Start Investing in Real Estate with little money – under $500

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If you have been investing for a while, you probably keep hearing that one should be diversifying their investment portfolio. One good way to diversify is to start investing in real estate with little money. With some recent legislation making it easier to offer to the masses what was previous

The world of Real Estate investing varies so vastly, you can go buy commercial properties, or use techniques that require you to pay thousands of dollars to be ‘trained to do it on their investment own’. But the real fact of the matter is most of those ‘programs’ are just selling you education, they aren’t actually helping you invest in real estate.

I’m looking to discuss passive income investments that don’t require you to be an accredited investor (earn an income over $200k/year or net worth of over $1 million), since the fact of the matter is most people getting into Real Estate investing don’t have a lot of funds to start with, so where to begin.

Pooled funds

When you are investing with a company they typically work in a pooled environment. So say 1000 people get together and each bring in $500 for a total of $500,000. Now that’s not a lot of money but you could purchase a few rental properties, or a property and then help fund a renovation and flip for another real estate property.

Now that is with a few thousand people, but if you multiply that and if some individuals bring in thousands then you could have millions on their investment hands and the company is investing in multiple projects and helping diversify their investment positions.

These are primarily structured in Real Estate Investment Trusts (REIT), where they payout 90% of their earnings back as dividends, however not all REITs are equal and fees vary, so do their investment research.

Specialized investments

One of the most well-known adopters is Fundrise. Fundrise has a minimum investment requirement of $500 to invest in their starter program which is a blend of a debt (income) portfolio and appreciation growth (equity) portfolio. This portfolio is currently spread across 124 active projects so there is great peace of mind with such diversity.

They provide quarterly dividends and then readjust their NAV (stock share price) with appreciation. Annual returns range 8-13%, in 2018 the blended portfolio received a 11.2% gain between dividends and appreciation price adjustment.

One of the newest additions companies that allow you to start investing in real estate with little money is a new start-up by the name of Rich Uncles. Rich Uncles offers two separate programs. The main program they offer is a pool into their Triple Lease (Tenant pays taxes, insurance and maintenance) program where they have 22 properties spread across retail, office space and industrial buildings and only a $500 minimum investment. These are great stability income properties but typically have a lower return, typically closer to 5.5 – 9%.

The newest offering from Rich Uncles is what they call the BRIX REIT which invests in student housing near major universities. Though still relatively new they are spreading quickly to allow an entry for new investors and with a minimum of only $5 to start it is an excellent way to begin investing in Real Estate, though with the lower return of a steady 6%, it is an excellent conservative investment option but with limited upside there are better alternatives.

One of the differences with both of these programs is the monthly dividend distribution which can help speed up their investment return as their investment reinvest their investment dividends.

 

Crowdfunding – Direct projects

Similarly with the popularity of peer to peer lending (Prosper, Lending Club, Sofi) and their recent decline due to excessive charge-offs; one company has taken that model and applied it into Real Estate investing, that company is Groundfloor. While Groundfloor was exclusively only available to Georgia residents for years (prior 2017) they are now available to all residents within the US.

Real Estate Developers are vetted and graded with Groundfloor providing the hard money loans available for investors to invest in. These investments are crowdfunded to thousands of investors with the minimum investment only being $10. (Currently they are offering free $10 to each new account.) This is important for those who are just starting out and don’t have large amounts of capital to begin with. Also, it helps diversify across multiple projects to spread out the risk in the event that something should happen on the project things don’t turn out as expected.

One of the main differences is being able to pick and choose the amount and the projects to directly invest in. You can choose a lower rate and more secure or higher rates with more risk, or create their investment own blend. These hard money loans are short-term loans between 6-12 months with rates from 5.5% – 26%, with most offerings are between 11%-13%.

Holding Periods and Fees

As you review and research these options you will begin to see they are not their investment typically stock market investment. They are hyper focused and offer a variety of investments. However due to the fact these investments are in Real Estate, which is an illiquid asset, there are time commitments involved.

Fundrise states that the investment is long-term but make mention that every quarter they will asses withdrawal requests and if there is available liquid funds they will honor the withdrawal requests. This doesn’t give a guarantee that you will get a withdrawal anytime soon.

Rich Uncles doesn’t give an exact time frame but does mention a freeze period for the first year with a diminishing exit fee (i.e. after year one 3% fee, after year two 2% fee, after year three 1% fee, and no fee after year four). This is more on par with some more expensive investment programs.

Groundfloor is different in that you own the note directly and are tied into the investment until the borrower pays off the loan. Typically, the term is a year, sometimes it is much sooner, and other times there are project delays and it may get dragged out a year or beyond. Groundfloor can look into using Folio as a 3rd party notes market (other peer lending companies heavily relied on), which makes buying and selling positions of their investment notes much easier to manage.

You’ll also come to see that one of the bigger selling points these private REITs emphasize is that because these are private companies – and they are offering the investment directly to the public – they can cutout any commissions that would have gone to brokers and salespersons. Though there may be some benefit, they sure seem to exaggerate it, we’d rather see higher returns.

Conclusion

Given how much the online investing world has shifted it’s amazing you can start investing in Real Estate with little money. Hard money lenders typically had to provide 5-6 figures to help fund a real Estate renovation project and now you can invest in a small percentage of the project with as little as $10. Pooled investments for larger rental projects which would previously only be handled by large institutional sized investors can now be bought in at $5. It’s becoming so much easier to start investing and slowly build up a broad real estate portfolio where you can be investing across dozens of projects with under $100.

We haven’t seen the last of these types of investments popping up. Given time I’d like to see better streamlining of the fees, past performance and total returns to provide a comparison as to which ones continue to promise solid and consistent returns. While we recommend a diverse portfolio, we believe the emergence of simple straight forward investing in real estate will continue to expand and become an attractive alternative investment and a larger share for everyday investor’s portfolio.

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10 Comments

  1. Thank you for this information. I am from New Zealand and this is such a great concept, that I have only just heard of it now via your post. I am really interested in the lower entrance pool investment that you mentioned.

    • Glad I can help. Yes with the new law changes I’m sure we’ll be seeing many more options, but for now these are the best ones I’ve found.

  2. Wow, I had no idea that this was even an option. I just assumed you needed a lot more money to even fathom investing in real estate. Great to see the variety of options – do you have one preference for someone just starting out? I know practically nothing when it comes to finance or investing lol.

    Also wondering if any of these companies are also open to Canadians?

    • Yes I believe word just needs to get out and these alternative will become more main-stream.
      I did contact them and they said currently they don’t allow investors outside of the United States, but it they believe that will change in the near future. I’ll post an update when I hear more and they open up new investors to other countries.

  3. This is really such a great way to make more than the tiny percentage a savings account gives you. Granted, with all investments, there is a degree of risk, which is why people keep their hard-earned money in their savings accounts earning nothing, but real estate, in my opinion, is one of the best investments a person can make.

    I think getting in with a very reputable company is key as well. I have done some real estate investing, but I did it on a personal level. I owned rental property myself, and then I did several wholesale flips, where I placed a house under contract and then sold my contract to another investor for $5,000 – $10,000. (That’s quick money, but no residual income like a rental).

    Great article to get people started thinking about ways to make decent returns on their money.

    • Exactly, I love it.
      The way to play real estate investing is to go big (rental or flip) or diversify and spread it out. Being able to invest just $10 in each project can quickly diversify and practically eliminate any major risk.
      Of course there are many ways to invest thousands of dollars, but now everyone can start with pocket change and grow from there.

  4. wow, this is interesting. I have always wanted to get involved in real estate business but I do think if I don’t have certain huge amount of money I can’t find my way there because I believe it is a business that requires a huge sum of money and I have met people who told me same. Reading thiàs post it’s like this is a means where my aim is about to be achieved. I’m really interested in this. My question is which companies will I have to collaborate with ? Or in one word how will I get started?. I will be looking forward to your reply. Thanks.

    • As with everything it depends on what you can currently do and what your end objective is.  

      There are many ways of getting involved in larger projects with partners (bringing in money, setting up and organizing buyer and sellers, providing your credit).  If you want to passively invest, I would say Groundfloor is a great place to start, and they’re currently selling their stock to new investors.  You could purchase part of a hard money loan or buy some stock or both.  It’s gone up 50% each year the past 2 years and they’re in the position to be the best at what they do.  Passively this is the best, there are a few other products we are alpha testing that may be better returns but their minimums are much higher, for $10 you can’t go wrong.    

      If you want to collaborate and find partners start with your local Real Estate Investors Club.  Typically they network with money lenders and those ready to find good deals and put them together.  Work with a mentor if you’re not sure.  They’ll take most of the earnings but the education you can receive and confidence to repeat the process it priceless.  

      I’d stay away from certain education clubs and instead work locally where you can get physically involved in the project.  And if you can’t be there physically there are a number of turnkey programs (but you’d need massive amounts of money for the downpayment and improvements) 

      We’re getting things in order to offer partners a share of our real estate projects (flips, rental, owner financing, etc.) where you can join in a project passively but receive returns as if you’re an active participant.  That’s where things are heading, we’re seeing more and more come up now.  

  5. Excellent introduction to online investment in real estate.  I’m keen to have a go and build a portfolio by trialing the $5/$10 entries but are they available for investors from outside the U.S.?

    Or have you come across any platform that specifically looks for investors from other countries e.g. U.K., N.Z., Australia etc?

    Am keen to learn more; thanks for the introduction!

    • I’ve spoken with Groundfloor Management and they had recently expanded to allow all investors from each State in the United States.  They are working on the international expansion and I will announce when that becomes available.  I have started my search for similar programs internationally, I will be updating here shortly my findings and recommendations.  Currently, though the Venture Capital options (i.e. Republic and StartEngine) and Rich Uncles allow international investors, but their minimum investments are between $100 and $1000.

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