Interested in investing in real estate, but don’t have much cash or experience?
Coughing up $50,000 as a down payment on a rental property is far from your only option to invest in real estate. As you explore your options, consider the following ways to invest in real estate.
Many industries intersect with real estate. For example, homebuilder stocks tie directly to the real estate market, as do home improvement retailers like Lowe’s and Home Depot.
Likewise, some technology companies directly serve the real estate industry, such as Zillow. Hotel companies own enormous real estate portfolios. And so the list continues.
Read up on real estate stocks for more ideas to invest in real estate indirectly through your brokerage account.
Some publicly-traded companies own real estate directly. Known as real estate investment trusts (REITs), they either own properties or own debts secured by real estate.
The SEC requires these companies to pay out at least 90% of their profits to shareholders, in the form of dividends. That can lead to enormous dividend yields — check out this roundup of high-dividend REITs with yields as high as 20%.
Not all REITs trade on public stock exchanges. Over the last decade, real estate crowdfunding platforms have started offering private REITs.
Because they don’t trade on stock exchanges, they don’t come with the same volatility. They also don’t correlate nearly as closely with stocks, which makes them a better way to diversify away from stocks.
Many offer dividend yields that rival or exceed public REITs, even though they don’t fall under the same SEC rules requiring 90% of profits to be distributed. Exemption from this rule also gives them the flexibility to grow their real estate portfolios and grow their share prices.
For examples, check out Streitwise, Fundrise, Crowdstreet, or read a review of RealtyMogul (which remains among the most popular real estate crowdfunding investments).
Not all real estate crowdfunding investments are structured as pooled REITs.
As an alternative model, some let you pick and choose loans to fund. These loans are secured against real estate, so if the borrower defaults, the lender forecloses to recover your money.
My favorite of these is Groundfloor, which offers interest ranging from 6.5-14%. You can invest as little as $10 toward any individual loan.
Another way to invest through crowdfunding is buying fractional shares in rental properties.
For example, Arrived Homes let you buy partial ownership in properties for as little as $100. Accredited investors can also buy fractional shares in portfolios of rental properties through Roofstock One.
It offers one more option for passive income from real estate.
When you house hack, you find a way to generate income from your home, which offsets your housing costs. For instance, you can buy a duplex to live in one side and rent the other. The rent ideally covers your mortgage payment each month.
Or you can rent to housemates, or set up an ADU, or finish a basement apartment. For that matter, you can rent out storage space, or even host a foreign exchange student. My business partner did the latter for four years, and the stipend covered most of her mortgage!
A classic real estate investment model, you can of course buy and rent out properties.
It does require a down payment, so you need more cash on hand to buy rental properties directly. You may be able to save on expenses by becoming a real estate agent and earning commissions on your own deals however.
Alternatively, you can rent out properties to vacationers on Airbnb.
You don’t have to worry about collecting rents or evicting bad tenants, as Airbnb handles that for you. But you do have to furnish the unit, clean it thoroughly between guests, and maintain a high occupancy rate to stay profitable.
Read up on the pros and cons of Airbnb before committing to this business model.
Another classic real estate investing strategy, you can buy fixer-uppers to renovate and sell.
You choose what level of renovation you feel comfortable with, and in the beginning consider starting with cosmetic updates. For example, you can remodel the kitchen and bathrooms, maybe replace the carpeting and repaint the unit, rather than tackling mold remediation.
Make sure you fully understand the pros and cons of flipping houses versus renting before deciding on a strategy.
Investing in real estate doesn’t have to cost thousands of dollars. With crowdfunding platforms like Fundrise and Groundfloor, you can invest with as little as $10.
For that matter, you can buy shares in real estate stocks or public REITs for as little as the share price.
Start simple with these inexpensive investment options before you tackle larger real estate investments such as rental properties or flipping houses.