Many people who have reached financial independence have done so investing in real estate. But this might seem like an impossible achievement to you. Especially if you’re only looking at the end result.
If that’s the case, consider starting with small steps and making continued forward progress. By doing so, you can make your way to “real estate mogul.” And you can do this even if you’re only able to start investing with a smaller dollar amount.
Today we’ll talk about how you can get started in real estate investing. We’ll show you how to invest even if you don’t have a ton of cash in the bank.
First, let’s talk about how you can save up money for real estate investing. Saving money has to start with making a budget. So if you don’t have one, get to work creating one.
Next, start socking away all of your extra monthly cash. Put the funds into a savings account. And set it aside for investing in real estate.
If you’re serious about investing, you should be able to save up money in a reasonable amount of time. Help your goal along by cutting non-essential expenses for a short amount of time.
For the sake of argument, let’s say you’ve got $5,000 saved and you want to get started with real estate investing. There are a few options you can look at to get started.
Crowd-Funded Real Estate Investing
Maybe owning and managing rental properties isn’t appealing to you. However, you may still want to grow wealth through real estate investing. If so, you can consider trying crowd-funded real estate investing.
Crowd-funded real estate investing is similar to peer-to-peer lending. The idea is that you are a part of a group of people who pool their money with other investors. Then they lend that money to experienced rental real estate investment property owners.
As you can see, the work on your part is minimal. However, you still have the potential to make a serious profit from real estate investing.
There are many platforms for investing in real estate via crowd-funding. I’m going to talk about five of the biggest today.
Realty Mogul lets you start investing in real estate with just $1,000. The company partners with you in real estate investing differently than some of the others we’ll talk about here. When you invest with Realty Mogul, you purchase shares in one of their LLCs.
The company uses a different LLC to hold the title to the properties invested via the first LLC. By running the business this way, Realty Mogul can give investors more options for real estate investing.
Once you become a member, you can browse your investment choices. You can also review due diligence materials for those investment choices. Once you’ve made an investment decision, you can sign your documents online with Realty Mogul’s secure system.
With Realty Mogul you can invest as an accredited investor or as a non-accredited investor. Accredited investors have to meet certain criteria:
- They must have a single income of at least $200,000 or a joint income of at least $300,000. Note that you must have maintained the income minimums for the last two years. Also, they are expected to continue in the current year.
- There’s another way you can become an accredited investor too. You’re considered accredited if you have a net worth of at least $1 million. This number cannot include equity in your primary residence. The $1 million number can be solely-owned investments or joint-with-spouse investments.
As an accredited investor, you can invest in any of Realty Mogul’s offerings. If you’re a non-accredited investor, you can still invest with Realty Mogul. However, you are limited to investing in one of their two REIT (Real Estate Investment Trust) funds.
What Types of Real Estate Does Realty Mogul Invest In?
Realty Mogul invests in several different types of properties. Some of them include:
- Single-family investments
- Multi-family properties
- Office buildings
- Industrial sites
- And more
See the Realty Mogul website for more information on specific investment options. They have both short-term and long-term investment options. You can invest in six-month investments or up to 10-years. They have many options depending on your investment goals.
Another popular crowd-funding company is Fundrise. They opened in 2012 and also have a fairly large selection of property investments to choose from. Here are some of the specs for investing with Fundrise.
- $500 minimum investment threshold (Starter Plan)
- One percent annual management fee
- Non-accredited investors as well as accredited investors
- Residential and commercial real estate offerings
- Private market investment advisory and management services
There are hundreds of crowd-funded real estate investing companies out there. Here are some tips for picking crowdfunding real estate wisely.
Rich Uncles allows you to invest in a crowdfunded REIT for as little as $5. So almost anyone can start investing in real estate with Rich Uncles.
The REIT you’d own shares in is for student housing. Property managers collect rent each month from students or their parents. In return for your investment, you get paid monthly dividends.
Another great thing about Rich Uncles is that there are no brokers fees charged for your investment. That’s a rare feature in today’s investment world.
PeerStreet works with trusted private lenders all over the U.S. They assess each investment property option offered to them by the lenders. Assessment includes running properties through their algorithm and data science parameters.
After properties get approved, they offer them to PeerStreet investors.
As an investor, you can choose the investments you want to participate in. Or a second option is to set your investment criteria through the PeerStreet investment tool. Then they will match you with loans that fit your criteria.
The minimum dollar amount you need to invest with PeerStreet is $1,000. However, you need to be an accredited investor to invest with them. Generally, their service fee will be in the range of 0.25%-1.00% and it’s always disclosed.
Like PeerStreet, EQUITYMULTIPLE is also available only to accredited investors. Their minimum investment amount is $5,000, and they offer investment lengths between 12 and 120 months.
Some of the types of properties they invest in include:
- Student housing
- Mixed use
- Office buildings
As far as fees, EQUITYMULTIPLE charges a 0.5% service fee, along with another fee of 10% of all profits.
More details on Crowdfunded Real Estate
Investors who invest their money in crowdfunded real estate investments have a unique chance. They can invest in a small piece of a real estate investment or the entire investment.
Statistics charts on crowd-funded sites track an investment’s earnings history information. And they often provide investors with year-end tax information as well. Also, investors can manage their investments online.
The main attraction of crowdfunded real estate investing is that it’s easier for the investor. This is because someone else does the work of finding the property, getting a mortgage loan on the property, etc.
And investors don’t have to worry about screening tenants, managing tenants and the property.
Also, the dollar amount you’ve invested is minimal. Besides, someone else is responsible for the property loan or loans you invest in. This means you don’t have to worry about the added debt on your credit report.
Above all, your workload is minimal, yet the potential for profit can still exist.
Crowdfunding Has Changed Things
Before the world of crowdfunding, only those with connections were allowed to invest in private real estate deals. Enter the Securities Act of 1933. This act ruled that private securities could not market investments such as real estate investments publicly.
You had to be “in the know” if you wanted to fund the real estate ventures of wealthy real estate moguls. And the select group of people who had access to these deals often had to invest massive amounts of cash.
At times, they had to invest in the six-figure range for the privilege of investing in private real estate ventures.
But crowdfunded real estate investing has changed that. It allows investors of all different backgrounds to get in on ground-floor investing deals.
Now it doesn’t matter who you know, whether you’re a first-time or seasoned real estate investor. You can start with as little as one thousand dollars and start making passive income in real estate.
Basically, crowdfunded real estate investing has leveled the playing field. No more closing the door on real estate investing to everyone but the super-rich.
Do Your Research
It’s important to research the crowdfunding companies you’re considering. Be sure to ask questions like these:
- How long have they been in business?
- What is the experience of their leadership team?
- What are their guidelines for borrowers? For investors?
- What is the minimum investment amount?
- What fees do the crowdfunding companies charge?
- Do investors have access to historical returns?
The more transparent the crowdfunding company is, the better. For this reason, you’ll have more information with which to make an investment decision.
Understand What You’re Getting Into
It’s important to understand how the process works when it comes to crowdfunded real estate investing. Each company has different methods for calculating and distributing investor returns.
There are generally two types of crowdfunding investment when it comes to real estate. They are debt investments and equity investments.
With debt investments, you earn your money as the real estate borrower pays back his or her loan. With equity investments, your return depends on the performance of the rental property and its income.
For instance, let’s say you invest in commercial real estate property. This property can house several tenants. In this case, you as the investor make more money if all of those spaces get rented out. If the commercial building sits half empty for a while, you earn lower returns.
As you research crowdfunded real estate companies, it’s important that you learn which types of investments they fund. Then choose the type of investment that fits your risk tolerance and investment education level.
In other words, the more you educate yourself, the better you will understand the risks and benefits. This will help you to make smarter investing choices.
There Are Risks When Investing in Real Estate
As with any investment, there are risks involved. This is true with both traditional and crowdfunded real estate investing.
For instance, traditional real estate investors may be unable to rent a property that’s in a bad area of town. They may be the recipient of a housing market crash. Or they may have to do massive repairs if a tenant damages the home.
And when investing in crowdfunded real estate investments, you’re still at risk. The investment you choose to invest in does have the potential to lose money.
It’s important to educate yourself on the pros and cons of both types of real estate investing. Do this before choosing which type of real estate investment is best for you.
Your risk comfort level is a factor as well. With crowdfunded real estate investing, you don’t carry the entire burden of rental property ownership. Instead, you’re sharing the risk with several other investors.
Either way, the potential for increasing wealth is a reality for both types of investments. This is true for both traditional and crowd-funded investing. Crowdfunded real estate investing has opened the door for many investors.
With nearly any amount of cash, you can grow your net worth via real estate investing.
Traditional Real Estate Investing
Another option is to invest in traditional real estate investing. In other words, you buy rental properties and rent them out to others. Traditional real estate investing is a great option for growing wealth.
However, there are some downsides with traditional real estate investing that need serious thought. Consider these downsides before you go that route.
First, traditional real estate investing requires heavy time input. You may need to look at dozens of houses before you find the right one for rental purposes.
Then after you make your purchase, you’ll spend time doing other work. You’ll be readying the house for tenants and searching for tenants. Also, you’ll be managing and maintaining the property.
Second, let’s say you’re starting with a minimal amount of money down. If so, you’ll need to first purchase the home as an owner-occupied home.
Then you’ll have to live there for at least twelve months before renting the house out. For this is the rule with most lenders for purchasing an owner-occupied home with a minimal amount down.
The Risk of Carrying a Loan
There’s another added risk with traditional real estate investing. And that is that you are responsible for the mortgage loan on the property.
Let’s say you only put five or so percent down (on an assumed $100,000 purchase since your cash available is $5,000). Then you are holding a loan with very little safeguard between you and a housing market downturn.
I’m not against traditional real estate investing. However, when you’re going in with a small amount of cash to start with it’s essential to be aware of the risks.
In brief, people will always need a place to live. And companies will always need to conduct their businesses in offices. Those facts make real estate investing in any form a smart investment to consider.
So even if you’re only able to start with a small amount of cash, think about real estate investing. By doing so, you can make your way to “real estate mogul.”
Which type of real estate investing most appeals to you? Share your thoughts by leaving a comment on our Facebook page.
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