One of the questions I get asked most frequently by new entrepreneurs and aspiring real estate investors is “Annetta, how much money do I need to start investing in real estate?”
The short answer? Not a lot.
But of course, it’s slightly more complicated than that, and it’s contingent on the type of real estate you wish to invest in. But don’t worry and get your notebook handy—you know I’m about to break it down!
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What Is Real Estate Investing?
Real estate investing is annually a trillion-dollar industry, making it one of the most popular ways for investors to generate passive income and amass wealth. The good news for people without a large bankroll is that it doesn’t require boatloads of cash to get started.
Investors have long seen real estate as a way to diversify their portfolios and reduce their reliance on traditional stocks and bonds, which are typically influenced by public market fluctuations. Instead, as a tangible asset, real estate’s long-term value is more affected by localized supply and demand, property improvements, and the metro’s shifting demographics.
How Much Money Do You Need To Start?
You can invest as little as $500 in a “fix-and-flip” single-family property or $100,000 in a major office-to-residential rebuild, depending on the project. It all depends on the type of real estate investment you are considering.
Investing in Residential Real Estate
Most people think of residential real estate when they hear the word “real estate.” After all, the majority of us are familiar with the residential real estate market from personal experience, considering that if you’ve ever had a mortgage, you’re technically a real estate investor.
How much capital is required to invest in residential real estate then?
Well, according to HousingWire, the average down payment for a house in the United States is just over $15,000. It’s reasonable to consider rental properties as a worthwhile investment for those who can afford the initial down payment.
The term “flipping houses” is probably also familiar to you. A popular TV show format involves quickly purchasing, renovating, and selling residential properties. Many people, particularly those who enjoy doing things themselves, might find this kind of real estate investing very appealing.
However, flipping properties is not as simple as simply purchasing and selling houses. Additionally, owning a property comes with its own set of worries. Residential real estate investing might not be the best choice for every investor because of the time, effort, and complexity involved.
For an in-depth look at property flipping, check out my low-cost online training course ‘Finding, Fixing, and Flipping Properties’ that’s designed to teach new investors everything the need to know to successfully break into this popular investment strategy.
Residential Real Estate Investments Have Some Limits
1: You own everything.
Only the initial mortgage payment is included in that $15,000 down payment. Even with a tenant, it could be several years before your rental property is paying for itself. You will continue to pay off the remaining mortgage. In addition, you are responsible for the seller’s closing costs, annual property taxes, upkeep costs, repairs, and other costs. You are the only person legally responsible for the property because you are the sole owner.
2: Renovating a house takes a lot of work.
Particularly if you are interested in flipping fixer-upper properties, residential real estate investing can require a lot of hands-on involvement. You will either need to hire a team to do the work or handle the repairs and remodel on your own. If you’re renting the property to tenants, you will need to be available as a landlord or hire a property manager to make sure that the property stays in good condition, that any problems (such as a leaking roof, frozen pipes, or broken appliances) are fixed promptly, and that rent is paid on time.
3: It’s either feast or die.
Your rental property either has a tenant or does not. Until the major renovations are finished, and you actually find a quality tenant, you won’t be able to rent your property out. If your property is not rented each month, you’re simply not making money.
4: It can become a costly endeavor.
For these and other reasons, residential real estate can be a costly and frequently unpredictable investment option. So, while you may not need a lot to get started, you are going to want to have some reserves in addition to your down payment if you’re investing in residential properties.
“The get-rich-quick books and promoters set a trap that many people fall into, which is my biggest real estate mistake. Real estate is presented in these books as a method of passive income in which all one has to do is finance a portfolio of rental properties and wait for the tenants to pay off their mortgages.
The fact of the matter is that renting single-family homes is about as close as you can get to passive income.
The Other Option: Commercial Real Estate
Owning a home is not required to invest in real estate. In point of fact, single-family homes are just one subset of a much larger investment market. Commercial real estate is a popular investment option for many individual investors who can successfully turn real estate into a passive income stream.
How Does Commercial Real Estate Work?
Almost every building that isn’t a duplex or single-family home is considered commercial real estate.
This covers a wide range of commercial investment properties, including:
- Manufacturing facilities
- Medical offices
- Self-storage facilities
- Hotels and lodges
- Senior housing
- Retail offices
- Any type of business office
Investing in Commercial vs. Residential Real Estate
Commercial real estate investments typically consist of hands-off, stable investments, that are unpredictably managed by third parties rather than the homeowner.
Typically, you invest those funds in a property of your choice rather than putting down a mortgage payment. The property could be brand-new or an expansion of an existing structure. The “sponsor,” an individual or business, is in charge of the project and is in charge of both the day-to-day operations and management of the building as well as the investment from beginning to end.
As a result, you become a passive investor in the project and are not responsible for any project management. Monthly rents can provide investors with cash flow and, in the end, a substantial return when the property is sold.
Does Commercial Real Estate Investing Require A Lot Of Money?
Many people are under the impression that investing in commercial real estate is prohibitively expensive, but in 2023 there are tons of options that allow you to dip your toe in the pond without blowing through all your savings.
Using platforms like CrowdStreet, your investment is pooled with that of dozens or even hundreds of other investors, so you’re not the only one financing the project.
Start Investing In Real Estate, Today
I’ve made millions of dollars in the real estate market, and I can show you how it’s done! If you’re ready to start a career as a real estate investor, or you just simply want to learn more, you’re in the right place. I’ve helped countless entrepreneurs find success, and I can help you too.
So, let’s build something together.
Contact someone from my team to get started, today!
…And don’t forget to secure your spot for my FREE + EXCLUSIVE online training course, ‘Teach Me The Digital Products Game‘ and learn the simplest, most cost-effective ways to grow your digital product business in 2023!