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How to invest in real estate with little money?

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This is one of the questions that I get asked the most, especially from young investors or people looking to dip their toes in real estate investing for the first time. Well to answer this, first figure out quantitatively what you consider as little money. ‘Little money’ is a relative term. $50,000 might be ‘little money’ for a millionaire but a lot of money for someone who is starting out. And by the way, don’t worry if you are just starting out. There is a strategy for everyone.

Remember that it isn’t terribly difficult to achieve 20x – 30x returns over a period of 30 years. You can easily grow your wealth from, lets say, $10,000 to $0.3M in 30 years when you invest in properties that return 12% per annum (inclusive of rental yield and capital appreciation) or from $50,000 to $1M with 10.5% return per annum. And finding such properties is possible with a bit of due diligence. And with certain clever strategies you can even increase that return by a few more percentage points. I will elaborate more on such supplemental strategies to increase returns in another blog.

Getting back to our main topic, here are some ideas bracketed in tiers based on how much you are ready to invest. Note that as you move on to higher tiers new strategies open up, but these are always in addition to the strategies listed in the previous tiers. For example, even as you are ready to move to tier 2, you can still employ tier 1 strategies in addition to tier 2’s.

Tier 1: Investment amount $0 – $10,000

  1. Invest in REITs (commercial or residential)
  2. Pool your money with friends or family and invest in rental properties. Most investment properties require investments starting from $25,000 (assuming that the property is going to be mortgaged). So if you have an amount less than that, consider pooling with your trusted friends or family.
  3. Consider investing through crowdfunding platforms that have a low entry bar.

Tier 2: Investment amount $10,000 – $25,000

Consider buying a primary residence property and renting out certain portions while you are still living in it. In many cities you will find that not only is the rent vs buy ratio tilted to your advantage i.e. buying your own home outright can be beneficial for you in the long run. But you will also be able to receive supplemental income by renting out certain portions to pay your mortgage bills.

If you prefer to do so without compromising on privacy, then you can consider buying properties with in-law units (or Accessory Dwelling Units ADUs as it is known in some states) or duplexes and rent out the uninhabited portion to earn extra income.

The reason this idea falls under this bracket is that since the property also serves as your primary residence, you will be eligible for mortgages requiring lower down payments. And as a result, you will be able to leverage your investment considerably to buy a decent property. Also, because it is a home for primary residence, you will have favorable treatment with respect to taxes. If you are lucky, you will be able to snag an attractive interest rate for your mortgage too.

Tier 3: Investment amount $25,000 – $60,000

Remote buying rental properties. You need at least this much amount (with leverage) to own a rental property. You can do it through our website, www.litpoodle.com. Litpoodle was built with a focus on satisfying the requirements of the remote buyer.

Remote buying can be a powerful strategy. In many instances, young investors living in big cities like NY, SF or LA find it difficult to afford the local home prices but are often surprised to find how much their budgets can stretch in another city, often not too far away from their originally intended investment area.

Note: Remember that you will need $100,000 to find at least a decent property anywhere in the country. And you might have to put in at least $25,000 down since most rental mortgages require a minimum of 25% down payment. You might be able to find properties less than this price. But just like how there ain’t no such thing as a free lunch, most likely there is something else going on with the property to beget such a low price.

Tier 4: Investment amount $60,000 – $500,000

Good job on saving this much for real estate investment. Being in this tier opens up more opportunities. Not only are most investment-worthy single family homes and condos across the country within your reach as potential real estate investment opportunities, you can also look at investing in multiple-unit apartments when your investment amount is close to the higher end of this bracket.

Tier 5: Investment amount: $500,000+

If you have made it to this level, then congratulations, you have done well for yourself. Now the world is at your feet. At this level, you will have to start using jargon like ‘portfolio, risk and diversification’. In addition to all the opportunities listed above, Retail, Commercial and industrial real estate investment avenues also open up. You should also consider diversifying your portfolio by investing in multiple properties across multiple states. After all, you do not want to be putting all eggs in one basket, right? Commercial investment properties usually start around $1M+ and are a great way to diversify if your portfolio is heavy on residential real estate.

Hopefully this article was helpful as a rough, quick guide into how you can start investing in real estate with little money and build your way up. For more blogs, please check out www.litpoodle.com/blog

Happy Investing !

 
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