Real Estate Investing Basics

5 Ways to Start Investing in Real Estate With Just $5,000

Expertise: Commercial Real Estate, Personal Finance, Real Estate Marketing, Business Management, Landlording & Rental Properties, Real Estate Investing Basics, Personal Development, Real Estate News & Commentary, Mortgages & Creative Financing
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How can I get started in real estate with only $5,000?

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Hands down, the biggest challenge facing 99 percent of aspiring real estate investors is limited capital. Even when they do have some savings or investment capital, they are often cautious about putting it all in to a single property, at least until they better know the ropes. Yet everyone has to start somewhere. So “no money down” promises aside, what options are there?

5 Ways to Start Investing in Real Estate With Just $5,000

1. Wholesaling Houses

Wholesaling houses is commonly promoted as the way to get into real estate with no cash, no credit, and no experience. It’s possible. It can even be incredibly profitable. This can refer to both flipping real estate contracts and wholesaling houses with rapid closings using transactional funding. In reality, there are costs. They may be small, but they are there. There are educational costs, operational costs of just being out there doing business, earnest money deposits, and drumming up a buyers list. This can be achieved with $5,000 or less out of pocket, but it does require a hungry hustler who isn’t afraid to get out there on the frontline and put in the time.

wholesaling-market

Related: 3 Ways to Invest in Real Estate With Little to No Credit

2. Lease Options

Lease options can be an appealing choice for those who don’t have the credit to go get a mortgage loan from the bank. It offers the ability to control property with little upfront money and the choice to purchase it later at a predetermined price. The downside can be having to carry holding costs each month and putting up “option money” for the privilege of the choice to buy later.

If you don’t buy, that money is lost. It is also essential to conduct deep due diligence on the seller-landlord to ensure they have the ability to live up to their end of the bargain. On a low end property, one of these options is completely possible with $5,000 or less. However, if you don’t have a tenant to occupy the property, you must have access to additional cash to cover your rent, utilities, and maintenance each month.

3. Tax Liens

When property owners fail to pay their taxes on time, a lien is created against the home. This is a debt that accrues interest and must be paid off when the property is refinanced or sold. Some investors have found bidding on these tax liens at local auctions a highly profitable investment. However, like other types of real estate auctions, their popularity and fraud often drives up costs up and yields down until they are barely profitable. Tax liens may be snapped up for a few thousand dollars, but if you embrace this strategy and desire consistent returns, it is wise to diversify into a broad pool of liens.

4. Real Estate Stocks

Publicly traded real estate stocks and REITs can appear to be an easy default way for individuals to passively invest in real estate. Just tell your stock broker what you want to buy, let your investment sit, and see how you make out over the years. This can be very convenient, especially for busy professionals who just wants to focus on their current careers and hobbies. The downside is mainly the size of these entities, and multiple layers of costs and fees that ultimately net investors very lean yields.

Then there is the massive risk of lack of diversification from other types of stock investments. Public stocks are highly volatile. That can be good, and it can be terrible (especially during downturn). Savvy investors typically separate their real estate investments so that they perform independently of the rest of their portfolios. It’s possible to get started this way with just a few hundred dollars. Just don’t invest more than you can lose or expect the big lump sum gains that come from direct investment.

5. Private REITs & Real Estate Partnerships

There are also hybrid solutions that blend the ease and passive income perks of a stock with the financial advantages of directly investing into income producing rentals, flipping houses, and debt investing. These include various private partnership structures, which are increasingly becoming augmented by technology. These vehicles enable both new and sophisticated investors to put their money to work, while leveraging the time, energy, and expertise of full-time industry pros. They do all the hard work, and you get paid based on your percentage of participation.

tax-savings

Related: The Power of Private Financing: 3 No Money Down Strategies That Actually Work

A few organizers may allow investors to get in with between $1,000 and $10,000. Others have much higher minimums and require rigorous screening. The key to success here is looking for a solid management team/operator with a proven track record and great transparency on financial activity, access to funds, and underlying assets.

Summary

Getting off to a safe and profitable start in real estate doesn’t have to require a lot of capital. This doesn’t have to mean pounding the pavement and haggling with sellers for dirt cheap deals on ugly houses, either. Review these options, choose those that best meet your lifestyle and goals, investigate them further, and get going!

[Editor’s Note: We are republishing this post to help out our newer readers.]

Investors: Anything you’d add to this list? Which of these methods do you prefer?

Let me know with a comment!

With just under a decade of experience in the real estate industry, Sterling currently manages over $10MM in capital, which is deployed across a $26MM real estate portfolio made up of multifamily apartments and single-family homes. Through the company he co-founded, Holdfolio, he owns just under 400 units. Sterling was featured on the BiggerPockets Podcast and has been contributing content to BiggerPockets since 2014, with over 200 posts on topics ranging from single-family investing and apartment investing to wholesaling and scaling a business.

    Nancy
    Replied over 3 years ago
    Hello Sterling, Your article touches on many good opportunities for newbie to get started in real estate investment. Keep up the good advice. Nancy
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thank you for the kind words Nancy. Which point stood out to you the most?
    Theresa Njoku
    Replied about 2 years ago
    Please how can a newbie start. Also how can one find partners or mentors. Thanks
    Theresa Njoku
    Replied about 2 years ago
    Please how can a newbie start. Also how can one find partners or mentors. Thanks
    Kenisha Forbes Professional from Ellenwood, Georgia
    Replied over 3 years ago
    That was a very good article. Where can I get more information about lease options?
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thank you for the kind words. What type of information are you looking for on lease options?
    Alana Shields from Orlando, Florida
    Replied over 2 years ago
    @kenishaforbes @sterlingwhite I am interested in lease options…can you give more info on it for me as well?
    Shawn Crawley Wholesaler from Roanoke, Virginia
    Replied over 3 years ago
    I’m a new wholesaler I my first direct mail campaign in Febuary so this definitely resonated with me
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Glad you found it valuable. What market are you operating in for your mailers?
    Shanel Wiggins Real Estate Agent from Mount Vernon, New York
    Replied over 3 years ago
    Hi Sterling, Where do you find people who will partner with you with just $1,000 – $10,000 to get in?
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    There are real estate platforms out there that allow for people to invest alongside others for as little as $1,000. I would look into real estate crowdfunding.
    Shanel Wiggins Real Estate Agent from Mount Vernon, New York
    Replied over 3 years ago
    Thanks!
    Grace Patricia Ordonez
    Replied over 3 years ago
    Hi Sterling! Thank you for the tips. How do i find a good crowdfunding company to partner wirh as i start investing in real estate with limited capital. I’m in the CA and NV area, which strategy is best to start with?
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Great question Grace it comes down to what you are looking for. Are you looking for a short term or long term type of investment? Do you invest more for cash flow or appreciation? Once you figure out more of what you are looking to achieve that will help in finding a company. Hope that helps
    Cody Barrett
    Replied over 3 years ago
    I always enjoy your articles! What is your favorite book when it comes to learning about how to analyze multi unit properties and the markets they sit in? The ABCs of Real Estate Investing is the current book I am reading. Thanks Serling!!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Cody thank you for the comment. I personally have not found a good book on multi-family properties. I do listen to Grant Cardone when he speaks on multi-family investing. Hope that helps.
    Cody Barrett
    Replied over 3 years ago
    I always enjoy your articles! What is your favorite book when it comes to learning about how to analyze multi unit properties and the markets they sit in? The ABCs of Real Estate Investing is the current book I am reading. Thanks Serling!!
    Tangala Williams from Tampa, Florida
    Replied over 3 years ago
    Great Article Sterling. I’m still educating myself. But I think I a candidate for Wholesaling.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Thank you for the kind words Tangala. I wish you the best of luck in your venture into wholesaling if you decide to go that route!
    Ryan Beasley
    Replied over 3 years ago
    Hi Sterling, I’m in the process of saving up money to purchase my first rental property when I graduate college. However, I’m looking for a solid investment to put my savings in at the current moment. I see you mentioned real estate crowdfunding platforms and I was looking into either those are REITs. Which platform would you recommend? I checked out fundrise and it seems to be the only one that has a eREIT that I can invest in. All the other platforms require you to be an accredited investor to participate in any of their investments.
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied over 3 years ago
    Great question Ryan, 1) It comes down to what you are personally looking to achieve & that will help with choosing a platform to invest with. There’re other platforms that allow for non-accredited investors you simply have to further dig. Have you been active on the forums, Ryan?
    Kevin Fox
    Replied over 3 years ago
    $5K certainly won’t get you very far in SD, so the methods you mentioned are certainly possibilities for those looking to get involved in REI but lack substantial capital. Another great option is bird dogging for more established investors/agents. That $5k can make for a great beginning advertising budget.
    Jean Lee from Stroudsburg, Pennsylvania
    Replied almost 3 years ago
    I started in real estate with only 3.5k! I knew the only way I would land my first home was an owners occupied loan. My bank offered 3% down and covered most closing costs. I bought a 55K house and asked the seller to contribute 3% sellers assist. I paid $400 for the inspection and the rest for the down payment/escrow. I’m moving in next week and will have my friend live in the second bedroom for $400 a month, while the mortgage is only $650. This will allow me to save up for the next two years, where I plan on buying a triplex or duplex in my girlfriends name. I only make $33000k a year so my debt to income ratios are terrible due to my car and home loan. We plan on living in the multi-family, renting out the units and the first home I purchased.
    Danielle Yerezian Professional from Los Angeles, California
    Replied over 2 years ago
    Hi Sterling, Fantastic post! Thanks for this insight. Regarding Private REITs and RE Partnerships, would you say these are generally more aggressive and can yield higher or quicker returns (than say public real estate stocks) or not necessarily? Would you recommend only investing in a market the you know something about? I.e.: I understand an important factor would be to make sure that the platform you’re using is legitimate, transparent, and well-run, but, for example if their main market is a part of the country you know nothing about, do you see this as a potential concern necessarily?
    Ali Shan afzal
    Replied about 2 years ago
    Too often people think you need to be rich to invest in real estate. Great job laying out some of the best low cost options!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied about 2 years ago
    You’re welcome!
    Jackie Sampson from Holyoke, Massachusetts
    Replied about 2 years ago
    Good Afternoon, looking for suggestions on the best options for a single parent to start in real estate. Only funds I have to invest would be funds in my 401K and also considering looking into seeing what equity I have in my own in which I live that I purchased a few years ago. I really would like to purchasing rental properties. Any suggestions would be appreciated as I am very new to this and have been watching videos on Bigger Pockets and other investors channels through YouTube for about a year now and really would like to have a plan in place for the 1st of the new year!
    Sterling White Rental Property Investor from Indianapolis, IN
    Replied about 2 years ago
    Were you looking for options outside of the ones mentioned in the above article, Jackie? I believe those are a good starting point.
    Remrie Arrie from Chagrin Falls, OH
    Replied over 1 year ago
    My suggestion: keep your money in your pocket until you really know what you are getting into, and can write down pros and cons, as well as rough but accurate financial statements to reflect the performance, and you can look at that sheet of paper and say “I like this deal. It’s worth it” There are lots of things that are easy to invest in for a lot of reasons. I look for deal that are too good not to invest in them, but they aren’t easy to get. They take luck, skills, and calculated risks. Consider 401k conversions, Possibly a loan against the 401k or various types of equity loans/credit (card)/refinance/etc. Look into different types of investments (active or passive). 1. Active means you work for your money 2. Passive means you don’t. 3. Other: may include both to one extent or another. Consider your skill sets and willingness to learn information vs practical skills Be extremely wary of bootcamps and other educational courses and such. The cost of those programs an experienced investor can make a lot of money. Most information is out there, free, just try to find it. Wikipedia and Investopedia are your friends, get to know them. Montlyfool.com and Bigger Pockets are awesome in a lot of regards. Talk to as many people as you can, ignore their criticism, be wary of their sure fire ways to make money, and get as much information and resources as you can for as cheap as you can, but don’t be cheap when it comes time to pony up to something you are serious about. Don’t be afraid to 1099 investments before you can get good lawyers to create LLCs and such for you. Anything on legalzoom a good attorney can cut right through. They are good for formalities and tax purposes, but won’t offer much protection from liability.
    Remrie Arrie from Chagrin Falls, OH
    Replied over 1 year ago
    I would add it’s worth attempting to make an FHA home purchase if someone is a renter. I made a point to look for a house worth $10k per bedroom for various reasons, ideally not a completely destroyed home. It took two years, thousands of listings, found hundreds of viable options, half of them needed renovations, half of them not. And I found about 10 properties that were worth putting offers on. Specifically I loosely followed a rule to look at 100 listings, make offers on 10, probably only 3 would be accepted, with 1 being the best of the 3. Dolf De Roos writes about stuff like that with commercial real estate and others. The one got didn’t look like it fit that $10k per bedroom criteria, until you look at the basement. Very high, very dry, with a door walking out. That is a space I can finish. Turning the house into 3,600 square foot, 7 bedroom, 5 bathroom house I can fill with residents. I like landlording for various reasons, and I cherry pick my tenants, they can show proof of funds and a good track record, but I might still turn them away. The end result is, I got a house that took 9 months and two different purchase agreements for 58k, that is worth $70k factually, technically worth $100k easily without much work put in, and because of technicalities I realistically believe I can make it appraise for $250k. So I have that much meat on the bones to start. And as for the rooms, because rents are so high across the nation, it’s not difficult to make $3,000+/mo renting the 6 spare bedrooms. I actually rent bedrooms for a lot more than the local rates allow because I pick specific tenants, for specific reasons, and I provide those tenants with very specific things that make them want to live here. As I renovate this house, I already have two tenants lined up for two bedrooms I am renovating in the basement, before those rooms are anywhere near completed. The house largely cost me a couple grand out of pocket for the down payment and bribing a landscaper to lay dirt ASAP to make it code compliant, By the time I closed on the property, I got a refund from escrow for my entire down payment. Seller paid the closing costs. Renting the same house in the same neighborhood would cost $800+/mo easy, and I now own it for $550/mo. Cheaper than any one bedroom apartment you can find. And it’s in a nice high end community. So I bought a house for free-ish, pay $550 for PITI + mortgage insurance, I have a lot more lenient banker than I do landlord, I have ownership rights and equity built in. I also have 2 bedrooms off the bat that easily rent for $500/mo, + room for 4 more bedrooms at the same value and other misc perks. Even if I had $5k to throw at a REIT, or private lending pool, etc, I doubt many of those options would have had a $200/mo benefit that owning vs renting would have with equity built in. Some houses I looked at were 2+ units which offered a lot more creativity, but investors snatched those up quick.
    Account Closed from Richardson, Texas
    Replied over 1 year ago
    I am new here and this is the first article I read. Thanks! It can be helpful as I am new in this field. I hope to read more.