Did you know you can get started investing in real estate without having hundreds of thousands of dollars? Buying a property the traditional way can be expensive, but the truth is, you can get started investing with much less. In fact, in this guide we will show you how to invest 1,000 dollars in real estate.
Here are 8 of the best ways to invest $1,000:
Real Estate Investment Trusts (REITs)
Real Estate Crowdfunding
Real Estate Partnerships
Real Estate Wholesaling
Turnkey Rental Real Estate
Hard Money Loans
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1. Real Estate Investment Trusts (REITs)
Real estate investment trusts (REITs) are one of the best ways to invest 1,000 dollars, and are beginner-friendly. An REIT pools investor funds together to purchase real estate properties. By investing, you would be a shareholder who earns dividends from the income generated by these properties. Investing in REITs is similar to investing in stocks or mutual funds. They often specialize in different types of real estate, such as commercial real estate or residential real estate.
Investing in REITs is relatively safe and can offer high yields. Compared to other forms of real estate investing, there’s very little work involved. Make sure to find an REIT that is well-established, has a good reputation, and offers high yields to shareholders.
2. Real Estate Crowdfunding
Another great way to get started investing with a smaller initial investment is through real estate crowdfunding. Crowdfunding is the act of raising cash for business ventures, allowed under the JOBS (Jumpstart Our Business Startups) act.
Like REITs, real estate crowdfunding involves several investors pooling their money together to purchase properties. Real estate crowdfunding involves three key players:
The sponsor: The sponsor is responsible for identifying and managing the property. This involves coordinating the purchase, managing the funds, interviewing and hiring contractors, and eventually selling the property. It’s not uncommon for the sponsors to help fund the deal themselves.
The platform: Sponsors and investors connect with each other through crowdfunding platforms. Popular examples include PeerStreet, Fundrise, CrowdStreet, and RealtyMogul. These platforms act as a helpful middleman by vetting both the real estate deal and the investors.
The investor: The investor provides the capital needed for a deal and benefits by receiving a share of the profits made. Let’s say that a sponsor identifies a hotel sale at $10 million, but they can only invest $4 million. The sponsor can then go through a crowdfunding platform to find to raise the remaining $6 million from other investors.
3. Real Estate Partnerships
A real estate partnership is a great way to combine forces with another investor who has the skills (or pursestrings) that compliments yours. In real estate, partnerships generally fall into one of two categories: active or passive.
Active partnership: In an active partnership, both partners are involved in the heavy-lifting of the investment deal. This could include business operations, property management, marketing, and working with contractors.
Passive partnership: A passive partner, or silent partner, is the one who provides the capital. The other partner does all of the active work. A greener real estate investor will often find a great deal but have no financial means to back it. In this case, they’ll find a business partner who’s willing to put up the cash in exchange for a cut of the profits.
Even if your partner is a close friend or family member, it’s important to be on the same page. No matter what kind of partnership you enter, always be sure to have a written agreement on record. Ask a neutral third party, such as a financial advisor or attorney, for guidance if there’s ever a dispute.
4. Real Estate Wholesaling
If you’re wondering how to invest 1,000 dollars, or even less, real estate wholesaling is one of the best ways to get started in real estate. When done correctly, a wholesale deal can be executed with zero investment.
A wholesaler’s job is to find properties on sale for below market value and then sell them to buyers. They make a profit by putting the property under contract at a lower price and then selling it to the buyer at a higher price. The transaction does not require the wholesaler to buy the property.
You might wonder why buyers don’t purchase the properties directly. Although they can, many of these buyers are serial rehabbers who don’t have time to scour the internet for hard-to-find deals. The wholesaler does this for them, and the price they charge is still a good deal.
5. Peer-To-Peer Microloans
Microloans are one of the greatest ways to invest 1,000 dollars in real estate. A microloan is a type of loan made in smaller sums, and can be a game-changer for someone who doesn’t have the credit or resources to apply for a traditional loan.
Peer-to-peer lending platforms have filled a market gap where banks are unable to meet consumer needs. Websites such as LendingClub.com and Prosper.com help connect borrowers with lenders.
Borrowers win because they can access a simplified loan process with more lenient eligibility requirements. Peer investors win because high rates and fees don’t eat up their returns. If you have $1,000 to invest, you should consider spreading your risk across a high volume of notes in small sums.
6. Turnkey Rental Real Estate
Did you ever think it would be possible to own rental real estate with just 1,000 dollars per month? With turnkey rental real estate, it just might be. Turnkey real estate companies offer new or renovated properties for purchase, often in areas where mortgages are cheap. Although you would have to come up with an initial down payment, you could own a property that costs you less than $1000 per month.
What’s more, you could make a profit from the get-go. After purchasing the property, you must first hire a property management company and rent your property out to tenants. Once that’s done, you could receive a monthly check from your tenants that covers your mortgage, property management fees, and a passive income stream.
7. Tax Liens
Property taxes are something you’ll never be able to evade, no matter which state you move to. When a homeowner doesn’t pay their property taxes, the local or state government can put a tax lien on their home. Tax liens equal the amount owned in taxes plus any interest accrued by the outstanding balance. Liens are an extremely common occurrence throughout the country. If you’re a real estate investor, this presents a unique opportunity.
Once a tax lien has been placed, the government will auction it off to create revenue. As a real estate investor, you can attend these auctions and purchase tax liens. The bidding process will earn you a certificate to the lien. From there, either the homeowner will pay the amount owed by a set deadline, or the bank will pay off the lien to avoid losing the property. You’re guaranteed to make a return on your investment.
Tax lien auctions run differently from state to state, and you’ll want to know what to expect before attending. Read our guide to tax lien investing to learn more about the process.
8. Hard Money Loans
If you’re looking for a good way to invest 1,000 dollars, consider a hard money loan. This type of loan is often used in real estate but can be used for other kinds of deals as well.
Hard money loans are taken out from an individual or a company, and not a financial institution. There are typically two types of real estate investors who take out hard money loans. The first is an investor who needs cash to fund a deal, but don’t have a strong credit history. The second is a fix-and-flip investor who needs quick access to cash and plan to turn a profit and pay off the loan quickly.
Hard money loans are made with conditions and parameters negotiated between the lender and the borrower. These agreements should include the interest rate, the length of the loan, a plan for how the borrower will repay the loan, plus the collateral in case they default on the loan. Investors often use property as collateral.
If you’re providing a hard money loan to help finance a real estate deal, know that you’re not necessarily investing in the property itself. However, this can be a great way to get exposure to real estate.
Best Tips For Investing 1,000 Dollars
There are a number of ways to improve your financial health and begin growing your cash reserves. The right strategy for everyone doesn’t always look the same. Here are a few different tips for working with $1000:
Reduce Consumer Debts: If you have extra money to invest, start by reducing any high-interest debts you have, such as credit card bills. This can free up more money in the long run to invest elsewhere.
Consider Retirement Benefits: Does your employer match 4019(k) contributions? Review your retirement benefits to maximize your investment potential.
Think Long Term: Often, one of the best options for growing a sum like $1,000 is to pick a diversified investment portfolio. Research mutual funds, REITs, and other beginner investments to learn more.
Prioritize Savings: Consider how to add to your investment fund over time by prioritizing savings. For example, come up with a system for dividing up unexpected income that allows you to enjoy and invest it.
Invest In Your Financial Education: As you accumulate extra cash to invest, be sure to brush up on your financial education along the way. Read books, listen to podcasts, and explore online resources as you go.
Create A Side Hustle: The goal of any investment is to grow your funds over time. When you are just starting out, investing in an opportunity that can increase your income can be a great way to boost your future potential.
Determining Your Investing Style
There are a few elements to consider about your personal financial habits before making an investment. These range from the amount of time you have to research to the ideal timeline before seeing returns. When thinking about time, ask how much you already know about your preferred investment strategy — and how much time you would need to spend to get comfortable with it. For example, if you have a good understanding of how real estate works, but do not have the time to learn how to manage a property yourself, REITs or crowdfunding may be good options. Purchasing tax liens, on the other hand, may require a little more research.
Similarly, you need to evaluate your preferred timeline. Most investments take years if not decades to develop. However, strategies like wholesaling could earn you profits in a short amount of time — if you are able to execute the process efficiently. On the other hand, a turnkey rental could provide more stable returns over a long period of time. These are factors to consider as you look to make your first investment.
Other factors that influence your investment style include your risk tolerance and need for liquid investments. Risk tolerance refers to the likelihood that an investment may not turn out how you planned. For the most part, real estate is considered lower risk when compared to other popular investment styles (namely, stocks) but each strategy has its own pros and cons. Lastly, consider how quickly you may need access to your cash. Offering an other investor a loan is not the most liquid option, compared to say wholesaling which can be executed quickly.
You might have been surprised to find out that investing 1,000 dollars can go a long way. We just discussed how to invest 1,000 dollars in real estate. We provided 8 methods, but there are many more out there. Although traditional real estate investing can be expensive, there are creative ways for you to get involved with little money. Peer-to-peer lending, crowdfunding, and REITs are examples of where you can chip in alongside other investors to make larger real estate purchases. If you’ve been under the impression that you can’t afford to invest in real estate, that myth should now be busted. Thanks to technology, investing in real estate is now more accessible than ever.
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