There are always challenges that you will face when you set goals and work to achieve more for yourself. One of the biggest challenges of up-and-coming real estate investors is “lack” of capital. Money in the bank is a hurdle that 99 percent of newbie investors have to jump. Even when new investors have the capital, many are worried about going "all-in" on a single property until they know how things work better. How can someone get started in real estate with only $5,000 to invest? Well, you need to start somewhere. So, besides the, “no money down” promises, what other ways could you break into real estate investing? It’s possible. Trust me. I got into real estate with a negative balance in the bank, so if I can make work, you can too. I’ll share some insight that will hopefully help you in your quest as a real estate investor.
The way to get into real estate without cash, no credit, and no experience is “wholesaling houses.” Wholesaling does work, and you can actually make a lot of money. Wholesaling is similar to flipping, except that the time frame is much shorter, and generally no repairs are done prior to selling it. The general process of wholesaling is that a "wholesaler" contracts with the seller, markets the home to his or her potential buyers, and then assigns the contract to the buyer. The thing is about wholesaling, there are costs— although marginal— expenses still exists. You can expect there to be educational costs, operational costs, or have to fork out money for marketing, deposits, or getting a buyer’s list. You can achieve success with this for $5,000, but be sure you are the person who doesn’t mind getting on the frontline and putting in your time.
Lease options appeal to those who lack the credit to get a loan from the bank for a mortgage. Leasing grants the opportunity to obtain a property with a very small amount of upfront money, as well as the option to purchase at a later date (for a predetermined price). There are downsides, though. You will have to carry holding costs every month and throw in “option money” for the chance to buy later. If you choose not to buy eventually, that money is lost. Make sure you take the time to do your research on the seller, and make sure he or she can hold up their end of the deal. On a low-end property, buying a leasing option is completely possible for $5,000, or less. However, if you do not already have a tenant lined up to rent the property, have additional cash available to cover utilities, maintenance, and rent each month.
Liens are created against a home when owners of the property are negligent in paying taxes on time. The debt accrues interest and must be paid in full when the property is refinanced or sells. There are investors who bid on these tax liens at auctions and find that incredibly profitable— especially if the homeowner defaults, and they get the property. Take note though, the popularity of these auctions and the chance of fraud will often skyrocket the costs and drive the yields down until the profit margin is miniscule. It’s true that tax liens can be picked up for under $5,000, but an investor must accept the uncertainty, inconsistent returns, and diversify for protection.
Real Estate Stocks
A default strategy to passively invest in real estate is to put money into publicly traded real estate stocks and REITs (which I do not consider actually investing in real estate). Simply tell your stock broker what you are looking to buy, allow your investment time to “sit,” and watch the returns over the upcoming years. This investment option is a very viable way for busy professionals who want to focus on their careers and hobbies to make some cash on the side. The con to real estate stocks is the size, cost, and fees that can result in slim profits. The big risk lies in lack of control. Public stocks are subject to extreme changes. That can be great if things are on an upswing, and it can end up terrible if there is a downturn. Investors who have been in the game for awhile usually separate their investments, so that the can perform independently. You can get start investing like this with just a few hundred dollars. Remember to stay away from investing more than you can lose or expect big lump sum gains. Those type of wins come out of direct investing.
Real Estate Partnerships
You can blend investment strategies by investing in rentals, flipping houses, and debt investing. You can by using private real estate partnerships. When you partner up, there is someone else doing all the day to day, and you will still get paid based on the percentage of your capital contribution. Some organizers will allow investors to get involved by putting up $1k-$10k. Others will have much higher minimums and a very tough screening process. The key to success with this is to find a management group that has a solid track record. Make sure they have financial stability, offer transparency, good access to funds, and a foundation of assets.
To get started in real estate, you don’t need a lot of capital. You don’t have to hustle or haggle, or hit the pavement daily to get dirt cheap deals or obtain ugly houses. You will need to work hard, but remember, you always have options. Don’t let your funds limit you. Start thinking smart and come up with solutions!