How to Start Real Estate Investing With $5,000
To millions of Americans, real estate investing sounds like a distant dream. Sure, it would be nice to buy and sell properties, manage rental properties that generate passive income, and own a house of your own that supports the lifestyle you want. But how can you possibly ever achieve this if you’re stuck living paycheck to paycheck? After all, houses often cost hundreds of thousands of dollars.
The reality is that real estate investing is much more accessible than most people think. In fact, it’s possible to get started with $5,000 – or even less.
How?
Approaches to Real Estate Investing
First, it’s important to realize that there are many different approaches to real estate investing. For some people, the only real estate investment they ever make is the purchase of their primary residence. You won’t need to read many real estate investment books if this is all you aspire to.
However, if you’re serious about real estate investing, you’re probably more interested in buying and renting out rental properties. With a Houston property management company, you can buy properties in remote areas and have them fully managed, so you don’t have to lift a finger to take care of them. If you have a property manager you trust, your rental properties can become a passive income source, helping you accumulate wealth through regular income and property appreciation alike.
Still, this isn’t the only way that you can invest in real estate. You can also choose to invest your money in real estate investment trusts (REITs), which function much like stocks on the open market. You can buy individual shares of these trusts and have your money used for real estate investments that other people manage. It’s still important to do your due diligence here, but it’s technically a way for you to invest in real estate indirectly, even if you only have a few hundred dollars.
The Down Payment
If you decide to invest in properties on your own, you should know that you can secure a loan for most property purchases, assuming you have a decent credit score and a decent debt to income (DTI) ratio. If you do source a loan, you’ll usually need to make a down payment of at least 5 percent of the purchase price – your biggest expense during this phase of the process.
If you only have $5,000, that means you’ll need to look for houses that are priced at less than $100,000. This may be quite limiting, especially in more popular areas of the country, but if you’re willing to open your mind to new areas and properties in less popular areas, you can likely find a house of reasonable quality at this level.
Making Your Money Go Further
There are also some strategies that can help you make your savings go further.
- Choose cheaper properties. If you’re willing to take on some risk, you can likely find foreclosed properties, properties in questionable condition, and properties in questionable areas for far less than $100,000. They might require some extra effort and investments down the line, and they may not be as attractive as they’re more expensive counterparts, but they can help you get your foot in the door of real estate investing.
- Get a 97 percent loan. Depending on your qualifications, it may be possible to get a mortgage with a 3 percent down payment. This can potentially free up more money that you can use on initial repairs or to pay for expenses during initial months of vacancy.
- Partner up. If you want to increase your spending power and minimize the time and effort required of you, consider finding a partner to invest in real estate with. Partnering is always somewhat risky, but it has incredible potential benefits.
Getting to $5,000
Once you have $5,000, you can start real estate investing in many different ways. The question is, how do you get there if you’re already in a tough financial situation?
- Increase your income. First, see if you can find a way to increase the amount of income you generate. Getting a raise, landing a promotion, or getting a new job could help. You could also take on a side gig to make a few hundred extra bucks each month.
- Downsize your living space. It’s common for people to spend 30 percent of their gross income or more on housing, but you generally need far less than this if you’re willing to downsize. Moving to a slightly smaller space or a slightly less desirable neighborhood could help you save thousands of dollars per year.
- Cut unnecessary expenses. You can save even more money by cutting unnecessary expenses. Do you really need all those subscription services? Can you cook at home instead of eating out more frequently?
- Invest. When you start accumulating initial savings, consider investing those proceeds in stocks, bonds, ETFs, or REITs – especially if you’re not going to hit your $5,000 target anytime soon. It can help you close the gap and generate some returns while you’re waiting to accumulate an initial sum of investment capital.
If real estate investing has always seemed off-limits to you, we hope that this article has changed your mind. If you can make the lifestyle changes and improvements necessary to accumulate just a few thousand dollars, you can enter the game and potentially change your life forever.