You have probably passed by a large apartment complex and thought to yourself: “ The guy or gal that owns that apartment complex must be wealthy and making even more money from having this apartment complex.”
If you live in a high cost city like NYC or San Francisco, you may even get that thought walking by a single-family home. Knowing how much it cost to buy a single-family home (much less even the cost to pay rent) it may seem that investing in real estate is a game for the wealthy.
You may be convinced that only the wealthy can buy and invest in real estate and since only they have access to these assets, they get even wealthier while the middle class and lower income folks can only dream. If that was your view point up to today, well I have some good news for you: investing in real estate is for everyone. Weather you were born into wealth or you are currently working a minimum wage job there are ways you can grow your wealth through real estate.
How is that you ask? Keep reading and find out more.
How much money do you need to invest in real estate?
In the most direct and simple answer, you can invest in real estate with as little as $0 and as much as an unlimited amount. Yes, you read that correctly; zero dollars. If you’ve ever heard of investing with no money down then this may not be a surprise to you; many millionaires have started their careers investing in real estate with out spending a dime.
There are many means to use no money down strategies via creative financing, owner financing, master leases, cash out refinances and having others invest their funds with you. If you are investing with no money down, you are probably an active investor. If you are investing with no money down, you can guarantee yourself that you will be signing up to do some serious hustling to create the sweat equity needed to compensate for the fact that you did not put any money in the deal.
If you are investing with no money down, you can guarantee yourself that you will be signing up to do some serious hustling to create the sweat equity needed to compensate for the fact that you did not put any money in the deal.
Do you need a lot of money to invest in real estate?
If you don’t have that much time to be an active investor and put in sweat equity you are probably a passive investor. You have money to invest but you do not have the time to invest. If you find your self in this situation it is not a bad place to be. There are still many options available to you if you are a passive investor and you want to invest in real estate. You do not need a lot of money, you can invest in real estate with less than $100.
Of course, the velocity and substance of the wealth building that you experience will be connected to the types of assets you invest in, the amount that you invest and investment strategies that you use. You can get started investing in real estate with little money. As a passive investor you will have various opportunities available depending on your current financial status.
You will still have these opportunities also available as well if you are an active investor but as mentioned before as an active investor you can start with even less. Based on the amount of investable cash and assets you have you may fall in one of the following categories:
I only have $100 or less to invest
At the $100 level the most easily accessible investments are crowd funding investments and publicly traded REITS. These types of investments are like an investment strategy you may already be familiar with; stocks.
REITS that are publicly traded can be purchased on the stock market like any other stock. REITS are stocks that are connected to a basket of physical real estate assets.
The recent advent of crowd funding websites has made real estate investing more accessible at all income level. Crowd funding investments are not publicly traded but these crowd funding platforms have created a stock market like feel for private real estate investments; when you use a crowd funding website you are able to see a whole market of potential investment opportunities and select what you would like.
Part of your investing strategy may be to either save or build your portfolio and returns at this level until you are able to invest at a higher investment threshold.
I only have $10,000 -$50,000 to invest
If you have $10,000 you can still invest in the same assets that you invested in as when you only had $100. Now you will be able to invest a higher amount into those investment opportunities and in kind you will see a larger gross return. An additional benefit you will see at this investment threshold are private real estate syndications which have investment minimums on average around $25,000 but can get as low as $10,000 or less.
Remember that large apartment complex that you thought was owned by one wealthy guy or gal? Well guess again. That apartment complex is likely owned by individuals like you and me who invest in group investments – i.e. syndications. Syndications allow you to team up with active investors and other passive investors to purchase large assets that you would not be able to purchase yourself.
If you don’t count yourself as wealthy now, then you may be able to claim that title with time. When you invest strategically in these private syndications you can start planning on how you will retire and be able able to live off the income from just one investment.
I have $100,000 or more to invest
If you have $100,000 or more to invest, then even more doors begin to open. You can invest in all of the options that were noted at the lower investing threshold. Depending on how much you have to invest you may be able to purchase a real estate asset by yourself or partner on a syndication to purchase a larger and higher quality asset.
Why is real estate a good investment?
Ok, so now you know that you can invest in real estate with out being super wealthy you may be wondering about the pros and cons of investing in real estate. Real estate as an asset class is very diverse and there are many different types of real estate you can invest in such as buy and hold rentals, office buildings, retail strips, land, self-storage, multifamily apartments, mobile park homes, fix-and-flips and the list goes on.
Since we focus mainly on multifamily apartments and similar benefits can be gained in all sectors of buy and hold investments you can learn more about the benefits of real estate investing by looking at the multifamily asset class. Multifamily apartments are a gem of an investment as they pay you in 4 different ways.
You can earn cash flow coming in, growth in your wealth, tax benefits and more. The great part about all these revenue streams is that you can earn them passively in real estate. The benefits of real estate even go beyond this as real estate is a great recession resistant asset class that typically outperforms other assets during a recession. It would be hard to find another investment asset class that is so versatile.
It would be hard to find another investment asset class that is so versatile.
Why might real estate be a bad investment?
Investing in real estate, and more specifically investing in syndications may not be for everyone. If you are more of the active type of individual that likes to get hands on then you will have to consider the nature of the work you will be doing and see if that is something that you would like.
Real estate is an illiquid asset (outside of publicly traded REITS) so you will have to be comfortable with leaving your funds invested for 1-10+ years depending on the investment you are making.
Real Estate Millionaire In A Year or Less Than 12 Months
You may have wondered “Can I become rich by investing in real estate?” or “Can owning property make you rich?” The reality is yes. As a matter of fact, it is possible to become a millionaire in real estate in less than 12 months.
That’s right you can become a millionaire in less than one year with real estate. It is important to understand the difference between net worth and having $1 Million dollars in your savings account or as your annual income. When we say a millionaire in real estate it 12 months it is most realistic to achieve that as a growth in net worth (your assets – any debt you have).
That’s right you can become a millionaire in less than one year with real estate.
One of the great things about investing in multifamily apartments is the concept of forced appreciation. Forced appreciation is the ability to control the increase in valuation of an apartment complex based on specific actions you take. Commercial real estate is valued based on the income it generates applied to a cap rate.
This means that you can find an underperforming property (either it is not fully occupied, or it is not operating at its full potential due to excessive expenses or other problems) and fix this property so it can operate at it’s full potential.
Here is a simplified scenario for an active investor:
30 Unit Property valued at $500,000 as it is 50% vacant and generating $25,000 net income. (This means that you are getting the property at a 5% Cap rate)
At a 5% cap rate you would need to add $50,000 in net income to make this property worth and additional $1,000,000
You fix each vacant unit at $6000 per unit X 15 units which costs you $90,000. You move at a pace of 3 units renovated per month, so it takes you 5 months to renovate each unit and an additional 2 months to get all the units occupied and rented.
The rent for each unit will be $600. $600x15unitsX12 Months = $108,000
With all the work you did to increase the revenue by $108,000 you are rewarded with $2,160,000 in equity. You are now a millionaire. Congrats.
If you are a passive investor then find someone that has a deal like this and invest with them!
Now this is an outlier example and it will take hard work to find a deal like this and even more work to execute the business plan, but it is possible with well calculated investment decisions and appropriate preparation.
Interested in learning more about investing in multifamily apartments? Give us a call or check out some of the other free resources we have available at Investupmultifamily.com.