Real estate. Over the last few years, it has been a hot industry to get involved in.
In the United States, the average price of a home is $428,700. That has increased by 30% compared to two years ago.
If you are someone that has seen this price increase, you may be considering investing in real estate. But, how much do you need to invest in real estate?
The answer may not be as much as you think. Read this guide to get a better idea of if you have the capital to invest right now.
Real Estate Investment Trust
The first option you have when it comes to real estate is to set up a real estate investment trust. Why do this option?
Because it is one of the most affordable ways to break into the real estate market. However, something that you should know about this option is that you do not own the real estate outright.
Instead, your money is pooled together with a pool of shareholders. The goal here is to have about 100 shareholders after the first year, otherwise, the company that controls it cannot qualify as a real estate investment trust.
The thing that you have to remember with this is that it is publicly traded. That means that the asset is going to be considered a liquid asset, unlike traditional real estate.
So, how much does it cost to go this route? If you have the right trust, it can be as little as $1,000.
Of course, this depends on how many people are investing in the trust and how expensive the real estate that you are trying to get involved with is. Truthfully, this can go up to $25,000.
Still, if you are trying to get started in real estate investments, this is likely going to be the path that involves the least financial commitment.
Real Estate Investment Groups
This is typically the next financial tier of real estate investing. It works a little bit differently than trusts because you are not just trading stock here.
Instead, this type of group actually owns the real estate that they are investing in. This means that the group is likely to buy a few apartment buildings or a few houses in an up-and-coming neighborhood.
What this option can do for you is allow you to team up with other real estate investors to invest in multiple properties. It can also allow you to team up with them to put less financial burden on yourself.
The reason for this is with this option, you are owning the real estate with a group of people. That means you are only responsible for a certain percentage of the costs.
Let’s say that buying three houses is going to cost $500,000. However, there are 50 people that are part of this real estate investment group. In that situation, each investor would only be responsible for putting up $10,000 each.
This option can also be good for those that are not looking to get too much skin in the game but want a higher reward than a trust may be able to give them.
You just need to make sure that you have the money to go this route and also have the money to cover any unexpected financial costs. So, go over what these costs are carefully, along with how many people are in this investment group and what your financial limit is.
Buying Your Own Property
Next, you could decide just to buy property by yourself and see how it goes. If you do not have the money to buy it upfront, you could go the financing route and hope to get money out of that property sooner rather than later.
Depending on your personal status and your credit score, you may be able to secure a mortgage with very little money down. For example, FHA loans tend to be some of the more lenient mortgage loans out there when it comes to down payment requirements.
That is because this type of loan only requires a 3.5% down payment. What this means is that if you wanted to buy a property for $200,000, you would only be expected to pay $7,000 upfront as a down payment.
However, if you are going to go this route, do not fall into the trap of thinking this is free money. You still have to sell this property for more than it is worth or make sure you have enough rental money coming in if you plan to rent it out long-term.
This is the option that is going to give you the highest potential reward because with this, you are keeping 100% of the profit. Since you do not have to share any of this with a group, you reap all of the benefits.
However, the obvious contrast here is that you also expose yourself to all of the risks. So, if there is an issue with the renovation or the land itself, you could be in a lot more trouble.
How Much Do You Need to Invest in Real Estate?
So, how much do you need to invest in real estate? The answer really depends on how much financial risk you are willing to take on.
You could need $5,000-10,000 if you want to do it yourself. However, you may only need as little as $1,000 if you want to get involved with a trust.
Do you need help with an investing strategy? Message us with your questions today.