5 Ways to Invest in Real Estate When You’re Broke

By Staff Reporter - 11 Jan '22 11:10AM

(Photo : Clayton Richard)

Common wisdom states that you need a lot of cash to invest in real estate. Houses cost hundreds of thousands of dollars, right? Well, sure, but there's more than one way to invest in real estate, and some of them are cheaper than you might think.

If you want to be a landlord, there are plenty of options that don't require you to come up with enough money to buy a turn-key rental unit. And if you don't want to be a landlord, there are still some options - for example, you could flip properties or pool your money with other investors to buy shares in large properties. Let's take a closer look at some of the ways you can get into real estate investing without much money.

1) Live-in Then Rent

Did you know that you can get a Federal Housing Administration (FHA) loan with just 3.5 percent down? In some areas, that means you can buy a home with just a few thousand dollars down. All you have to do is live in the house for a few years, and then you can bring in a tenant to cover the mortgage and maintenance costs, get another FHA loan for another house, and then move into that second house. Voilà, you're a landlord.

Of course, this strategy means you'll have to be patient for a few years if you want to rent out the entire house, but you can rent out a room or two in your new home if you need some passive income while you're waiting.

2) Invest in REITs

Real estate investment trusts (REITs) are similar to mutual funds in that they allow investors to pool funds together to buy shares in real estate, usually large commercial properties. Delaware statutory trusts are similar, but they have some tax advantages since they allow investors to trade shares under a 1031 exchange.

You can buy shares of REITs just like you would by shares of stocks or mutual funds, and sell them just as easily, too. You won't be someone's landlord, so you won't have to worry about maintaining a property or fielding calls from tenants. You'll just benefit from the profits the REIT makes on its holdings.

3) Buy a Multi-family Home

A multi-family home, like a duplex, can be the perfect solution if you're looking to get into real estate and want to be a landlord. Some people rent out bedrooms in their homes to earn passive income, but if you want a little more privacy, something like a duplex or a small apartment building would suit. The idea is to live in one of the units while renting out the other(s). With any luck, you'll generate enough income to pay the mortgage on the property, and you can save what you don't need for housing costs to invest in your next property.

4) Get a Master Lease

Wish you could own a huge apartment building, but don't have the kind of money you'd need to buy one? You can exercise the Master Lease Option (MLO).

In an MLO, you lease a large apartment building or other commercial building from the owner, and then sublease the units out to tenants. You'll be responsible for any maintenance costs, property taxes, and other property-related expenses. You'll have to find tenants and background check them. You'll collect the rent and then the owner will take a portion of it, leaving you the rest. Often, there's an option to buy the leased property eventually.

5) Buy a Rehab Home and Flip It

If you have DIY skills, flipping homes can be a great way to earn an income from property. You'll need enough money to put down on your first house, but if you do it right, you'll earn enough from the sale to pay yourself a salary and put money down on the next home you flip.

Flipping houses involves choosing homes that can be fixed up and resold at a profit, and that can be complex. You need to know your local housing market and you need to be able to accurately estimate how much it will cost to fix a given house up. But you can save money in the beginning by living in the home while you're renovating it, and you can earn large profits on flipped homes if you know what you're doing.

You don't need a ton of money lying around to invest in real estate. You don't even need to become someone's landlord. It's easier than you think to add real estate to your investment portfolio - and in the future, you'll be glad you did.