Investing in real estate 2022: with little or no money, to be rented out
|Investing in real estate|
Real estate investing, we can compare to a hybrid between a small business and a pure investment. Although it is not always easy, it is possible to start and grow a real estate investment business even from scratch, with little money.
In this comprehensive guide, I explain how to invest in real estate, even with little or no money, with zero investment; how to invest in real estate to rent, to put into income, how to buy and remodel to increase the value of the property.
How to do it
If you've ever had a landlord, you probably don't dream of being one: problems between tenants and landlords are the order of the day. Of course, some get along just fine, but that may not have been the case with you.
If done right, real estate investing can be profitable. It can be an added income stream and help diversify your investment portfolio. And many of the best real estate investments don't even require you to introduce yourself to a tenant. Let's take a look at the possibilities together.
Does it pay off?
Real estate has many advantages: it offers investment opportunities, income, bargains on depreciation (if you want to buy), bargains on appreciation (if you want to sell), and capital accumulation.
Once you start your business, you can live off of investment income for the rest of your life. You read that right: classic work becomes optional and with your time you can do what matters most. Dedicate yourself to your family, your travels, your hobbies: the houses are there, producing income for you.
Without buying them: mutual funds
There is a way to invest in real estate, without buying them. The solution is called real estate investment trusts. They are companies that own commercial properties, for example, offices, hotels, apartments, warehouses.
These companies rent out the properties and then divide the earnings among the people who have invested in the fund. Once you receive your dividend, if you don't need the money at that time, you can automatically reinvest that dividend to further increase your investment.
How good are real estate investment trusts
Are our real estate investment trusts a good investment? They can be, but they can also be complex, especially depending on the type you choose:
- Exchange-traded funds; just as with stocks, you can sell your share at any time (and that's an advantage), however, you have to sell it at the price of the moment. And on the Stock Exchange, prices can fluctuate quite a bit, even from one day to the next. This does not mean that it is always negative: you may even have a good gain from the sale if at that moment the price of the fund's share is high.
- Non-traded funds; have a more stable price, but non-traded securities are not easily sold. On the stock exchange, there is always someone ready to buy at any time. However, if the fund is doing well, you should have no difficulty selling your share, through classic brokerage firms.
You can buy mutual fund shares through banks, for example through your online banking. Or by going to the branch. There are also online platforms that specifically offer these services, but check reviews and opinions carefully before relying on any of them.
Many real estate entrepreneurs have no intention of becoming one but start gradually, without knowing it. For example, if you have a large house, or not large but you have a free room, you can start renting the room or part of the house. All at zero cost: you already have the house and you start renting it.
For example, if you have a nice garden you can rent it out for birthday parties, if you have a room or a basement or an attic you can rent it out as a b&b or long-term to a student/worker. This way you can live in your property while renting out rooms or units.
If you don't own a home, you can rent a house and sublet rooms (if the landlord allows it). Subletting allows you to pay your rental costs, plus you may have something left over.
For example: suppose you want to rent a studio apartment in Milan. For this kind of solution, you start at least 600 euros per month. You find a three-room apartment, a house with three rooms, at 1100 euros per month. You rent it, you take a room for yourself and the other two rooms are rented for 600 euros each.
You get a revenue of 1,200 euros. Take away the 1100 euros to pay the rent and you are left with 100 euros. You are not paying rent and you are earning money.
If you own the property, you have no expenses. If you have a spare room, or you don't mind sleeping in the living room so that you can give up your bedroom to a tenant, you can start this way. From small.
Of course, you can also buy a property and then rent it out. But you need to have a base of money to invest. There are some good deals to think about here too, for example, you could buy a house at auction, getting a saving to say the least.
Once you've bought the house, you can rent it out. You can do this yourself, or have a rental management company handle everything. They handle everything from calling the plumber if the sink leaks, to collecting rent, to legal matters. Everything has a cost: if you take care of it, you save money. But if you don't want to deal with tenants and issues, you can have others handle it and pay them.
With little money
We all know it takes money to make money. But as I explained in the steps above, you can start in real estate even with little money, or no money at all.
Many people think that to invest in real estate, you need at least 20% of the price (because banks usually give mortgages no more than 80%). It is easier to get started in real estate if you have cash. And this is true, but only if you want to buy.
The truth is that in every business, including real estate investing, entrepreneurs start every day with very little money. Many of them simply take off by starting a dream, slowly.
As explained above, you can dip your toe right into the waters of real estate by renting out part of your home through a site like Airbnb. The site you probably already know: maybe you've used it just to look for a vacation rental! You don't have to take on a long-term tenant; the potential renters that are on Airbnb are at least somewhat pre-selected by Airbnb.
Before you get started, think about how much time you have, if and how much capital you're willing to invest, and if you want to be the one to take care of things. If you don't have do-it-yourself skills, consider investing in real estate through a real estate fund (as explained above), or outsource the rental management to a company that will take care of everything.
Buy, renovate, rent
It's all about finding properties that have high potential, remodeling them, and increasing their value. But instead of selling, keep the property as a rental. Some of the money you earn you use for a living, and some you accumulate to buy more properties in the future:
- Buy a property with high potential to increase its value with repairs. For example, you can buy a property at auction, or an old house that is near a university or hospital.
- Remodel the property to increase its value and make it rentable. This doesn't necessarily mean spending a lot of money on renovations. Many times all it takes is a good paint job (both to the furniture, if there is any and to the doors and fixtures) to make everything look new.
- Rent the property to a quality tenant (or tenants);
- The money you earn, spend it on yourself, but a percentage try to set it aside for future purchases.
This is a technique that many investors have used for a long time.
Real estate is not for you? Consider investing in stocks.
Want immediate diversification? Learn how to invest in mutual funds.