How to Invest in Real Estate with Only $20,000

Many current and potential real estate investors that contact us express the same two — albeit related — concerns: First, although these persons are either Accredited Investors, or “Sophisticated Investors,” that is, they have enough knowledge and experience in business and real estate matters to evaluate the risks and merits of a real estate investment, both groups are under the impression that they have only a limited amount of investable capital.

Second, in some geographic areas of the United States, “investment grade” real estate, which we loosely define as real estate that can be purchased at prices significantly below market value and on terms that make sense from an investor’s standpoint, is in painfully short supply.

Both of these problems are easily solved.

Many real estate investors will look at their checking or savings account and say, “I don’t have sufficient liquid assets to fund a real estate investment.” Or, they might say, “I’ve got all my money tied up in [this or that deal].”

Ask these same individuals if they have an IRA or 401k retirement account and many will respond with something like, “Of course! And I’m certainly not happy with the paltry returns I’m earning on my stock market investments.”

When these investors are reminded that they can use retirement account funds to invest in real estate, a typical response goes something like this: “Yes, of course, I am aware that I can invest in real estate using my retirement account funds. The problem is, I’ve only got $20,000 [or $25,000, or whatever the number is] in my IRA [401k, etc.].”

The solution is simple. Although this investor may have “only” $20,000 in a retirement account, this investor likely knows several other similarly-situated individuals who also have “only” $20,000 or $25,000 in their retirement accounts.

If these individuals join together to jointly invest in real estate, the next thing you know, they have $100,000 — or more — of investable capital!

What about our second problem, a lack of local inventory?

In many areas of the U.S., there just isn’t much investment-grade real estate that is currently available. Likewise, in these areas, $100,000 of investment capital does not go very far.

Investors in non-performing notes, on the other hand, usually don’t invest in the markets where they live. The reason is not because they don’t want to support their local communities, but rather, because this is a business and they understand that they must invest in locales where investing makes good economic sense. For more information on investing in non-local markets, please see the WeGetNotes.com blog post: How to Find More (and Better) Real Estate Investment Opportunities.

But what about risk? In many markets, $100,000 of investment capital might buy an investor one, but usually no more than two, single family homes. Then comes the hassle of rehabbing, finding tenants, etc.

The Note Investor, by comparison, can often purchase 3 or 4 notes, rather than 1 or 2 properties, with this same $100,000. Furthermore, while the traditional real estate investor typically considers an invest to be a “good deal” if an investment property can be purchased at 80% of current market value, the Note Investor typically buys non-performing notes for 50% or less of the current market value of the property.

Lastly, investing a fixed amount of money in 3 or 4 note assets is certainly less risky than investing in 1 or 2 properties, all other things being equal. And speaking of all other things being equal, we believe that all other things are NOT equal! We believe that Note Investing is LESS risky than traditional real estate investing. For more on this subject, please see the WeGetNotes.com blog post: How to Reduce the Risk of Real Estate Investing.