With less than $100k to invest, you probably can’t launch a luxury yacht company. So, what venture can give you decent ROI with such a relatively constrained budget in Washington, DC?
Answer: Washington, DC, real estate!
Contrary to the misconception that Washington, DC, real estate is an exclusive domain of deep-pocket millionaires, you can achieve significant success investing in real estate with less than $100k.
This guide explores how to get involved in real estate, focusing on the best strategies to invest $100k (or less) in real estate investing.
But before we delve deeper into these strategies, why should you really be interested in real estate investing?
We will tell you.
Why you can’t ignore real estate investing
With the global real estate market projected to hit $4,263.7 billion by 2025, real estate investing is an irresistible investment. Here are some of the reasons why the real estate market is teeming with enthusiastic investors.
A consistent stream of income
In life, we all love stability – especially in our income accrual. Real estate investing assures you of this. Rental income, for example, gives you a consistent cash inflow.
By leveraging a strategic location to invest in properties, you could be in cool cash for years. When you target rapidly urbanizing areas (like a metro area) or buy property in towns with universities and colleges, you can expect to feed off the sustainable demand for real estate.
You can also consolidate such an income source by investing in multiple properties, smartly diversifying your real estate investment portfolio.
Real estate investing is a hedge against inflation
While many investments tend to lose value in the face of inflation, real estate investing counts among the few assets that gain value with inflation.
When inflation occurs, real estate prices respond pro-rata, with rental fees and housing values pushing up. This makes real estate investing a buoyant hedge against inflation.
Real estate is a viable inflation hedge, thanks to demand being directly proportional to GDP growth. Simply put, when the economy of a community grows, rents are pushed higher with increasing real estate demand.
What this means is increased capital values. By transferring a bulk of the inflationary pressure to your tenants, real estate retains its buying power while soaking in a portion of the inflationary pressure through capital appreciation.
Real estate investing comes with tax benefits
Some of the notable tax benefits associated with real estate investing include depreciation deductions, mortgage interest deductions, and capital gains deferral through 1031 exchange.
Real estate investors enjoy depreciation deductions on the ground that the value of their real estate property would decrease over time. Mortgage interest deductions are subtractions made from the interest your mortgage loan accrued.
10 strategies for investing in real estate with less than $100k
Having established the profitability of real estate investing, let us take a step further by analyzing viable strategies to invest in real estate (enjoying handsome returns) on a relatively low budget.
1. Master Leasing
Master leasing is a budget-friendly way to invest in Washington, DC, real estate. A renter leases a property with a master lease agreement (on a single-tenant basis), further leasing such property to other occupants who would pay him rent.
In this agreement, the original property owner cedes responsibility of the property to the lessee. Consequently, the lessee assumes the property owner’s power, making modifications to the rental property as the former deems fit for the period of the master leasing.
Such modifications could include upgrades on the income-producing property aimed at raising the property’s value. These can lead to acquiring increased rent from the later tenants the lessee rents the property to.
Commonly, master leasing agreements are done either as a fixed master lease or performance master lease. For the fixed master lease, the lessee parts with a portion of profits accrued from the income-producing property, regardless of whether the lessee has a sub-resident.
On the performance master lease, the lessee would only part with a specified fraction of this profit he accrues from sub-residents. In short, the amount is only deducted if the lessee makes a profit.
2. House Hacking
House hacking is another smart technique for investing in real estate with less than $100k. This strategy simply involves renting out parts of your primary residence you are not currently occupying, offsetting the property’s price with the rent accruals.
So let us assume you move into a little property with several units in a metro area. This could be a triplex or even a duplex. You could rent out those extra units that you are not occupying to tenants.
Similarly, you could rent out your guest room or even your basement. Sounds interesting, right?
House hacking is even more attractive considering you can secure the investment property without having to make an initial down payment.
You could also leverage some loan programs with significantly reduced down payments to facilitate the house hacking deal.
There is the option of tapping into packages like FHA loan, which requires 3.5% down payment, or traditional loans, which require 3-10% down payment. You can also resort to VA loans, which require no down payment if you a veteran.
In addition to enabling you to commercialize an investment property with the most minimal financial input, house hacking allows you to enjoy additional tax write-offs.
Remember the saying “two heads are better than one”? It couldn’t be truer in real estate.
With less than $100k to invest in Washington, DC, real estate, you could partner with another individual to secure your chosen property.
There are a plethora of partnerships for you to explore. One of the most prevalently adopted partnerships is credit partnership. The first thing this involves is getting an excellent real estate deal. Next is the payment. Your credit partner would supply a down payment, securing a loan package to buy the house.
Consequently, you would lease the property from this partner, tying the agreement with an option to purchase the property for more. After this, a tenant subleases the house from you.
This tenant also takes on the responsibility of managing all issues related to the property. Effectively, you can neatly pocket your profit, which is the net difference between the rent you pay and the tenant’s rent.
Assuming the property has appreciated over time, there is also the option of securing new loan deals to purchase the house prior to the expiration of your purchase option. Alternatively, a new buyer could purchase the property from you at a marked-up price.
4. Real Estate Crowdfunding
Compared to other low-budget real estate investing techniques, you can say real estate crowdfunding is the new kid on the block.
Real estate crowdfunding is also seen as real estate peer-to-peer lending. With this crowdfunded approach, a group of aspiring real estate investors can pool together smaller chunks of investments ranging from $1000-$5000.
There are commonly two options for real estate crowdfunding as an investor. First, there is the option of investing your funds either as debt, where you lend out your money. Here, you are being paid back by a proportional stake in either the rental income for that property or the amount it is eventually sold for.
The second option is directly investing your funds as equity, allowing you to own a stake in the property.
These smaller pieces are accumulated into a larger sum, allowing these investors to collectively invest in properties that would be otherwise beyond their individual financial reach.
The speed of cumulating the stated amount is impressive, enabling interested investors to promptly secure choice properties before the competition amplifies, especially in cases of in-demand commercial real estate.
Typically, this money is raised online using dedicated (and reputable) crowdfunding real estate platforms like Fundrise, CrowdStreet, and DiversyFund.
The crowd of potential investors can be collected via outreaches on LinkedIn, Twitter, and Facebook. So, when these investors combine on the platform, they become communal stakeholders in a high-end real estate investment property – no longer is this opportunity exclusive to sophisticated real estate dealers.
5. Seller Financing
Seller financing is another viable low-entry-cost real estate investment option. Instead of pursuing traditional loan packages from a bank, in this case the seller allows you to buy the property via monthly installments spread across a specified period.
The seller financing arrangement can allow you to invest when on a low budget and otherwise struggling to obtain mortgages. This alternative credit facility allows an aspiring investor who doesn’t qualify for conventional mortgages to purchase choice properties.
There is more flexibility (meaning the possibility of paying far less and getting the deal done quicker) since the arrangement is exclusively between you and the seller, with no bank as a third party. Furthermore, the absence of a bank saves you, the buyer, costs like origination fees and discount points.
What’s more, in this type of real estate investment, you can negotiate a more comfortable down payment. You can also negotiate a good deal spanning more favorable conditions for interest, an installment schedule, and easier penalties if you default on the arranged obligations.
Admittedly, seller-financed real estate property investments are not readily found. But some homeowners will be all too happy to jump into a seller-financed deal with you when their property is devaluing or possibly in need of comprehensive repairs.
Another way to invest less than $100k in real estate investing is to get a house, live in it, and rent it out. This strategy shares a resemblance with the house hacking model, but, with this, you will not share the property with your tenants after you buy and rent it out.
To maximize this system, it might suit you better to go for modest rental properties that, possibly with some strategic upgrades, will gain more rental value. Then, you move out and get a tenant to come in and pay rent.
In the live-in-then-rent model, you can resort to loan packages (for owner-occupants) just like in house hacking. By progressively accumulating properties through this affordable live-in-then-rent system, you can build an impressive portfolio of real estate properties that supply you with sustainable rental income.
7. Becoming a real estate agent
Here’s one of the most famous adages of life: time is money. So if you can’t invest real money in real estate, why don’t you invest an alternative of money: your time?
If you don’t have up to $100k to invest in real estate properties, you could explore becoming a real estate agent, putting in time and sweat instead.
Keeping the real estate jargon aside, the overriding idea of investing in real estate is to make money. But we don’t all have to own investment properties to earn from real estate.
Real estate property owners are avidly searching for agents in the real estate market that they can outsource tenant acquisition and management to.
An agent is a salesperson with a license to work under his jurisdiction under a dedicated body of brokers. Unlike brokers, agents do not work independently. In most cases, it is illegal for the agent to be paid a commission directly from the buyer.
The broker is always the sole entity to which all commissions are deposited. Depending on the arrangement between the agent that partook in the transaction and the broker, the commission is then split.
Regardless, some of these agents earn hefty commissions when they get an investor that successfully purchases a property.
Depending on your jurisdiction, the average agent rate is 5-6%.
In other cases, instead of being paid in commissions of the sales (or rent proceeds), some agents get paid predetermined flat fees.
8. Real estate mortgage notes
Real estate mortgage notes are not in the mainstream when it comes to real estate investments. Nonetheless, mortgage note investing is an attractive real estate investment option, especially for those on a low budget.
Typically, a real estate note is a promissory note with a mortgage loan securing it. However, it’s important to note that real estate mortgage notes differ from your traditional mortgage note.
It is not mandatory to register mortgage notes. It is also harder to get a mortgage loan from a traditional bank compared to purchasing private mortgage notes.
Mortgage notes are also referred to as borrower’s notes and real estate lien notes. Real estate notes are becoming increasingly attractive, especially considering that they have better returns than your regular bank’s low yield bonds.
Investing in real estate mortgage notes is highly promising, especially for those hunting for a steady stream of passive income. Upon securing a real estate mortgage loan, you would be paid regularly, often monthly. This encompasses the principle payment enhanced with interest.
The loan duration is expressly stated in the mortgage note. The standard range for that duration is anywhere from 10 to 30 years.
Interestingly, you could prop up the mortgage note’s worth by directly purchasing a hard-pressed mortgage note holder. What’s more, real estate mortgage notes are IRA-friendly with impressive roll-over options.
9. Trade Houses
With less than $100k to invest in Washington, DC, real estate, you could consider trading houses. Such a strategy is not new in the real estate market. Given the cyclical nature of the real estate market, builders regularly trade houses when the market slows.
This is an excellent opportunity to secure a new property without significant financial investment, provided you have another to give in return. Trading homes is also an effective means of escaping the capital losses that naturally accompany selling a property.
Here, the buyer acquires your property, simultaneously selling you one of his properties in return. With this in mind, the deal’s terms will vary depending on the individuals involved and on the prevailing circumstances under which the tradeoff is conducted.
When such tradeoffs are well-executed, you could gain a superior quality property, even if it might need a few upgrades.
Finding such housing trades is not that difficult anymore. The profusion of digital technology in the real estate market has led to the emergence of dedicated platforms where houses can be traded. Online marketplaces like homeexchange.com and goswap.org are famed for matching sellers for house trading deals.
10. Real Estate Investment Trusts (REITs)
REITs and mutual funds share a striking resemblance. Just like in real estate crowdfunding, buying REITs allows you to own a fraction of high-value income-producing properties.
This time around, a specialized team of investment analysts monitors your investments in the REIT. Of course, this comes with a fee.
REITs stand out for their capacity to diversify an investor’s portfolio. In some cases, REITs could invest in real estate debts like mortgages, while other REITs could invest in properties, pulling in rental income.
There you are! This is a comprehensive guide on how to invest in real estate with less than $100k. The strategies we advocate here are tested and proven to work for low-budget real estate investors, requiring minimal exertion as well.
At Self Storage Investing, we are passionate about helping you enjoy maximal returns in your real estate investment endeavors. With our amazing one-on-one mentoring and online and in-person training, we want to show you the lucrative secrets of real estate investing. As we proudly put it, we want to help you become financially independent without the hassles of tenants, toilets, and trash!
Doesn’t that sound great? Reach out to us today; let us get you rich via real estate investing.