If you’ve been wanting to break into the world of real estate investing but are unsure where to begin, read this guide on how to invest $10K in real estate.
Whether you’re a first-time investor or simply looking to diversify your portfolio, this blog is your ultimate guide to turning your $10K into a real estate venture.
This blog post will unveil three lucrative strategies for beginner real estate investors.
How To Invest $10K In Real Estate
Most people might think investing in real estate with $10,000 is impossible. And this may be true when you think of the traditional route to real estate. But there are some other ways you can explore how to invest $10K in real estate.
Here are 3 ways to invest in real estate.
1. Real Estate Investment Trusts (REITs)
Risk level: Low
REITs are similar to investment funds that allow people to invest in various real estate properties. By pooling money together, investors can benefit from real estate income without owning or handling the properties personally. They are a great way to gain access to high-quality real estate portfolios.
You can find real estate portfolios in multiple industries owned and managed by a professional third-party company.
Real estate stocks qualifying as REITs must adhere to strict regulations to receive certain tax benefits. Specifically, at least 95% of their income must come from real estate or real estate-related securities, such as mortgages. Also, REITs must distribute 90% of their taxable income as dividends, which can provide regular cash flow.
Historically, REITs have outperformed the S&P 500 over the past 20 years, which makes them an attractive long-term investment strategy. Many REITs are publicly traded, and your $10K can yield remarkable returns across a few key stocks.
The real estate property types include many different industries, including:
- Retail
- Industrial
- Office
- Lodging/resorts
- Residential
- Health care
- Self-storage
- Infrastructure
- Datacenter
- Specialty: movie theaters, casinos, farmland, and outdoor advertising sites
- Mortgage: these fund income-generating real estate through mortgages and mortgage-backed securities (MBS), earning interest revenue
Invest For The Long Term
As with stock investments, you should invest in real estate with a long-term mindset. While REITs have delivered impressive returns in recent years, it’s important to understand that not every year will be equally successful. Being able to endure market downturns may lead to long-term success.
Pros of REITs
- Available to any real estate investor
- Earn passive investment returns
- Diversified real estate investment portfolio
- Potential for capital appreciation over time
- High dividend yields compared to other types of investments
Cons of REITs
- Dividends are taxable income and taxed like ordinary income
- REIT share prices can fluctuate depending on the interest rates
- Non-traded REITs may have high upfront fees or sales commissions
2. Rental Arbitrage
Risk level: Low to medium
A great way to invest your $10K is through rental arbitrage. Essentially, you will rent out a house or flat to use as a short rental home. So, you will earn money through the difference between the long-term rental rate and its potential in the short-term rental market.
To start rental arbitrage, you don’t need a high capital, making this a great opportunity for beginner real estate investors. Instead of buying real estate for the purpose of short-term rental, the upfront cost required for a rental arbitrage would be much less. You will typically need to budget for a security deposit, the first month’s rent, and furniture if it’s an unfurnished property.
This is why rental arbitrage is more accessible for beginner real estate investors.
But before renting out a property, you should ensure that the local governing body allows short-term rental. Also, the landlord needs to agree for the tenant to sublease the property.
Pros of Rental Arbitrage
- Highly lucrative and has the potential for high cash flow
- You have cash flow without home ownership
- No need for high capital
Cons of Rental Arbitrage
- It can be very hard to find a landlord to agree to sublease
- Unable to own the property
- No tax benefits
- Since you don’t own the property, the landlord may sell the property, and you’ll have to find a new rental property
- There may be certain regulations that might hinder the short-rental property
3. Crowdfunding
Risk level: Medium
Essentially, crowdfunding is when you add your money with other real estate investors. It’s similar to peer-to-peer lending. You can invest just $500 to buy a property with other people and reap the rewards, like income and appreciation.
You can use a real estate crowdfunding platform and choose a project to invest in. Alternatively, you can also choose to diversify your $10K in multiple projects at the same time. To liquidate your investments, you can either sell your shares to other investors or wait until the property sells.
There are online platforms you can use for crowdfunding, such as:
- RealtyMogul: they offer one of the biggest selections of online real estate, such as residential, commercial, and mixed-use buildings. The platform doesn’t charge any investor fees, making it an attractive option.
- Fundrise: they also offer a mix of commercial and residential real estate. You can start your real estate investment journey with as little as $500. It’s also open to any investor, irrespective of their net worth. This makes Fundrise an appealing choice. It also sets them apart from the competition and adds to their appeal within the industry.
Pros Of Crowdfunding
- You can begin investing with a small sum of money
- Accessible to individuals with small capital
- Passive investment as it requires no time commitment for property management
Cons Of Crowdfunding
- Typically lower returns than direct property ownership
- It cannot be easily sold for cash, so crowdfunding is usually considered an illiquid investment
- No control over your investment as the development of the property is managed by someone else
Summary
In conclusion, your real estate investing journey can begin with as little as $500. It doesn’t have to be reserved for those with large capital. With $10,000, you can leverage your capital in multiple ways to break into the real estate market.
This blog post explored three lucrative strategies tailored to beginner investors: Real Estate Investment Trusts (REITs), rental arbitrage, and crowdfunding.
By investing in REITs, you can enjoy passive income and diversify your portfolio across various real estate sectors.
Rental arbitrage offers a low-cost opportunity to generate cash flow by renting properties for short-term rentals.
Finally, crowdfunding allows you to pool your money with others and invest in real estate projects, even with a small capital. Each strategy comes with its own pros and cons, so choose the one that best aligns with your goals and risk tolerance.
Asma is a freelance writer specialising in finance and business niche topics. Her experiences include working at one of the world’s oldest and largest asset management firms.
Apart from writing, Asma also enjoys reading about finance, business, and entrepreneurship.
