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SHOW NOTES FOR EPISODE 544: HOW TO INVEST IN REAL ESTATE FOR UNDER $1,000
Too often, newbie investors think they need lots of money before they can invest in real estate. Nothing could be further from the truth. In today’s podcast, Bill shares 10 different ways investors can get started in real estate investing for under $1,000.
Tip of the Week – Make Money When You Buy
It’s easy to overpay for real estate, especially in this market where things are selling quickly. In general, if you’re keeping the property, don’t count on appreciation as a way to make money. It can work but it’s still a higher risk than buying right.
If you’re buying a rental, look for homes that need a bit of work and have cash flow from day one. Don’t forget to add in budgets for capital expenditures, reserves and routine maintenance and repairs.
How to Invest in Real Estate for Under $1,000
Traditional wisdom suggests it’s usually a good move to invest in real estate—but how do you that if you don’t have much money? After all, not everyone has huge stacks of cash lying around, waiting to be spent on an investment property. Fortunately, there are a few ways you can realize some upside from the hot housing market even if you only have a few hundred dollars to work with. Here’s a look at your options.
1. Invest in real estate using crowdfunding
With crowdfunding, you can directly invest in the ownership of a property or a company through platforms that have minimums as low as $10. Since the number of wealthy investors is limited compared to those with less money, the idea is that large sums of money can be raised quickly from a larger pool of individual investors—kind of like a Kickstarter or GoFundMe campaign. There are a bunch of platforms that do this, including Fundrise, PeerStreet, Groundfloor, RealCrowd and RealtyMogul (Investopedia has a good overview of the options here).
In an ideal scenario, you could make a lot of money by investing in a company that later goes public. But as Nerdwallet points out, there are a lot of downsides to this method too, like annual fees that can exceed 2.5%, taxes on dividends, and the difficulty in selling real estate assets quickly. Plus, you have to be good at spotting good investment opportunities on a case-by-case basis.
2. Invest in a REIT (real estate investment trust)
REITs allow you to invest in companies that own commercial real estate such as office buildings, apartments, and hotels. Many REITs are publicly traded on major securities exchanges, allowing investors to buy and sell them like stocks.
The great thing about REITS is that they’re required to pay out 90% of their profits to investors in the form of dividends, without you having to deal with the hassle of actually managing a property. The downside is that REITs are vulnerable to downturns in the market, and that impact can be made worse by those 90% payouts limiting their ability to grow by investing in more properties. Plus, the dividends are taxed as income.
On the other hand, they’re easy to invest in—you just have to set up an account with a brokerage. Depending on the type of REIT you invest in, the minimum investment can be as little as $2,500, or even less.
3. REIT exchange traded funds or Real Estate Mutual Funds
Both REIT ETFs and real estate mutual funds allow you to invest in a basket of real estate securities that trade on an exchange, although ETFs are easier to deal with if you’re a more active investor. The costs are relatively low—$1,000 can get you started.
This type of investment can be a good option if you prefer to passively track indexes for the larger real estate market, as opposed to more closely monitoring the performance of a specific property. Of course, as with REITS, this approach also leaves you vulnerable to declines in the market.
Where to Find Properties Under $1,000
And then there are actual properties you can purchase…
1. eBay Homes under $1,000
- Type in search under “Homes for Sale.” Then, look at left column. Go down to price listing and where there are 2 boxes, side by side, in the right box (the maximum price box) put in $1,000 and click on the >> button. The results will reflect homes priced $1000 or less. Now, the properties may be in a bid situation but you can put $1,000 maximum bid and see what happens. See my podcast 072: Buying Properties on eBay.
2. Bid4Assets.com
- Bid4Assets is a leading real estate online auction website, having sold over 100,000 properties since 1999. Bid4Assets auctions all types of properties, including rental properties, vacant land, fixer-uppers and commercial property. Bid4Assets specializes in distressed auctions for the federal government, county tax-collectors, lenders and bankruptcy attorneys.
- Bid4Assets conducts federal forfeiture auctions for the U. S. Marshals Service and has conducted online tax foreclosure auctions for over 75 counties nationwide.
- It has 2 special bidding channels: $1 No Reserve Homes and $1 No Reserve Land.
3. Auction.com
- Auction.com is the nation’s leading online real estate transaction marketplace focused exclusively on the sale of bank-owned and foreclosure properties. The company brings a breadth of quality assets to the market, attracting prospective buyers through world-class marketing and leveraging a scalable technology platform to conduct transactions in a transparent, efficient manner.
- Auction.com and its parent company, Ten-X, are headquartered in Irvine and Silicon Valley, Calif., with offices in key markets nationwide. Investors include CapitalG (formerly Google Capital) and Stone Point Capital.
- If you want to take the time to learn how to bid, you may be able to find a $1,000 house. You don’t know unless you try.
4. Buying Raw Land
- It’s even easier to buy raw land under $1,000. Listen to our podcasts on flipping raw land
- 519: Raw Land Investing
- 389: Profiting from Raw Land Investing
- 265: Crushin’ it With Raw Land Investing
- 083: Flipping Raw Land
5. Only have land? Build a house on it for under $1,000
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- http://www.goodshomedesign.com/tiny-house-for-under-1000/ – 8X8 Arched Cabin
6. Property Radar
- Foreclosures – coverage areas of AZ, CA, NV, OR, WA
- https://www.propertyradar.com/
7. Buying property with an FHA loan, VA or USDA loan
FHA Loans
You can buy property with an FHA mortgage for as little as 3.5% down (which could be around $1,000 if you buy a $30,000 – and there are a lot of them around the country). And since these federally-backed loans are designed to help low- to moderate income earners buy homes, they come with less stringent credit score requirements than other private mortgage lenders.
While you can’t use an FHA loan just to buy an investment property, by using one to purchase your principle residence, you’ll be putting your money into an asset rather than blowing it on rent, or even just freeing up cash you would have put into a larger down payment to explore one of the options above. Plus, there are no restrictions on renting out rooms in your new home, which would allow you to make some passive income on top of your initial investment.
No down payment: USDA loans (100% financing)
The U.S. Department of Agriculture offers a 100% financing mortgage. The program is formally known as a Section 502 mortgage, but, more commonly, it’s called a ‘Rural Housing Loan’ or simply a ‘USDA loan.’
The good news about the USDA Rural Housing Loan is that it’s not just a “rural loan” — it’s available to buyers in suburban neighborhoods, too. The USDA’s goal is to help “low-to-moderate income homebuyers,” wherever they may be.
Many borrowers using the USDA loan program make a good living and reside in neighborhoods that don’t meet the traditional definition of a ‘rural area.’
For example, college towns including Christiansburg, Virginia; State College, Pennsylvania; and even suburbs of Columbus, Ohio meet USDA eligibility standards. So do the less-populated suburbs of some major U.S. cities.
Some key benefits of the USDA loan are :
- There’s no down payment requirement
- There’s no maximum home purchase price
- You may include eligible home repairs and improvements in your loan amount
- The upfront guarantee fee can be added to the loan balance at closing; mortgage insurance is collected monthly
Just be aware that USDA enforces income limits; yours must be near or below the median income for your area.
Another key benefit is that USDA mortgage rates are often lower than rates for comparable, low- or no-down-payment mortgages. Financing a home via the USDA can be the lowest-cost path to homeownership.
Check My USDA Eligibility (Aug 9th, 2021)
No down payment: VA loans (100% financing)
The VA loan is a no-money-down program available to members of the U.S. military and surviving spouses.
Backed by the U.S. Department of Veterans Affairs, VA loans are similar to FHA loans in that the agency guarantees loans for borrowers who meet VA mortgage guidelines.
VA loan qualifications are straightforward.
Most veterans, active duty, and honorably discharged service personnel are eligible for the VA program. In addition, home buyers who have spent at least 6 years in the Reserves or National Guard are eligible, as are spouses of service members killed in the line of duty.
Some key benefits of the VA loan are :
- No down payment requirement
- Flexible credit score minimums
- Below-market mortgage rates
- Bankruptcy and other derogatory credit information does not immediately disqualify you
- No mortgage insurance is required, only a one-time funding fee which can be included in the loan amount
In addition, VA loans have no maximum loan amount. It’s possible to get a VA loan above current conforming loan limits, as long as you have strong enough credit and you can afford the payments.
Click to see your low-downpayment loan eligibility (Aug 9th, 2021)
Conclusion
Well, that’s it. I hope you at least got excited about how possible real estate investing can be. Even if you don’t buy a house for $1,000, maybe now you at least realize various strategies that can make that dream real.
This little exercise was more of an encouragement than a “be all end all on” treatise on where to buy properties for $1,000. If you really want to buy a home for $1,000, I believe you can and encourage you to do your own research. And, if you do buy a home for $1,000, I want to know about it and I’ll have you on my show to talk about it!! Just contact me at bill@olddawgsreinetwork.com.
References:
- https://lifehacker.com/how-to-invest-in-real-estate-without-a-lot-of-money-1847438904
- 128: Where Can You Buy a House for $1,000?
- 430: 7 Ways to Buy Rental Properties with Little or No Money Down
- 084: 10 Best Ways to Buy a Property with Little or No Money Down
- 021: Buying Properties with Little or No Money Down with Brandon Turner
- 334: How to Acquire Investment Properties With No or Little Money Down
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