Investing in Real Estate With Limited Funds

If you’re concerned you can’t invest in real estate until you have tens (or even hundreds) of thousands of dollars under your belt, you might want to think again.

Many people mistakenly believe that they can’t get into the real estate market until they’re already wealthy. This is what we in the biz call a “limiting belief.” If you stay stuck in this mindset, you just might miss out on some great opportunities to leverage your current earnings and build a stronger investment portfolio for the future.

We’ve put together some ways to make investing in real estate possible, even if you’re in the preliminary stages of building your income or growing your nest egg.

 Real Estate Funds

Real estate investment funds and REITs both pool funds from investors to make real estate purchases. Their funding models provide greater flexibility and access to better deals than the traditional investing path of purchasing a single property on your own.

Real estate funds generally invest in real estate–focused securities. Closely mirroring traditional mutual funds, they are more diversified across sectors. Their structure prioritizes capital appreciation over short-term dividends, aligning best with long-term investment strategies.

If you’re just planning to dip a toe into the market, real estate securities are often a good place to start. You can research the stock market and find real estate holding companies that align with your investment philosophy and end goals. Say you’re drawn to the multifamily market. You can buy shares of a nationwide residential conglomerate. Or if you’ve read about up-and-coming opportunities in manufactured housing communities, seek out companies that specialize in manufactured or prefab homes.

Here, you have the opportunity to learn more about the real estate industry by watching the market’s ups and downs, so when you’re ready to make a bigger investment, you’ll have greater confidence and a sharper investment philosophy.

(Note: private equity real estate funds and syndications are not secured by the SEC, and therefore are limited to accredited investors who typically have a net worth of $1 million dollars. For the purposes of this article, we’re only speaking to publicly traded funds.)

REITs

REITs (rhymes with suites) can be very attractive to investors because they provide the financial flexibility to invest as much or as little as you can afford and typically guarantee a solid return. Publicly traded REITs are traded like stocks and ETFs, and shares can be purchased using a standard brokerage account.

They also offer high liquidity, whereas traditional real estate has a typical time horizon of 5-10 years to see a significant return on capital. All in all, the buying and selling process of REIT shares is a relatively passive endeavor and a low investment of your time. And because funds are aggregated to make and manage substantial purchases, individual investors can earn solid dividends relative to their investment, which can start as low as $10.

 Real Estate Partnerships

Another entry point into real estate is by joining forces with someone else. If you can’t afford to purchase a property yourself, you can often make your money go farther by partnering with a trusted friend, family member, or colleague on your first property.

When you create this type of partnership, you can cast a wider net to find attractive properties. If you decide to take this approach, it’s important to note that this is an active investment. If your main goal is to grow passive income streams, you may want to seek out a private equity investment sponsor once you’ve built up your net worth through your first property (or first couple of properties).

If you take the partnership approach, we can’t stress this enough: get everything (including the exit strategy) in official writing upfront. This is not only absolutely necessary to protect your finances, it will preserve your relationship should the investment hit any road bumps or the market takes a downturn.

FHA and USDA Loans

Depending on the market you want to invest in, you may also be able to qualify for a specialized loan with little to no money down. FHA and USDA loans are subsidized by the government, so there are specific guidelines around which types of properties can be purchased and how you can use the money. Also, in competitive housing markets, sellers typically prefer buyers with a traditional loan or cash offer.

While you may have to jump through additional hoops—and it may take longer to find the ideal property—these loans do make it possible for those who can’t afford a 20% down payment. An FHA loan could be an option if you want to, for example, purchase a duplex where you live in one unit and rent out the other to help pay for the mortgage. USDA loans were designed to bolster rural communities, so there’s potential to purchase a property near a market that’s rapidly growing outward.

The wealth-building journey looks different for every investor, but with the correct strategies, smart planning, and elevated mindset, you are fully capable of taking the first step into this lucrative industry. As always, we’re here to help you along the way.