In an overwhelming majority of countries, real estate costs continue to rise due to low-interest rates and supply chain disruptions.
Yet, while housing prices are sky-high, investing in real estate has never been easier. You might think buying real estate is only for the wealthy, but you would be wrong.
The truth is, you can start buying real estate investments for as little as $1,000. Don’t believe me?
Then keep reading as we explore the question, “How much do you need to invest in real estate?” We guarantee it’s feasible for you. Besides, one of the best investing tips is to diversify your portfolio, which real estate will help you do.
Real Estate Investment Trust (REIT)
The cheapest way to invest in real estate is through a REIT. They allow you to invest in real estate without the actual real estate.
What does that mean?
REITs are similar to mutual funds as in they are securities. Investors trade REITs on major exchanges like stocks. REITs own commercial real estate like:
- Office buildings
- Retail spaces
- Shopping malls
Most REITs specialise in a particular type of real estate or specific region.
REITs offer a high dividend and a liquid way to invest in real estate. In addition, it’s easy to reinvest dividends to grow your investment further.
When investing in REITs, experts say to stick with publicly-traded REITs, which you can buy from brokerage firms.
As mentioned, you can invest in REITs for $1,000!
Real Estate Investment Group (REIG)
If you’re an investor who wants to own physical real estate rather than shares of a company, then you may want to consider an REIG.
An REIG allows you to buy one or more units in an apartment or condo building via an operating company. The operating company manages and markets the units. Then, the operating company takes a percentage of the monthly rent.
REIGS are a cost-effective way to invest in real estate because you don’t have to succumb to the management work.
Some partnerships accept investments as low as $5,000 or up to $50,000. So while it’s not enough to purchase a property, when several investors come together, they can co-own property and make a profit.
If you want to invest in an REIG, you want to look for one that pays a monthly cash return on your investment.
Similar to REIGs, crowdfunding is becoming more popular in real estate investing. It allows you to pool your money with other investors to fund commercial real estate investments.
For example, a developer wants to buy an apartment complex for $3mn, make $1mn worth of renovations, and resell the complex for $6mn.
The developer can borrow $2mn from the bank and contribute $500,000 of their own money, but they still need $1.5mn for the project.
They can raise the rest of the capital via crowdfunding. Those who invest will share the profits. You could be one of those investors. Each crowdfunding project has its own minimum contribution.
A typical contribution amount is $25,000, far less than outright buying a property.
Of course, you can also buy property as a way to invest in real estate. In general, this will require more money upfront. However, you can buy a property with as little as 3-5% down, depending on the location and lender.
If you choose to invest in property by buying directly, know that it is time-consuming but can see considerable returns. You can profit from purchasing property in two main ways: becoming a landlord or flipping.
Becoming a landlord can offer long-term income and capital growth. But it’s also a lot of work. You need to find and vet tenants, keep up with property maintenance and continue paying the expenses.
It’s a good investment if you have the time and money to manage the property. It’s even better if you can afford to hire a property management company so you can focus your time on other investing projects.
Fix and Flip
If HGTV is famous for anything, it’s flipping houses. When flipping, you buy a property, revamp it, then resell it.
The best way to flip properties is to find the unvalued ones. This means looking for foreclosed homes, short sales, and abandoned properties. This is because you want to pay the least amount possible for a property to maximise your return after remodelling.
When flipping, you go through a different loan process. It’s best to pay cash, but if you need financing, you’ll want to have some wiggle room. Every property has different funding requirements based on its current condition.
If you have enough money to pay cash or put down a large downpayment comfortably, it’s a good investment option.
Fees When Buying
While purchasing a property with 3-5% down is possible, it’s not always the best financial decision. You could be left with a higher interest rate, and your mortgage payments will be bigger.
If you’re able to put 15-20% down, it’s a better choice to do so. Going into debt to make money requires balance and strategy. Borrow too much money, and you may fail to pay it all back.
Additionally, when buying a property, you have to remember you’ll be responsible for paying all the fees, not just the mortgage. This includes:
- Closing costs
- Property taxes
- Homeowners insurance
- HOA fees
- Maintenance and repairs
If you rent out the property, these fees will remain your responsibility. However, if you sell the property, you won’t have to continue paying them once you sell.
But, you must factor these costs into your budget because you need to pay them as long as you’re the owner.
How Much Do You Need To Invest in Real Estate, Explained
To invest in real estate, you don’t need a lot of money. A few thousand dollars can help you generate wealth and move on to bigger and better-investing projects.
Rather than pondering the question, “How much do you need to invest in real estate?” take the money you have and find a viable investment.
If you’re still unsure about getting started, check out our real estate investing for beginners article to help you.0