One of the most common myths relating to how to invest in real estate is that you need to have several thousands of dollars to get into real estate investing. While it is true that buying investment property can be very costly, there are other ways of investing in real estate without spending a lot. In fact, you can start investing in real estate with $1000 or less. You can even buy real estate with no money…literally.
What Are the Different Ways on How to Invest in Real Estate?
Real Estate Investment Trusts (REITs)
So, how can beginners invest in real estate with little money? By investing in REITs, which works a lot like investing in mutual funds or stocks. A REIT is basically a company that pools together money from different investors and uses it to buy various investment properties. They can be office buildings, multi family homes, warehouses, hotels, industrial property, or retail space. As a shareholder, you will be paid a dividend when the properties generate a return on investment. Investing in REITs is hands-off, safe, and offers potentially high returns.
When assessing REITs, look for a company that has been in existence for a while and that has a competent management team. In addition, the company should also have a good track record on how to invest in real estate and that offers high dividend yields.
Real Estate Crowdfunding
Real estate crowdfunding is another way to make money with 1000 dollars. Just like REITs, crowdfunding involves a group of real estate investors pooling their cash together in order to achieve a common objective. This investing option falls under the JOBS (Jumpstart Our Business Startups) Act that allows companies to raise cash through crowdfunding.
Crowdfunding investments involve three main players:
- The Sponsor – This is the company or individual that identifies and manages the real estate property. The sponsor will handle the purchase of the investment property for sale, arrange the financing, find contractors and other workers, and take charge of the property sale down the line. Real estate deal sponsors usually chip in for the project’s funding and take a share from the profits generated.
- Crowdfunding Platform – This is where the sponsor connects with investors that will help raise capital for the project. Some of the most popular platforms for real estate crowdfunding are PeerStreet, Fundrise, CrowdStreet, and Realty Mogul. The platforms will vet the real estate deal, advertise it to potential investors, and ensure that investors meet the minimum requirements. The platform will also collect the money on behalf of the investor.
- The Real Estate Investor – The investor (you) contributes some of the capital required for the deal and receives a share of the profits generated. Let’s say the sponsor finds an apartment building for sale at a price of $3 million. If the sponsor can only invest $1 million in the project, they could choose to raise the remaining amount on a crowdfunding platform through real estate investors like you.
Real Estate Partnerships
A partnership is another great strategy to consider when thinking of how to invest 1000 dollars in real estate. Combining forces with other like-minded people allows you to achieve what you wouldn’t have been able to working alone. A real estate partnership falls into 2 main categories:
- Active Partnership – This is where all partners are actively involved in the daily operations of the business. For instance, one partner could be in charge of property management, while another handles marketing.
- Passive Partnership – In this arrangement, one partner provides the capital while the other does all the work.
You can form a real estate partnership with family, friends, members of an investment club, or angel investors. Be sure to do your due diligence on the credibility, experience, and track record of potential partners before getting into an agreement. It would also be wise to involve a neutral party such as a financial advisor or attorney who can provide guidance in case of a dispute.
No matter the kind of partnership you settle for, there must be a written real estate partnership agreement. This document should answer the following questions:
- How will specific roles be divided?
- Who will be responsible for day-to-day decision making?
- What is the procedure for the resolution of disputes?
- What happens if a partner becomes debilitated, dies, or decides to leave the partnership?
- How will the profits be distributed among the partners?
- How much money will be kept in reserve for unforeseen expenses?
Real Estate Wholesaling
Wholesaling is one of the best ways to invest in real estate with no money. Investors find an income property selling below market value, acquire it under contract, and then sell it to a willing buyer at a higher price. Since you don’t have to actually buy the income property, wholesaling can be a great way to break into real estate investing. You will make money in less time and get to learn a lot about how to invest in real estate. The downside of wholesaling is that income is guaranteed and finding buyers can be very difficult.
Here are the steps for successful real estate wholesaling:
- Do your homework – Get familiar with how the process of wholesaling real estate works. You can educate yourself by reading real estate blogs, taking online courses, attending webinars, or talking to mentors. Doing your homework should also involve researching the best neighborhoods for finding investment properties.
- Find real estate deals – Once you become knowledgeable about how to invest in real estate, you can find wholesaling deals on Craigslist or real estate sites like Mashvisor. You could also search local public records or simply drive around the neighborhood to find leads. Use Mashvisor’s tools to analyze properties using metrics such as cap rate, rental income, cash on cash return, and Airbnb occupancy rate before putting in an offer.
- Negotiate price – Identify a suitable property and negotiate a favorable price with the seller.
- Find a buyer – You can find cash buyers through networking with real estate agents, landlords, local real estate investors, or members of a local investing club. Alternatively, you could use Craigslist, lead capture forms, courthouse auctions, or hard money lenders to find buyers.
Learn more by watching Mashvisor’s video on wholesaling real estate:
Real Estate Syndication
Another way to invest without spending a lot of money is real estate syndication. In real estate syndication, a few or even hundreds of investors pool their resources to fund a property investment. Doing so allows the participants to make a profit and be involved in larger investments that may not be possible if they work on their own. It became part of the real estate investing landscape several years ago, thanks to the internet and the emergence of a number of crowdfunding platforms.
The two primary roles in real estate syndication include the sponsor (or the syndicator) and the real estate investors.
- The sponsor primarily takes care of finding the property (or properties) to invest in, raising enough funds for the rental property, purchasing the investment property, and overseeing the property on a daily basis. It also provides equity capital ranging from 5% to 20% for the real estate investment.
- The real estate investors provide the rest of the financial equity, equivalent to 80%-95% of the total equity capital.
Real estate syndication comes in three different types:
- A corporation, where a business can become its own legal entity
- A limited partnership, which is formed by two or more business partners
- A limited liability company, which is a combination of a corporation and a limited partnership
Airbnb Rental Arbitrage
If you want to invest in real estate without actually buying a property, you may want to consider Airbnb arbitrage. It refers to the practice of renting one or more properties and then subletting them on Airbnb or short-term rental platforms.
Before you invest through Airbnb arbitrage, check the local laws and HOA bylaws in the area. If it is allowed, check if you need to obtain a license or permit to operate. After securing the required permits, make sure to get the approval of your landlord and draft a new landlord-tenant agreement. To protect against damages resulting from natural disasters or the actions of your guests, take out a Host Protection Insurance from Airbnb.
How can you run a successful Airbnb arbitrage business? First, make sure to calculate your upfront costs, as well as the expenses, so you’ll know how much you need to earn. You also need to prepare your unit for rent by decorating it and adding the necessary appliances and other amenities. After that, you can list your property. Make sure to optimize your listing regularly.
As with any other business or investment endeavor, it is important to do your research. There are many resources, whether online or offline, that you can use to have a better understanding of the different real estate investment strategies. The vast amount of information can be overwhelming, so you may also want to ask for advice from a qualified real estate agent or a reputable company with the relevant knowledge, expertise, and experience in the industry.
You can also use the latest data analytics from Mashvisor to find the most profitable real estate properties to invest in. With Mashvisor’s tools, property searches take only a few minutes. The company’s real estate analytics can help any investor make informed decisions relating to their investments.
Keep in mind that investing in real estate does not automatically mean shelling out a lot of money. Anyone can learn how to invest 1000 dollars in real estate.
There are several strategies on how to invest in real estate without leaving a hole in your pocket. Learn more about REITs, real estate partnerships, wholesaling, syndication, and Airbnb arbitrage. Weigh the pros and cons of each strategy so you can decide what best suits your preferences as a real estate investor. In the end, it’s all about making sure you understand how it works before making an investment.
Look at the strategies listed above and decide the best way to invest 1000 dollars.