How to Invest in Real Estate on A Tight Budget
Image Source: Karolina Grabowska
It’s common knowledge that real estate investing is reserved for the ultra-rich – or maybe not.
What if I told you there are novel ways smart investors are entering into the real estate market on a tiny budget, and you could invest, too? So tiny it probably costs a fraction of the price of your car. The keyword is real estate investing.
To ensure we’re on the same page, you don’t necessarily need to buy a property to be a real estate investor. Now that’s out of the way, here are some of the best budget-friendly ways to become a real estate investor today.
How to Invest in Real Estate on A Tight Budget
Fractional real estate investment
Aside from real estate properties being too expensive, one of the biggest issues with investing in real estate is the asset’s illiquid nature. Unlike stocks that you can practically buy and sell at any time, it usually takes an average of 30 days (minimum) to complete the purchase of a real estate property. This is changing – enter real estate tokenization.
What makes real estate tokenization even better is that you don’t have to spend a ton of money to become a real estate investor: thereby making it easy for anyone to enter the real estate market – many thanks to the power of blockchain technology. With blockchain technology and tokenization, real estate investors can now own portions of high-value properties, rather than the whole property – we call this fractional real estate investing. Still sounds Latin, right?
For context, let’s say a property costs $10 million: only very few people can afford to cough up such an amount. This is also bad for the property developer because they’ll have to wait longer to get a buyer. With real estate tokenization and blockchain technology, the seller can split the price of the property into fractions virtually anyone can buy. So instead of outrightly paying $10 million, you can own a fraction of the property for $1000. Plus you can buy as many portions as you can afford. When you invest in this asset, you’ll get tokens that act as certificates of your ownership. With this, you can earn rent when tenants pay rent on the property. And unlike traditional real estate investing, tokenization solves the illiquidity problem, allowing you to sell your tokens within minutes at any time.
This is a win-win for both the buyer and developer as the latter quickly frees up funds to embark on other projects while you own a piece of asset that you’d have had difficulty paying full price for.
At RedSwan CRE, we’re making commercial real estate investing affordable to everyone. These are highly valuable and profitable properties that were only available to institutional investors. On our marketplace, you can find some of the most valuable commercial properties across the country. Plus you can diversify your portfolio and invest in as many properties as you like.
- Own a fraction of a commercial real estate property for a fraction of the cost
- Invest in one property or a portfolio of properties
- Earn rental yields and sell your tokens for profit whenever you like
- Easy to start
- Little education about fractional real estate investing
House flipping may be for you if you’re very hands-on and have a lot of experience as a handyman. In most cases, it entails buying an undervalued or old property and repairing it for resale to turn a profit, usually within 6 months. Most times, property flippers aren’t looking to rent out the property as they can’t keep up with paying the mortgage on the house. This makes it a viable option for real estate investors on a budget.
While this may be for more experienced real estate investors knowledgeable in real estate valuation, renovation, and marketing, this is a good way for beginners with design or handyman skills to flip houses and make decent profits. But you must ensure the property has the intrinsic value to make a profit for you.
While this is a short-term investment, there are longer-term investments where you can buy a reasonably-priced property and renovate it. You can then rent it out – the downside is that you can’t usually have many houses in your portfolio as most of your funds are tied up.
- Short-term investment with the possibility of massive returns
- Quick return on investment
- May not be the best option for beginner real estate investors
- The hot, trending property market may cool
- If not properly researched or evaluated, you may lose money refurbishing the house
Peer to peer lending
Peer-to-peer lending is an easy strategy for beginner property investors to invest in real estate on a tight budget. It involves investing your funds with a developer or company involved in property development in the short term via an online real estate platform. You’re practically acting as a mortgage provider.
One of the perks of this investment strategy is that the developer can have access to funds without getting loans from banks with higher interest rates. This makes it easier to generate better returns for themselves and you as the investor.
The major issue is that your loan is unsecured, so the developer may default on payment. However, it’s secured against the property or the business’s assets, so you’ll get back your funds upon the sale of the property – this is a good safety net. Regardless, do your due diligence on the developer or company.
- Earn larger interest on your investment
- No property maintenance hassle – from the construction to the marketing, get everything done for you
- Invest what you can afford
- Your loans are unsecured, so there may be delays in payment
Does investing in real estate with no money sound strange? Well, enter the fascinating world of joint ventures.
With no money, you can still own a stake in some real estate properties. Here, two or more parties – one usually with deep pockets, and the other, with some valuable knowledge or skill of some sort in the property business – partner to invest in real estate.
If you’ve got experience in marketing and selling property or access to key growth markets, you can partner with a property investor who’s looking to grow their portfolio. This is a good starting point for beginners, but remember, you must offer something of great value to the other party like experience.
- Great for beginners without capital for real estate investing
- Earn while you learn
- Leverage someone else’s money
- Must have experience in marketing, designing, or accessing properties in key growth markets
- Finding a partner may not be easy
Property crowdfunding, not to be confused with peer-to-peer lending, is when a group of property investors pools their funds to invest in bigger property deals and share in its equity. Unlike peer-to-peer lending, property crowdfunding, most times, is a long-term investment strategy and generates higher returns.
Nonetheless, this is a good way to invest in real estate on a budget as you won’t have to finance the whole property development. You and the rest of the group can either choose to sell the property after its completion with each investor receiving their share of the sale or rent the property and earn rental income.
- Invest in real estate without financing whole projects
- Earn rent in the short term or get a share of the property’s equity from its sale
- This may require larger capital than many of the other methods
Buy Real estate investment trusts (REITs)
REITs are one of the most popular options for real estate investors to get into the property market on tight budgets.
Instead of owning a property and figuring out what to do with it, why don’t you just invest in a real estate company and have them do all the work? That’s what a REIT is for. REITs are companies where investors can put their money which is then used to buy and run income-generating properties. REITs are traded on exchanges, so investors buy them like stocks.
The good thing is that these companies (trusts) mostly buy valuable commercial properties that most investors can’t purchase on their own, making it a good way to diversify your portfolio in high-value real estate. Second, you can expect good income as REITs earn money from rental income without paying capital gains tax or corporate tax. Plus they’re required to pay 90% of their profits to shareholders – how awesome!
Third, the assets are liquid, so you can easily buy and sell your shares without relying on a real estate agent or being bothered about the hassles of title transfer. And you can invest small amounts of money, too.
- Invest with little amounts of money rather than buying a physical property
- Earn dividend on your investment
- The assets are long-term, cash-producing leases
- Traditional real estate leverage doesn’t apply
Invest in properties in other cities or abroad
If you’re living in an expensive city, it can be expensive to buy a property there: in this case, you may want to consider buying property in less-expensive cities or abroad. This way, you can let it to renters while having a holiday home. Plus you can sell at any time and recoup your funds.
- Become a property owner without spending too much
- Earn rental income while keeping a holiday home
- Requires a substantial amount of upfront capital
- You may have to pay the mortgage during months there are no tenants
Buy your own home
You’re helping pay someone else’s mortgage when you’re living in their house. But when you buy your own home, you’re building equity. There are low down payment options you can access. And if you’re looking to raise some money to offset your mortgage, you can take in a lodger or rent a room on AirBnB. Keep in mind that when you rent out a room, you’ll be opening your house to a stranger. Also, your lodger may not pay their rent at the stipulated time.
- Build equity
- Become a homeowner and earn rental income either from renting out to lodgers or on AirBnB
- Requires a substantial amount of upfront capital
Property lease agreement
This is another budget-friendly real estate investment strategy where you can rent out a property without owning it.
It involves you and the homeowner agreeing on a certain monthly payment for a period of time until which you decide to purchase the house. The initial investment is so little that it may just be legal fees and the amount the homeowner needs to cover costs. And should the property value increase above the agreed purchase price, you’ve already gained equity.
The drawback is that finding a property owner interested in a property lease agreement is difficult. You may need to place ads to target divorcees, relocators, or other people who may be interested in moving out of their homes. Or you could search for houses in places with high negative equity.
- Own a property for a certain period without any substantial payment
- Earn rental income
- A tendency for the value of the house to increase after the agreement
- Finding interested homeowners is difficult
Buying a new build to sell on
Buying a new build-off plan can be risky, but it’s still a profitable property investment strategy. It involves buying a piece of property while it’s being built. The good thing is that you can make a profit from it even before its completion: that’s if the value increases before the building is completed. You could also increase the value by adding more aesthetics to make it look lusher.
On the flip side, you may not like the completed building as it may not meet your expectations. Second, the area may not be a destination of choice for many people willing to pay your asking price, and you may be left paying a mortgage on a property you can’t even use.
- A tendency for the value of the house to increase after its completion
- Make a profit by selling the house after its completion rather than building from scratch
- The completed building may not meet your expectations
- Finding a buyer or renter may be difficult
As you can see, there are several ways you can become a real estate investor without owning and managing properties. However, your little investment can build equity for you and earn rental yields for you. And one of the best ways to invest in real estate on a tight budget is by investing in tokenized real estate.
You can sign up on our marketplace for a free account and begin investing in some of the choicest real estate properties in the USA and Nigeria at affordable prices. If you’re a developer, you can also submit your property to raise equity from investors.