Investing $100,000 in Real Estate

Purchasing a second home is one way to get started as a real estate investor. These are easy to finance and can generate income by being rented out for part of the year. They also have potential for price appreciation and can give investors lots of leverage. A 20% down payment of 100K allows an investor to control a home worth 500K.

A single-family rental home is one step up in complexity. Because down payment requirements may be higher for properties bought purely for investment, the same $100,000 may be able to purchase a home worth approximately 300K assuming a 30% down payment. If the investor wants to manage the property, he or she will have to deal with repairs, rent collection and occasionally difficult tenants. Hiring a property manager to handle these details will reduce the net income, but also the hassles.

House flipping involves purchasing a single-family home that is need of some repair or renovation, spending the money to prepare it for sale, and then selling it rather than keeping it to collect rent. The key here is to find a motivated seller willing to sell at an attractive price. After that, it’s important to be able to accurately estimate the cost to complete needed work and a realistic selling price for the improved property.

Commercial properties including apartment complexes, office buildings, warehouses and shopping centers can generate steady rent but are often more expensive than single-family homes. Investors with limited funds can, however, join other investors to acquire commercial properties. Part owners are entitled to a proportional share of the rental income and any gains when the property is sold. Commercial real estate brokers can guide investors to opportunities to participate in joint ventures to acquire commercial properties.

Real estate investment trusts (REITs) offer many advantages for beginning and veteran real estate investors. These publicly traded companies invest in real estate and distribute income from rent or property sales to shareholders. REITs come in many different varieties, providing high levels of diversification, and investing a lot or a little in one is as easy as buying shares of any public company.

Real estate-focused mutual funds and exchange-traded funds may be the easiest way of all to start investing in real estate. These funds invest primarily in REITs as well as real estate operating companies. They are highly diversified and cost-effective and shares can be bought and sold online with the click of a button.

Crowdfunding is yet another way to begin investing in real estate. Here investors pool their funds with others, generally facilitated by an online platform, to purchase specific properties. Crowdfunding investors receive benefits, such as cash flow from rent or gains if the property is sold, in proportion to the size of their investment. Some real estate crowdfunding platforms have minimums as low as $500 but others are for investors of more means.