One thing that often bares new investors from getting started in real estate is finance. While owning property is a lucrative investment opportunity, purchasing a house is an expensive undertaking, and it's not uncommon for a lack of funds to deter interested parties.
Nevertheless, for interested investors, there are ways around the apparent constraint of cash flow. This article explores 6 different ways you can invest in real estate with little money. So make sure you read till the end to find out what your options are.
1. Buy shares from a REIT
REIT is short for Real Estate Investment Trust. They are similar to mutual funds in the sense that you purchase stock owned and controlled by a commercial real estate company. Investing in real estate this way means you have no say over the management of the property. Still, it's a decent tradeoff if you're uninterested in the administrative process that comes with owning property. In exchange, the company pays you dividends which you can reinvest if you wish.
There's no hard and fast rule to determine what the best real estate option to invest in is, but REITs are a popular choice among retirees. Mostly because the average profit margins are pretty attractive. Still, it's crucial to remember that they still carry some risks, however minimal, particularly with privately traded companies. Knowing this, if you'd like to purchase REITs, you'll have to open an account with a brokerage firm to proceed.
2. Apply for a loan program with a small down payment
Many loan programs offer assistance to new investors looking to dive into the world of real estate. But finding the ones that require little to no down payment is often the trick. Here are a few loan options that require a small down payment:
FHA loan: This is a mortgage issued by the Federal Housing Administration specifically designed to accommodate low to moderate-income borrowers. If you have a FICO score higher than 580, you may qualify for a 3.5% down payment.
VA loan: Active veterans or surviving spouses may apply for a VA loan with a 0% down payment.
SBA loan: If you plan to invest in commercial properties such as one for your business, then you can get a grant for an SBA loan with only a 10% down payment.
There are several other options, so don't forget to research and confirm your eligibility before applying.
3. Take out Home equity loans
Another way to procure capital to invest in real estate is through a home equity loan. However, this option is only viable for investors that already own a property. Here, you put up your primary home as collateral to take out a mortgage on another property. Alternatively, you can also use it as a line of credit, known as a HELOC, which allows you to break the lump sum and access your funds when you need them.
Banks and other financial institutions can loan you up to 70% of the value of your primary home. It would be best to utilize this means with caution, so you don't lose out on both ends if your investment turns sour.
4. Consider leasing out rooms in your home
If you're comfortable having tenants live on-site, you could put up rooms in your residential home for lease. It's an option you can take advantage of immediately without spending a nickel.
However, you might want to consider a small investment in renovations. The more modern your fixtures and appliances are, the more rent you can charge. That way, you enjoy the renovations first hand and increase your home's value.
5. Do a house flip
There are real estate experts that specialize in flipping houses for a living. While some of these properties can run into hundreds of thousands of dollars to purchase and renovate, you can find some good ones at a pocket-friendly price.
House flipping with a small capital requires a lot of patience and some expertise. If you're a newbie, you should consider getting some guidance first to avoid making a wrong purchase. The last thing you want is to throw money into a pit.
Your best bet is finding a property that requires only minor renovations, fixing it up, and either renting it out or putting it up for sale.
6. Look into seller financing
Seller financing is quite similar to a bank loan, except the seller doubles as the lender in this scenario. Why would anyone loan you money to buy their property? The house might need some renovations, you might have a prior relationship with them, or they might want to avoid the lengthy process of involving a bank.
Either way, seller financing isn't bound by traditional lending terms, so you put on your negotiator's cap and discuss terms that you find agreeable.
Conclusion
Yes, capital can be a big help when going into real estate, but it doesn't have to guard the gate to your financial independence. You can find multiple viable ways to become a property owner between the options we've laid out in this article and doing your research.
Of course, starting your real estate journey off with a little doesn't mean you shouldn't be concerned about maximizing your profits. A great property management company can help you manage your investment and get the most out of your rental property through the services they provide.
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