If you are considering investing in real estate but have limited finances, it’s nothing to be concerned about. There are multiple options in which you can reap the rewards in real estate investing even with a tight purse.
The real estate market has been growing steadily over years in turn pushing both institutional and retail investors to tap into it. Retail investors, more so, now have the great advantage of accessing real estate without necessarily owning property. Adding real estate investing into your portfolio is a great way to diversify and reap huge rewards while cushioning yourself against risk.
Let’s dive into several emerging trends that anyone can venture into when considering real estate investing.
Real Estate Investment Trusts (REITS)
REITS are firms which purchase, manage, or finance real estate properties to generate income in various sectors. A REIT allows you to have shares in different real estate investment opportunities. They operate similarly to mutual funds where investors own a share in a real estate portfolio allowing them to earn income and returns in form of dividends.
In simple terms, a company leases a property and raises rental or interest income from which as an investor you earn dividends without owning, financing, or managing the property.
Types of REITS
There are several ways you can invest in REITS:
- Equity REITS
Equity REITS are equity-based where a company owns and manages income-generating properties which are leased to tenants to raise revenue in the form of rent. Investors who cannot afford to own property are able to access the income as dividend proceeds.
- MREITS
MREITS or mortgage REITS lends money for financing income-producing real estate assets such as mortgages and mortgage backed securities while earning income in the form of interest.
- Public non-listed REITS
Public non-listed REITS do not trade on major securities exchanges although they have limited liquidity and redemption restrictions.
- Private REITS
Private REITS can only be accessed by institutional investors and also do not trade on securities exchanges.
Leasing Property
You can get a share in real estate investing in the form of leasing property where you make higher rental payments. The extra rental fees are then channeled towards the property’s purchase price.
House Flipping
House flipping involves restoring or renovating property that is in a state of disrepair. In case you own such a property or a relative of yours, you can turn it around into a valuable asset such as doing some repairs and painting. The next step would be to find a buyer and make handsome profits through a sale or renting it out.
Real Estate Crowdfunding
Real estate crowdfunding offers investors the chance to access alternative investments usually hosted on a crowdfunding platform. There are multiple real estate investing online platforms where an investor can put their money in real estate such as Fundrise, CrowdStreet and RealtyMogul.
Real estate crowdfunding has several types such as:
- Reward crowdfunding where investors contribute funds and in turn earn nonmonetary rewards.
- Debt-based crowdfunding where an investor is paid back in interest.
- Donor-based crowdfunding where funds are contributed for a social cause without expecting anything in return.
- Equity-based crowdfunding is also another way for investors to have a share in property to earn dividend income.
However, always consider doing research to ensure you find the right platforms in terms of types of real estate investing offered, fees, features, and terms.
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Renting out a Room
When you are limited in funds it pays to be a little creative. You probably have some unused space in your home where you can rent out to someone. This is also known as “house hacking” and it can be your way into real estate investing.
For example, if you live in a two bedroom house, you could rent out the second one allowing you to earn some extra money.
This also exposes you to what it takes to manage property such as setting the rent, finding a tenant, and following up on rent payments. Plus, you will have first-hand experience in dealing with any challenges such as repairs or conflicts.
Platforms such as Airbnb and Trip Advisor allow their clients to rent out their space and earn some good money.
Entering into a Partnership
Bringing in partners into real estate investing can be advantageous especially with limited funds. A partner means more capital, minimized risks, and working with someone with better experience in real estate. The partnership can involve two or more investors finding a property to invest in such as residential or commercial units. Income earned can be rental payments or capital gain from sale of property.
Keep in mind that this type of arrangement may not work for everyone as there are downsides such as conflict of interests and disagreements on profit sharing as well as tax rules.
Seller Financing
Seller financing also known as owner financing involves the buyer and seller where the seller is the financier instead of a financial institution. This means the seller and buyer privately come to an agreement on the terms of loan such as interest rates and repayments.
Since the bank is not involved, the seller and buyer are able to come to a quick conclusion. As a buyer, you enjoy flexibility such as the terms of the loan. Overall, it is fitting for someone who cannot access a traditional loan. On the flipside, you may have to pay very high interest rates as they are not regulated like those of the bank.
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Contract Flipping
You can also consider contract flipping to enter the real estate market. Contract flipping is when you sign over a purchase contract to another buyer. How it works is you find a property, sign it into a purchase contract and then flip that contract to a new buyer at a profit. Since you act as the go between of the seller and buyer you don’t have to put your money upfront therefore avoiding loss. However, the con is if your buyer fails to close on the deal, then you make no money.
Final Thoughts
Real estate investing can be lucrative in terms of passive income, consistent cash flow, and a means of diversification. However, it’s important to do it right by research and diligence.
Overall, real estate investing doesn’t have to be out of reach, even for those with limited finances. By exploring avenues like REITs, leasing, house flipping, crowdfunding, renting out space, partnerships, seller financing, and contract flipping, you can gain valuable exposure to the market and create income opportunities. Always keep in mind that each strategy offers unique advantages and potential challenges, so it’s essential to research and choose the best fit for your financial situation and goals
