How To Start Investing In Real Estate With Little Money!
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Normally, we believed that investing in real estate is often regarded as a substantial capital requiring business but there are numerous strategies that allow you to start with minimal funds.
Whether you’re interested in house hacking, real estate crowdfunding, wholesaling, partnering with other investors, or investing in REITs, there are plenty of ways to begin your real estate investment journey.
In this blog, we’ll explore these strategies, provide real-world case studies, as well as explaining you on how indirect investing through REITs can benefit investors.
Then, we’ll look at famous REITs and their historical returns, and discuss how real estate investments can hedge against inflation. Let’s dive in and discover how you can start investing in real estate with little money!
Introduction
Indeed, real estate investments have long been a cornerstone of wealth building for centuries. This is because real estate assets are tangible, and safe haven in certain situations. Unlike stocks and bonds, real estate is the only major investment asset that provide the dual benefits of income generation through rental yields and potential appreciation in property value.
Not only that, real-estate assets are also known for its stability and ability to hedge against inflation. Thus, it has become an attractive option for investors in diverse economic climates. They also often perform well compared to other alternatives, such as traditional equities and fixed-income securities, due to their lower volatility and consistent returns.
In this blog, we’ll dive into the various strategies for investing in real estate, including direct and indirect investing strategies, and explore how these investments can enhance your portfolio. Let’s uncover the potential of real estate and how it stands out among other investment options!
"In Emerging countries, Real-Estate sector is one of the attractive options for investors to park their money and grow their wealth. In fact, they are not only tangible but also regarded as inflation-hedged assets since their values grow over time in accordance with the country's inflation rate!"
— Mr. Thu Ta Naing, MBA (Bangkok University), Real-Estate Property Investor
Most people believed that investing in real estate requires a substantial amount of capital to start with. However, in reality, it is not completely 100% correct. Instead, you can start with a few capital amount as possible, provided that you are flexible, can plan ahead, and open to indirect investing techniques.
In below sections, we will discuss possible options that you can start investing on real estate with little money as possible.
1. House Hacking
House hacking involves purchasing a multi-unit property, living in one unit, and renting out the others. This strategy can significantly reduce your living expenses and generate rental income.
For example, let's say you are currently working as a young professional, with stable salary income. Based on your income, you bought a duplex townhouse with mortgage loan, which required only a 3.5% down payment. You will live in one unit and will rent out the other. As a result, the rental income covered his mortgage payments, allowing him to live rent-free while building equity in the property.
This is a kind of hack, you should consider, if you don't have substantial amount to invest.
2. Real Estate Crowdfunding
Real estate crowdfunding platforms allow you to invest in real estate projects with small amounts of money. These platforms pool funds from multiple investors to finance large projects.
For example, you invested $500 in a real estate crowdfunding platform. Your investment was part of a larger pool used to develop a commercial property. Over time, you received regular returns from the rental income generated by the property.
3. Wholesaling
Wholesaling is more like an arbitrage in trading. It involves finding properties at a discount, getting them under contract, and then selling the contract to another buyer for a fee. This strategy requires little to no money upfront. The whole strategy relies on the knowledge of your real estate market, as well as your clients and customers' connections.
For example, you found a distressed property and negotiated a purchase price of $100,000.
Then, you find a new investor willing to buy the same property for $110,000. You assigned the contract to the investor and made a $10,000 profit without ever owning the property. Awesome! right?
4. Partnering with Other Investors
If you don't like studying alone, you can partner with others as well. Partnering with other investors allows you to pool resources and share the risks and rewards of real estate investments. This can be particularly useful if you have skills or knowledge that complement your partner’s financial resources.
For example, you had experience in property management but lacked the funds to invest. You partnered with another partner, who had the capital but no time to manage properties. Together, you two purchased a rental property. You managed the property and split the profits.
5. REITs (Real Estate Investment Trusts)
REITs allow you to invest in real estate without owning physical properties. REITs are companies that own, operate, or finance income-producing real estate and pay dividends to investors.
For example, a $1,000 in a REIT is invested which is focused on commercial properties. The REIT paid regular dividends, providing you with a steady income stream without the hassle of managing properties.
Some Famous Stories: Impressive Returns of REITs' Historical Returns
Several REITs have delivered impressive returns over the years. Here are a few notable examples:
Prologis (PLD):
Specializes in logistics real estate and has a market cap of over $102 billion. Prologis has consistently delivered strong returns due to the high demand for logistics and warehouse spaces.
American Tower (AMT):
Focuses on communications real estate, particularly cell towers. With a market cap of around $93 billion, it has provided substantial returns driven by the increasing need for communication infrastructure.
Digital Realty Trust (DLR):
Invests in data centers and has seen significant growth due to the digitalization of the economy. Over the past decade, Digital Realty’s funds from operations grew by 278%, or 14.2% compounded annually.
How Real Estate Investments Hedge Against Inflation
It is no accident that real estate is considered as a good hedge viable option against inflation for several reasons:
Rental Income:
As inflation rises, property owners can increase rents, which helps maintain the purchasing power of their income.
Property Value Appreciation:
Real estate values tend to increase over time, often outpacing inflation. This appreciation helps preserve and grow the investor’s capital.
Fixed-Rate Mortgages:
By locking in a low mortgage rate, investors can benefit from paying back their loan with “cheaper” dollars as inflation erodes the value of money.
Tangible Asset:
Real estate is a physical asset that holds intrinsic value, unlike some financial instruments that may lose value during inflationary periods.
There are quite a few stories that real estate has performed well better than other assets during the high inflation periods.
During 1970s, historical results showed that real estate investments outperformed many other asset classes. Investors who held properties during this time saw significant appreciation in property values and rental income, which helped protect their wealth from the eroding effects of inflation.
CONCLUSION
Starting your real estate investment journey with little money is entirely possible with the right strategies. Whether through house hacking, real estate crowdfunding, wholesaling, partnering with other investors, or investing in REITs, there are numerous ways to get started. Additionally, real estate investments, including REITs, can provide a hedge against inflation, helping to preserve and grow your wealth over time.
By leveraging these strategies and learning from real-world examples, you can begin building your real estate portfolio and achieving your financial goals. Happy investing! 😊
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