When you have $50,000 and an interest in real estate, there are several investment options from which you can choose. However, deciding how to allocate those funds so your initial real estate investment can grow over time can be daunting.
Do you purchase property and turn it into a rental? Do you buy and flip a house? Or should you put your money into a real estate investment fund?
Where you direct that $50,000 depends on your goals as a real estate investor and the degree of risk you're willing to accept. Investing in real estate is a big decision, but it can potentially yield significant returns if done correctly.
Real estate investing can involve finding properties, negotiating deals, and managing tenants; each opportunity has its own inherent risk. In this article, we’ll share several investment avenues and help you consider the benefits and drawbacks of each one before starting your investment journey.
7 Ways to Invest $50K in Real Estate
Investing in real estate doesn’t have to be confusing or require a lot of money. You can potentially earn an active or passive income by investing $50,000 in suitable projects. These options include crowdfunding real estate equity and debt, buying a house, flipping a home, and purchasing shares of a REIT.
1. Crowdfunding Real Estate Debt
Real estate debt crowdfunding can provide investors with a steady source of recurring income. It’s a relatively new investment option involving investing in the capital stack of a given property.
The capital stack includes the various forms of financing used to acquire real estate assets, such as senior debt, mezzanine debt, and equity. Investors can choose to invest in any of these components to help fund a project's development.
Investing in real estate debt is often overlooked by investors due to its perceived complexity and risk profile. However, it can offer potentially attractive returns without needing substantial funds upfront or long-term commitments.
Crowdfunding debt is an appealing alternative for investors seeking higher yields than those traditional bank accounts and bonds provide. According to a recent white paper from Invesco, private real estate debt in the United States offers spreads of between 500–600 basis points or 5–6%.
When investing in a real estate debt fund, investors can choose from multiple types of investments, such as first-lien mortgages, second-lien loans, and syndicated or private equity investments.
First-lien mortgages are usually safe investments. They are made secure by the property itself and take priority for repayment in case of foreclosure.
Second-lien loans may provide higher returns but are riskier since they are subordinate to the first mortgage.
Lastly, syndicated and private equity investments allow more flexibility concerning size, structure, and return potential.
Investors need to consider the amount of risk they are willing to take when investing in real estate debt since default rates can vary widely depending on the market cycle. However, with careful due diligence, real estate debt can be a solid asset class for investors looking to diversify their portfolios.
Concreit offers investors a simple way to participate in fixed-income first-lien mortgages through their easy-to-use app. You can get started with any amount and don’t need to be accredited to invest.
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2. Buy Your Own Home
Purchasing a primary residence is one of the most common ways to invest in real estate. In addition to providing a more permanent place for you and your family, homeownership can result in significant financial benefits.
Homeowners often build equity in their property over time, allowing them to borrow against it should they need to finance large purchases or make improvements on the house. Zillow reports home values across the country have increased by about 88% since August 2014.
There are drawbacks to owning a home. The costs associated with purchasing and maintaining a house can quickly become expensive. Repairs are necessary when something breaks down, and regular upkeep is a must if you want your property value to go up.
Owners also typically have to pay additional fees such as property taxes and homeowner's insurance. In addition, if the market shifts or your financial situation changes, selling a home quickly to recoup some of your investment may be challenging.
3. Rental Properties
Buying a rental property is a popular way to invest in real estate. It allows you to generate a monthly income from tenants while the property potentially increases in value over time.
Moreover, rental properties can provide tax advantages in the form of depreciation and certain tax deductions for maintenance and repairs, property management fees, insurance, and mortgage interest.
However, being a landlord requires significant responsibility and commitment; there may be tenant issues or unexpected expenses, such as major repairs. Also, acquiring financing for a rental property can be difficult since lenders generally have more stringent qualification requirements than purchasing a primary residence.
Rentals can be a great source of income and provide financial security for years. However, you should always weigh the risks before taking the plunge.
4. Flipping Houses
For those willing to accept a higher level of risk, flipping a house is an attractive investment option.
You want to look for a property that needs minor cosmetic repairs such as refinishing cabinets, countertop replacement, a fresh coat of paint, and more. With the right house, your $50,000 should cover the down payment, closing costs, and possibly even some repair costs.
The risk involved in flipping a house is often higher than in other real estate investments. By putting your money into a fixer-upper, you are hoping it will eventually sell for a higher amount than what you invested into fixing it, which isn’t guaranteed.
Before purchasing a house, be sure to do thorough research and look for discounted properties such as foreclosures.
5. Real Estate Investment Trust (REIT)
Real estate investment trusts (REITs) are composed of companies that own and operate income-generating residential and commercial properties. You can purchase REITs through your bank or online broker since they are traded publicly on the stock exchange.
REITs are relatively simple to understand: the REIT company receives a profit once they lease out space, collect the rent, and pay expenses. The company then pays that income out to shareholders via dividends. REITs must legally pay at least 90% of their profits back to investors in dividends.
Owning shares in a real estate investment trust can also help to hedge stock market volatility. REITs have generated a return of -3.28% through December 16, 2022, while the S&P 500 returned a -18.19% over the same period, according to Nareit.
6. Real Estate Syndication
Real estate syndication allows investors to place their savings in opportunities where financing may not be readily available. It works by combining your capital with the capital of a group of people to purchase a property.
With a syndicate, you have a broader range of investment options, such as purchasing apartment buildings or commercial properties and generating income from numerous tenants.
A sponsor manages the property and daily operations while the passive investors pay for the property or make a down payment. With the help of a sponsor, you don't need to worry about regulations or knowledge regarding the real estate market. Their expertise and experience take that burden off your shoulders.
One of the risks associated with investing in a syndicate is that its success relies heavily on the sponsor and their ability to manage the property effectively. Additionally, you may be exposed to certain legal liabilities or tax implications should something go wrong. Investors need to understand these risks before investing in any syndication deals.
7. Crowdfunding Real Estate Equity
Real estate equity crowdfunding can help to diversify your portfolio while taking advantage of the current market conditions. By investing $50,000 into an equity crowdfunding platform, you may benefit from the possible appreciation and income yields associated with real estate investments.
Also, the cost of entry may be lower than traditional investments in property due to the fractional ownership structure offered by most platforms. This can give investors more flexibility and control over their investments.
The potential returns on investment are attractive too. Investopedia reports the best equity crowdfunding sites boast annual returns ranging from 2% to nearly 20%.
However, the gamble inherent in this type of investment includes a lack of liquidity and a high level of risk if the market conditions suddenly change. Additionally, it can be difficult to exit your investment if you need to do so quickly or unexpectedly.
A Quick List of Real Estate Investing Tips
While $50,000 is a tidy sum to start your real estate investing journey with, make a plan before making a move. Here are a few tips to ensure you have a solid foundation under your feet before taking your first step.
Pay Off Your Debt
Prioritizing debt repayment before investing in real estate is paramount to maintaining a sound financial future.
Not only will you have more capital, but you’ll reduce the risk of taking on too much additional debt while investing—and you can even improve your credit score significantly. This makes acquiring financing for subsequent investments even simpler.
Research The Market
Researching the market is key to any successful real estate investment. Understanding local economic trends and analyzing a property’s potential helps you weigh your options as an investor and make informed decisions about where to invest.
Knowing what type of property in what area will yield the best returns is essential for helping you maximize your return on investment.
Create a Diversified Portfolio
A diversified real estate portfolio can help mitigate risk and expose you to a wide range of investments.
Different types of investment properties, locations, and markets balance your potential losses with gains if the market takes an unexpected turn. It also ensures you have a steady income from multiple sources, which can provide financial stability over time.
