How Much Do You Need to Invest in Real Estate on Average?
According to a recent report, real estate investors are buying up homes throughout the U.S. in record numbers. Almost 20% of the homes sold in the fourth quarter of 2021 were purchased by investors, who spent about $50 billion on them.
If you’re interested in buying real estate and taking advantage of the benefits of investing in it, now would be a great time to get started. But before you make any real estate investments, you’ll need to obtain the money it’ll take to get your operation going.
So, how much do you need to invest in real estate? Well, it can be tricky trying to come up with an answer to this question. Because truthfully, you can invest in real estate with as little as $1,000, but you can also spend hundreds of thousands and sometimes even millions of dollars investing in real estate.
Learn more about how much money you’ll need to begin investing in real estate below.
You Can Start Investing in Real Estate With Just $1,000
People who haven’t ever invested in real estate before are sometimes under the impression that they’ll need to have tens of thousands of dollars to do it. But this couldn’t be further from the truth.
In reality, you can get away with investing just $1,000 in real estate to start. You can do it by getting your hands on a real estate investment trust, also known as a REIT.
Now, just to be clear, you will not own a physical piece of real estate when you invest in a REIT. Instead, you’re going to get securities that will basically be like stocks that you can buy and sell when you want.
But even still, this is a good way for new real estate investors to get involved in the game. And you can do it without having to put a small fortune at risk.
You’ll Need to Invest Over $1,000 in Real Estate to Get a Decent Return
If $1,000 is as much as you can afford to invest in a REIT, you’re more than welcome to stick with that amount. But you aren’t going to be able to make any serious money when you’re only able to invest $1,000.
With this in mind, you should consider investing more in a REIT as time goes on. There are some real estate investors who will invest as much as $25,000 into REITs, if not more.
Again, you don’t have to follow their lead and sink this kind of money into a REIT. While investing $25,000 could help you make a pretty penny, it could also lead to you losing more money than you might feel comfortable with.
But if you don’t want to have to worry about maintaining a physical piece of real estate when making real estate investments, your investment strategy might be using your extra cash to invest in a REIT. It’s a good way to get your stint as a real estate investor off the ground and discover more about passive real estate investing.
A $5,000 Investment in Real Estate Could Be the Start of Something Great
Would you prefer to own actual real estate as opposed to just securities? Then you might want to skip investing in a REIT and become part of a real estate investment group, or a REIG, instead.
So, what exactly is a REIG? And how much do you need to invest in real estate if you decide to go in this direction?
A REIG is a group of investors that all pool their money together to purchase real estate properties. This group of investors then relies on an operating company to maintain their properties in exchange for a portion of their rental profits.
You should be able to get involved in a REIG for as little as just $5,000. That will be a small price to pay to turn yourself into a real estate investor with an actual property to your name.
You will, of course, share ownership of this property with others and have little to no involvement with it. But it’ll still be nice knowing that you can drive past it and see something that you own a percentage of up close.
You Can Use a $50,000 Investment to Own a Large Portion of a Property
While you can invest in real estate with just $5,000 as part of a REIG, that amount of money isn’t going to get you very much. Your total stake in a property through a REIG might only be a few percentage points.
But you should know that $5,000 will just be the starting point for those investing in a REIG. You can also invest up to $50,000 with one, if not more, and own a much larger percentage of a property than you would otherwise.
If you’re going to spend that kind of money, you might want to hold off for a little while until you can afford to buy a property that will belong to you and only you. But when that’s the case, you’re going to be responsible for maintaining it or hiring a property management company to assist you with it. You might be better off going with a REIG.
It’ll Take At Least $100,000 to Turn You Into a Landlord
When people are wondering, “How much do you need to invest in real estate?”, they’re often thinking about how much they’ll need to become a landlord.
The answer to this question varies, depending on everything from where you live to what kind of rental property you want to buy. But generally speaking, $100,000 should be enough to get you a seat at the negotiating table so that you can buy a rental property.
That is obviously not a small chunk of change, so you won’t want to rush into buying a rental property at any point. You should do your research on a real estate property prior to purchasing it to make sure it’s going to be a smart investment on your part.
The More Money You Spend on a Rental Property, the More Profitable It’ll Be
If you have $100,000 to spend on a rental property, you should be able to transform yourself into a landlord. But $100,000 is only going to be enough to get you a condo or maybe a small house at most.
Because of this, you aren’t going to be able to earn any wild profits off this kind of investment. That doesn’t mean you shouldn’t still make an investment like this, especially if you’re still getting your feet wet in the real estate industry. But it does mean that you’ll want to look into making larger investments if turning a serious profit is your end goal.
The more money that you can spend on a rental property, the more profitable it should be for you. You’ll be able to command higher rents in condos and homes that are on the higher-end side.
For this reason, you might consider saving up more than just $100,000 to invest in a rental property. It might stop you from investing in a property right now, but it could be worth the wait depending on what you’re able to buy later.
Flipping a House Could Be One of the Best Moves You Ever Make
If you want to get your hands dirty and put some sweat equity into a home, flipping a house could be a great way to invest in real estate. Flipping a house will involve buying a home that needs work done to it, working on it, and then selling it for way more than you paid for it.
One of the big advantages of flipping a home is that you should be able to secure a short-term loan for it as opposed to spending all your own money on it. But there will be some big risks associated with taking this approach to investing funds in real estate.
For starters, you’re going to have to find a way to flip a home for a profit. If you buy a home and fix it up and sell it for less than you would like, it could result in you losing money in the end.
You’re also going to need to make sure that a home doesn’t need more work than you’re capable of doing. If it does, this is another thing that could cut into your profits and even result in you taking a loss.
Don’t be afraid to do all the research that you can on a home before you try flipping it. It’ll let you know how much of a profit you could stand to make and which obstacles you might face while flipping a house.
Buying High-End Homes Might Be a Good Long-Term Investment
The average home increases in value by somewhere between 3 and 4% each year. As a result, you might be able to make a fortune by investing in high-end homes once you’re in a position to do it.
Not every new real estate investor is going to have the cash that it’ll take to invest in high-end homes. You’re going to be talking about spending hundreds of thousands, if not millions, of dollars on these homes.
But as you gain experience as a real estate investor, you might want to set your sights on purchasing high-end homes and hanging onto them for as long as you can. They will only go up in value as long as you get them for the right price from the start.
Adding to Your Real Estate Portfolio Over Time Is a Great Option
Unless you hit the lottery tomorrow and put hundreds of millions of dollars into your bank account, you won’t be able to turn yourself into a hardcore real estate investor overnight. It will take years and years for you to build a real estate portfolio and diversify it with different real estate investments.
It’s important for you to remember this so that you don’t get frustrated while investing in real estate. It’ll prevent you from feeling like you aren’t doing enough to incorporate great real estate investments into the mix.
Rather than getting hung up on how little money you have invested in real estate at the start, your goal should be to slowly add new investments to your portfolio. When you do this, you should start to see it grow within just a few years.
You should also start to reap the rewards of investing in real estate and give yourself access to more money that you can then reinvest in more real estate. Before long, you’ll have a variety of properties in your portfolio, and you’ll enjoy seeing how much of a profit you’re able to make on each one every year.
You can do all of this with just $1,000 at the start. You just need to get the ball rolling on your real estate investments and see where things take you from there.
So, How Much Do You Need to Invest in Real Estate? It All Depends!
There isn’t a definitive answer to the question, “How much do you need to invest in real estate?”
Some people get involved in real estate investing with just $1,000. Others don’t get into it until their net worth is over $1 million.
At the end of the day, it’s all about what you feel the most comfortable with while investing in real estate. You should see what you can afford to spend and move forward with investing that amount of money.
Look for more tips on buying real estate as an investment by browsing through our other blog articles.