How Much Money Do You Need To Invest In Real Estate? – The Madison Leader Gazette
There are many reasons to invest in real estate, from rental income to portfolio diversification. During times of volatility in the stock and bond markets, some investors are turning to hard assets like real estate. Over the past decade, investments in second homes for short term rentals listed on home sharing platforms have grown in popularity. There are several ways to get into real estate investing without a huge cash outlay if you are interested in getting into the real estate market.
The central theses
- A real estate investment trust gives small investors access to the commercial real estate market.
- A real estate investment group offers management services for owners of individual residential units.
- Buying a property to rent out and manage takes more time and money.
- The popularity of home sharing platforms inspired many investors to buy second homes for income.
- It may be possible to buy a home with less than a 20% discount, but that depends on the lender and the seller. If you drop less than 20%, you often run the risk of having to get private mortgage insurance (PMI).
The cheapest option: REITs
The Real Estate Investment Trust (REIT) was founded in the 1960s to allow retail investors to participate in the commercial real estate market and is one of the cheapest and easiest ways to add real estate to a portfolio.
These are securities and are traded on major exchanges like stocks. You invest directly in real estate, either through property purchases or through mortgage investments. Many REITs specialize in a certain type of property or a certain region.
A REIT offers the investor a relatively high dividend and a highly liquid form of investment in real estate. Most real estate investments are not easy or quick to finish. A publicly traded REIT is.
You can also start small with some money. If this is your long-term interest, then you should consider one of the REITs that offer a dividend reinvestment plan (DRIP).
Up the cost ladder: REIGs
For investors who want to own physical real estate instead of company shares, a Real Estate Investment Group (REIG) or a private partnership may be the right choice for you.
The REIG enables a single investor to acquire one or more residential units in a multi-family or condominium building through an operating company. The operating company jointly manages all units and takes care of their marketing. In return, the operating company takes a percentage of the monthly rent.
A REIG is a relatively inexpensive way to enter the real estate market as an investor. It also does the administrative work for you.
Some real estate investment partnerships accept an investment of $ 5,000 to $ 50,000. That’s not enough to buy a unit, but the partnership will pool funds from multiple investors to finance a joint property.
The goal is to find a REIG that offers a monthly cash return on your investment.
You might be looking for a REIT that has an option to reinvest dividends for greater long-term growth.
Invest in rental property
The tried and tested way of investing in real estate is also the most expensive and time-consuming: becoming a landlord. We all know the basic idea. An investor buys a residential or commercial property and rents it to a tenant. The owner is responsible for paying the mortgage, taxes and maintenance costs. Ideally, the rent will cover the cost and potentially provide income or capital growth, or both, over time.
There are tons of costs as the concept of a no proof of income mortgage ran out with the 2007-2008 credit crunch. Depending on the seller and lender, you may need up to a 20% discount (with less, you may need to get personal mortgage insurance), plus closing costs and other fees. If you decide to purchase a fixer upper, you may need to take out a construction or renovation loan to get the property into a rentable condition.
If you own a rental property, be it your own home or an entire apartment building, you should also have a cash reserve for emergency repairs and vacancies.
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