Real estate is one of the few markets that produce millionaires. It has long been a playground for those who want to build wealth and achieve financial freedom. It offers certain advantages that you will not find in other asset classes. And today, these advantages have become available to individuals who do not have massive capital, to begin with.
In a way, it is now possible to invest in real estate online, build real wealth, and even start a property empire with a capital of as low as $100,000.
Why Invest in Real Estate
The biggest benefit that investment in real estate can offer you is that it allows you to own a real, tangible asset with a stable cash flow that will increase with time. This is especially true when you buy a vacation home or a short-term rental, with rental rates rising and property values increasing through appreciation.
Another huge advantage of this type of investment is the tax breaks that you will enjoy as you own and manage the property. You can deduct many of your operating expenses from your taxable gross income when the tax season is due.
Aside from the strong cash flow and tax breaks, investing in real estate will also allow you to diversify your portfolio with lower-risk and higher-return properties.
Which Type of Real Estate You Should Invest in with $100,000
When you read any articles on how to invest $100,000 in real estate, you will find out that the best properties to put your money in with such an amount are holiday homes and short-term rentals.
In a way, these properties can offer perks that you will not find in other asset classes.
- They allow you to generate consistent profit through monthly rents. Income from short-term rentals adds up to become much higher than that of long-term rental contracts.
- They considerably have a lower risk of payment default because rents will be mostly paid upfront.
- They can serve as your holiday home during low seasons.
As you build your wealth through short-term rentals, you can then proceed to grow your business by investing in more properties.
How to Invest $100,000 in Real Estate
When investing in real estate, there are actually several options that you can take. However, for $100,000 as capital, there would be only a few methods to turn your investment into a successful business. Here is how to invest in real estate with little money.
1. Invest all of it in a single property.
$100,000 would be enough to get the opportunity to own an investment property in the US. However, the safest way to invest this amount of capital is to put it all in one single property, like an existing vacation home, short-term rental, or a single-family home that you can rent out afterwards.
With this strategy, you can assure yourself of a stable and passive cash flow that will increase over time, without having to do a lot of hands-on work in managing the property.
Of course, the ROI will be lower than owning multiple properties, but it will let you save a portion of your earnings to eventually purchase another property in the future.
2. Use your capital as a deposit for multiple properties.
Just because you only have little money does not mean you cannot invest in multiple properties. If you are the ambitious type, you can invest in real estate online using your $100,000 as a deposit on different assets. For example, you can have $25,000 as the down payment for each of four rental properties. This will definitely allow you to generate higher earnings than owning just a single property.
However, this strategy would require plenty of management skills and responsibilities, as well as a full-time commitment, to ensure sustainable income. Regardless, you can start off with low-maintenance properties in attractive areas to reduce the stress of keeping up with your investments.
3. Invest through crowdfunding.
Crowdfunding is a new and easy way to invest money in real estate. Basically, it allows you to put your money in a property developer that wants to raise money to build or renovate existing investment properties. On the plus side, this strategy brings a good return potential without much work on your part as an investor.
But like other forms of investments, crowdfunding also has its own set of downsides. For one, crowdfunded real estate deals could have higher risk profiles, requiring you to keep your capital tied up for several years. Also, they could be offered only to accredited investors.
So, you should do your research first if this is the right strategy to take for your situation.
4. Work with real estate investment trusts (REITs).
REITs are real estate investment companies that own, operate, manage, and represent real estate assets. Generally speaking, these companies deal with virtually any type of properties, so you will surely have an option to invest in with your money.
One huge benefit of investing in REITs is that they are passive investments and are diversified, which means you will have a lot of options to choose from and do not have to work hard to receive the returns you are looking for.
5. Become a real estate wholesaler.
This works by searching for distressed properties, putting them under contracts, and assigning these contracts to other investors in exchange for a wholesale fee. However, you should make sure to determine the true market values of these properties and estimate the right amount of repair work to be done, or else you could end up with losses.
6. Fix and flip.
As a property flipper, you close escrow on a property, handle all the necessary repairs, and then sell it for a profit to another buyer or investor. Aside from an adequate amount of money, you will need time and experience to be successful in this venture.
7. Go for turnkey rental properties.
When speaking of turnkey rental properties, these are places that are completely furnished (updated) waiting for new tenants or those which are already leased. As an investor, your better option would be the second one. Rental properties that have tenants in place allow you to start with cash flowing hitherto.
Before you invest in real estate online, there are some important things that you should sort out first.
For one, make sure to pay off as many financial liabilities as possible, especially your revolving debts. You should also set aside money for a contingency fund for the property you invest in. By doing so, you will always have something to take out of your pocket when needed, and you do not have to scramble to your lender to apply for a loan and run up the balance that you have just paid off.
Lastly, you have to decide which type of investor you are going to be. Do you want to be an active or passive investor? Determining which type of property you want to buy will help you in this regard.
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