The most common barrier to investing in real estate is, as you might’ve expected, money. You’ll need money to make money with real estate rental properties. Many think that investing in real estate with little money is not feasible. This, however, could not be further from the truth. While large wads of cash would undoubtedly help you with getting started in real estate, there are many ways to invest in real estate. Even with 5 thousand dollars, you can succeed in the real estate business. In this blog, we’ll tell you how to invest 5k in real estate in 5 ways.
1. House Hacking with an FHA Loan
The first, and arguably the best, way of how to invest 5k in real estate is through federally-assisted loan programs, such as those from the FHA, the USDA, and the VA. Different programs have different requirements and assistances, but they share common terms. Instead of focusing on a real estate investor’s money, these loan programs will require a good credit score. If you qualify, you’ll be able to buy an investment property with little to no down payment.
FHA loans are the go-to federal loans for first-time buyers. An FHA loan for investment property can have down payments as low as 3.5%. They can also finance more than 90% of the purchase price of a property. USDA loans are another great option for property buyers, especially those in rural or suburban areas. They provide no down payments and low interest rates. Finally, if an investor is a veteran, then VA loans offer another option for investing in real estate with little money.
There’s no doubt that these loan programs are excellent for anyone wondering how to invest 5k in real estate. However, they come with an important caveat. A property purchased through these loans must be used as a primary residence during the first year of purchase. Afterward, the property can be turned into a rental.
Fortunately, you can still use federal loans to invest in real estate and buy a rental property. The solution is house hacking or buying a multi-family property, residing in one unit, and renting out the others. How is this an option for how to invest 5k in real estate? Let’s assume you will use an FHA loan to buy a small and affordable multi-family home for sale, such as a duplex or fourplex. For example, this duplex is available for sale right now in the Chicago real estate market for only $75,000. You can then use the $5k to cover the 3.5% down payment on rental property. (For this specific Chicago investment property for sale, you will even be able to stretch that $5k to cover other acquisition costs). As a result, you’ll end up with affordable rental units and a primary residence all in one.
How to Find Small and Affordable Multi-Family Homes
House hacking a multi-family property with an FHA loan may be the best method for how to buy a multi-family property with no money. Of course, in order for house hacking to work, you need to find small and affordable multi-family homes. So, you might be asking yourself “how can I find multi-family homes for sale near me?”. The answer is Mashvisor! Mashvisor’s real estate heatmap, for instance, will highlight areas in a rental market with profitable and affordable multi-family homes. In addition, Mashvisor’s multi-family investment calculator will analyze any multi-family listing on the market (or even off-market). For more on how to find multi-family homes for sale using Mashvisor’s real estate software, CLICK HERE.
2. Real Estate Investment Trusts
Investing in real estate investment trusts, or REITs is another great option for how to invest 5k in real estate. REITs are companies that buy, own, and manage income properties. They tend to focus on commercial real estate, such as shopping complexes and senior housing. Still, they can also purchase residential properties, such as large multi-family homes. As an investor, you can contribute little money to the property investment and not have to manage or be responsible for it. REITs are, therefore, one of the best passive investment strategies that allow investors to make a good return on their little investment.
3. Real Estate Partnerships
Investing in real estate with little money is no easy solo feat. That brings us to another answer to “how to invest 5k in real estate?” – real estate partnerships. By networking with other investors, you can pool together your resources in order to buy an investment property. It is up to the real estate investors to agree on purchase terms. One investor might finance 20% of the purchase. Another, on the other hand, can contribute $5k and be responsible for finding tenants or managing the rental property. No matter the terms, real estate partnerships give investors many opportunities, no matter how much money they have saved up.
If you’re interested in this strategy for how to invest 5k in real estate, learn more about partnerships by reading: 5 Things You Need to Make Real Estate Partnerships Work.
4. Real Estate Crowdfunding
A specific type of real estate partnerships, real estate crowdfunding is another method investors should explore. Real estate crowdfunding focuses on commercial real estate, as opposed to residential rental properties. Investors and developers come together through online crowdfunding sites, such as PeerStreet and Crowdstreet, and get deals done. Like investing in REITs, crowdfunding is often a hands-off, passive real estate investment strategy. The investment sponsor is the one who is responsible for management duties and profit distribution. Crowdfunding provides investors wanting to know how to invest 5k in real estate with an enticing proposition.
5. Lease with Option to Buy
Finally, leasing with an option to buy also allows real estate investors to buy an investment property with little money. Through this method, an investor rents out a property and agrees to ultimately purchase it from the landlord. Portions of monthly rent are allocated towards the purchase based on an agreed timetable and there may be a small down payment initially – much smaller than the typical 20%. Not only does this provide a method of how to invest 5k in real estate, but it also gives first-time investors an opportunity to learn the ins-and-outs of the rental property before actually renting it out and managing it. As a result, the property buyer will know what makes the property profitable, what its maintenance is like, and how it can be optimized for max return on investment.
Want to start house hacking? Look for fourplexes, triplexes, and duplexes for sale by signing up for a 7-day free trial with Mashvisor now.