The number one question when first getting started with research is: How much money do you need to invest in real estate?
With volatility and uncertainty returning in the stock and bond markets, many investors have once again returned to real assets to create a volatility shield, inflation hedge, and passive source of income to protect from job loss.
The answer: Not as much as you think.
You can invest in real estate with as little as a few dollars all the way up through many millions of dollars. The caveat is that it depends on how you choose to invest and how much time and energy you want to spend accomplishing your goals.
There are ways to invest with very little. Other ways require huge amounts of capital. Even on larger deals, there are methods to get the money from others to fund the deal, effectively eliminating your need for your own capital.
Let’s dive into the most popular ways of investing in real estate and how much money it takes to do each option.
Real estate investing generally falls into two categories – passive and active real estate investing. How much money do you need to invest in real estate when you are getting started as a passive real estate investor? It can be quite low which is why we’re starting here.
A Real Estate Investing Trust, or REIT for short, is a company specifically set up to purchase real estate and pass those profits on to their investors. They generally have to pass 90% of their profits to investors and need to meet a number of requirements to maintain their status as a REIT.
How Much Money do I Need to Invest in REITs?
REITs come in different varieties, but you can invest by purchasing as little as one share on the stock market. You could start investing real estate for literally a few bucks.
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An exchange traded fund is similar to a REIT, but the business has far more leeway with how it operates.
A fund is simply when a business pools your money and purchases something with that money. It could be other mutual funds, stocks, real estate, etc.
The fact that it is openly traded on the stock market is what makes it exchange traded. This is good for liquidity but can be bad as ETFs tend to move cyclically with the stock market.
How Much Money do I Need to Invest in ETFs?
You can get started with just a few dollars, similar to REITs.
Passively Investing in a Syndication
A real estate syndication is when money is pooled from multiple investors to purchase a single asset such as a multifamily housing complex or a self-storage facility.
Generally, there are two types of partners in these deals: 1) General Partners (GPs) who accept additional risk, put the deal together, and operate the asset 2) Limited Partners (LPs) who have limited risk and invest more passively.
Real Estate Syndications are an effective way to spread risk. Since each investor can allocate a smaller sum to each deal, they can effectively spread their risk across multiple property types and diversify by geographic region.
How Much Money do I Need to Invest Passively in a Syndication?
Syndications are generally more exclusive and require anywhere from $25,000 to $100,000 as a minimum investment.
On the other side of the coin is active real estate investing. How much money do you need to invest in real estate as an active investor? Usually a bit more than passive inveesting, but in some circumstances it can be almost nothing.
Flipping houses can be a lucrative field and you don’t need a degree to get involved in real estate. But flipping houses can also break you physically, mentally, and financially. Especially if you’re not ready and you’re not informed.
How Much Money do I Need to Start Flipping Houses?
In theory you can get started with $0 but in reality you’ll need 10-20% of the purchase price plus closing costs. For a $200,000 property you could need anywhere from $20-$50k.
Buying rental property is generally a lot slower than other types of investing, but the long-term benefits are the best. You get the best tax treatment and long term wealth accumulation, so why wouldn’t you want rental property?
How Much Money do You Need to Invest in Rental Property?
The cheapest way to get started with rental property is to do what’s known as house hacking rental property. This is where you get a low downpayment loan (such as FHA) and only put down around 3.5% of the value of the property.
You then occupy the property, fix it up slowly, and rent out any unit once it’s complete.
Alternative Ways of Investing
There are other ways to invest in real estate that don’t require you to even take ownership of the property.
Hard Money & Private Lending
If you’ve got cash laying around, want a good return, but don’t want to deal with property ownership, then you should consider private lending. You can earn anywhere from 7-14% on your money along with fees.
Instead of flipping houses you are flipping contracts. The process for wholesaling is really similar to house flipping, except once you put the property under agreement you’ll then look for another investor who wants to buy your contract.
There’s a lot less risk because you aren’t taking ownership; you aren’t fixing anything at all. You just collect a fee for finding it.
In theory, you can wholesale for virtually nothing if you can find a deal without paying for advertising.
How Much Do You Need to Invest in Real Estate?
The answer to the question “How much money do you need to invest in real estate” really depends on the type of investing you want to do, but you can get started for as little as around $10 and as much as hundreds of thousands of dollars.
What’s important is to find the type of investment that fits your personality, risk tolerance, and is something you will enjoy.