Want to jump straight to the best real estate investments that cost little to no money? Trade REITs and REIT REITs with eToro, WeBull or Robinhood or you can invest in fractional real estate through Arrived Homes and HoneyBricks!
What do most millionaires have in common?
They invest in real estate.
It can seem daunting to invest in real estate due to high prices, changing markets and complex regulations.
However, technology has leveled the playing field, helping all investors (accredited or not) gain exposure to this proven asset class.
For example, you can use crowdfunding platforms like Arrived Homes to invest directly in real estate projects for as little as $100. You can also start investing in publicly traded real estate investment trusts (REITs) commission-free with brokers like Fidelity or TD Ameritrade.
Below you will discover other ways to invest in real estate with little or no money.
What are the advantages of investing in real estate?
Some of the most common benefits of real estate investing include:
- Have a tangible hedge against inflation
Real estate is a tangible asset that cannot be printed out of thin air. As a result, rents and property values tend to rise at or above inflation.
The average yield of stocks paying dividends is only 2%. The average REIT yields around 5%+, with some even offering double-digit returns.
If you own real estate, you can reduce your taxable income by deducting items such as property taxes, depreciation, and maintenance expenses.
You can also take advantage of these tax deductions if you own real estate shares directly through a crowdfunding platform like Arrived Homes or HoneyBricks.
Real estate investments, especially unlisted or private REITs, are not as sensitive to the vagaries of the general stock market. These asset classes are inversely correlated to equities, meaning they can appreciate while equities depreciate and vice versa, providing diversification.
How has real estate investing changed?
It’s no secret that buying a single property can be daunting due to high prices that have increased dramatically over the past decade. After all, the average home price in the United States was $265,700 in January 2012 and is now $544,000 in 2022.
To add insult to injury, the Federal Reserve has also dramatically raised interest rates to combat record inflation. As a result, the average interest rate on a typical 30-year mortgage is around 7%, down from around 3% just a few years ago.
Higher mortgage rates mean higher mortgage payments for a home at the same price.
On a more positive note, it has become easier to invest in real estate thanks to crowdfunding and fractional real estate platforms. Crowdfunding helps you invest in real estate with little to no money since you can buy fractional shares of a physical property.
You can also easily buy shares of REITs, which are companies that manage different types of real estate. Investing in a REIT is essentially buying a slice of a pile of property and it offers most of the same benefits as traditional real estate.
For example, you can swap Innovative Industrial Properties Inc. (NYSE: IIPR) online and commission-free with TD Ameritrade. You can earn a 6.31% yield with this REIT and gain exposure not only to real estate, but also to the booming legal cannabis market.
What to look for in the best real estate investment platforms
Here are some key factors to look for in every real estate investment or crowdfunding platform:
- Ease of use
Make sure you’re working with a company that has a simple application process, support that’s accessible through different methods, and a modern user interface.
- Accredited vs Unaccredited
Some real estate platforms only want to work with accredited investors if they offer riskier but potentially more profitable investments. Accredited investors must have an annual income of $200,000 per year ($300,000 if married) and/or a liquid net worth of $1 million, excluding their primary residence. Sometimes these platforms allow non-accredited investors to invest in specific projects while limiting access to only accredited investors for other projects.
If you are on a budget, look for real estate platforms that have lower minimums. For example, Arrived Homes has a low minimum investment of just $100.
Often, more sophisticated real estate investments have payout periods that tie up your investment to keep the funds on the platform. This rule might prevent you from cashing out the first year, but would give you a pro-rated investment the longer you stay on the platform. So, you may have to wait 3-5+ years before you can fully withdraw your money.
How to invest in real estate for little or no money
These five strategies have been proven to help investors from all walks of life invest in real estate for little or no money.
Arrived Homes is a popular real estate crowdfunding platform that gives all types of investors exposure to single-family homes for as little as $100. You can invest in these projects with an IRA and earn income through rents and property appreciation.
Since you own a direct share of the property, you will also be able to take advantage of tax deductions such as depreciation and maintenance expenses.
Most offers on this platform have redemption periods of 5-7 years. Only invest funds that you could afford to keep locked up during this time.
Minimum investment of $10
Like Arrived Homes, HoneyBricks is a real estate crowdfunding platform. However, it primarily focuses on commercial properties, not single-family homes (although it does offer some of both).
With HoneyBricks, you would invest in commercial properties using the Polygon cryptonet. This network also improves transaction speeds and reduces costs. This platform has a minimum investment of $1,000 but is only available to accredited US and non-US investors. It is restricted to accredited investors due to the complex regulatory environment in the United States
Accredited investors only
REITs can either invest in properties (equity), mortgages on those properties (debt) or a mixture of the two (hybrid). These REITs may also nestle in shopping malls, self-storage or healthcare.
Some of the key benefits of REITs include diversification, above-average returns, and liquidity.
REITs can be a great introduction to real estate, but some of them, especially some debt REITs, can be particularly interest rate sensitive. Although they have high yields, they are taxed at higher ordinary rates.
Benzinga is compensated if you access certain of the products or services offered by eToro USA LLC and/or eToro USA Securities Inc. The testimonials contained in this communication may not be representative of the experiences of other eToro customers and such testimonials are not no guarantees for the future. performance or success.
Intermediate Traders and Investors
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REIT exchange-traded funds (ETFs) invest in various REITs. An example of a REIT ETF is Vanguard Real Estate Index Fund (NYSEARCA: VNQ). Like REITs, these ETFs offer diversification with lower fees.
For example, VNQ has an expense ratio of just 0.12%, while many actively managed real estate funds charge 1% (or more).
This last option presents a higher barrier to entry than investing in a crowdfunding platform, REIT or REIT ETF. With house hacking, you can buy a duplex or triplex and rent out the extra unit.
When done correctly, this process can significantly lower your housing costs so you can even live rent-free and mortgage-free. House hacking is easier to do in cheaper real estate markets, and you can save as little as 3.5% with an FHA loan.
How to invest in real estate with an IRA
With an IRA, you can invest in real estate with or without tax (Roth). You can open an IRA online in minutes with a partner like Fidelity or TD Ameritrade.
From there, you can trade REITs and REIT ETFs with an IRA, commission-free. It is also recommended to have REITs in an IRA since their returns are taxed at higher ordinary rates.
With a self-directed IRA, you can invest directly in real estate while maintaining various tax benefits. It is possible to use this account to hold your shares of a real estate crowdfunding project or even an entire physical property.
Commission-free transactions valid for 2 years
$600 cash and free exchanges for 60 days
Should you invest in real estate with little or no money?
It can seem more difficult to invest in real estate due to high house prices and high mortgage rates.
It’s much easier to get real estate exposure through real estate crowdfunding platforms like Arrived Homes and HoneyBricks. Investing in real estate with little or no money is even easier by trading REITs or REIT ETFs with a Fidelity or TD Ameritrade IRA.
However you invest in real estate, assess your risk tolerance and time horizon. If investing through a crowdfunding platform, confirm its minimum investment, accessibility to non-accredited investors, ease of use, support systems and repayment periods.
Frequently Asked Questions
Should you invest in real estate with little or no money?
Investing in real estate with a small portfolio through crowdfunding platforms or REITs can be a good idea as they can give you the same benefits as traditional real estate
Can I invest small amounts in real estate?
Yes, investing in real estate with small amounts of money is now easy with crowdfunding platforms and REITs.