shows on TV where the hosts make tens or hundreds of thousands of dollars buying, remodeling, and selling houses for a profit. This is called fix and flip real estate investing or house flipping.
House flipping can make you a lot of money, but it is a ton of work, and there are huge risks involved. You could wind up stuck with a house that you can’t sell, find a major repair you didn’t expect, or wind up selling for less than you expected. Hopefully, you still earn a profit, but that’s far from guaranteed.
Also, remember that house flipping is more of a job while buying and holding properties as a landlord is typically more passive. Landlords can hire out property management to go almost completely hands-off, but house flippers always have decisions to make, even if they hire contractors to take care of the hard work.
Other Ways to Invest in Real Estate
We’ve looked at some of the best-known ways to invest in real estate, but there are other options too. If you want to diversify your risk and invest with others, one of these three options could be the best real estate investment strategy for you:
Real Estate Investment Groups
Real estate investment clubs and groups pool their money to buy larger or more properties than they could on their own. Some real estate groups are made up of friends or family who want to put their savings to good use. Others are professionally run or more formal with specific goals and rules.
Real Estate Investment Trust
Real estate investment trust (REIT) is a term for a specific type of real estate company. One of the real estate apps we mentioned above runs its investment fund as a REIT. You can also invest in REITs directly through the stock market. To qualify as a REIT, a company must hold at least 75% of its assets in real estate, derive at least 75% of income from rent or other real estate activity, and payout at least 90% of profits as shareholder dividends, among other rules. Some large REITs include self-storage operator Public Storage and large mall operator Simon Property Group.
Real Estate Mutual Funds and ETFs
Real estate mutual funds and ETFs are professionally managed investment funds focusing on real estate. Mutual funds and ETFs typically hold stocks, bonds, and other assets and charge an annual management fee that varies depending on the type of fund and fund manager. Some real estate funds buy real estate stocks. Others buy bonds and other fixed-income assets. Just like buying any other stock or investment, it’s important to do good research and understand what you’re buying when you invest in a real estate mutual fund or ETF.
Bottom Line
You have a lot of options when deciding how to invest in real estate. With just $5, you can buy stock in a REIT. With $500 to $1,000, you can start with most real estate investment apps. If you have a five-figure budget, you may consider directly buying investment properties and acting as the landlord.
There’s no right or wrong way to invest in real estate, just what makes sense for your finances and investment goals. Whether you want to start small with a real estate investment fund or app or jump in the deep end with your own rental properties, anyone with a good head on their shoulders and the right resources can get started with real estate investing.
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