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

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How can I get started in real estate with only $5,000?

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?

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

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

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.

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.

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.

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!

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

Let me know with a comment!

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record

19 Comments

  1. Grace Patricia Ordonez on

    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

      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

  2. Cody Barrett

    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!!

  3. Ryan Beasley on

    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

      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?

  4. Kevin Fox

    $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.

  5. Jean Lee

    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.

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