Different Ways to Invest in Real Estate (If you only have $5,000 to invest)

Opportunity is all around us.  It is easy, especially in my stomping grounds of Phoenix, AZ, to see bargain priced property that a few years ago were “worth” double, sometimes triple what they are now being sold for.  However, many, if not most people out there have a hard time taking advantage of the opportunity to buy at the bottom due to limited cash available and/or poor credit.  So, what is one to do if they want to invest but only have, say, $5,000?

First option is to see if you qualify for an FHA or VA loan, in which case you would only need 3.5% or, in the case of a VA, nothing down.  At only 3.5% down $5,000 could purchase quite a bit of house. Of course, most readers likely wouldn’t qualify either because they own a home currently, recently foreclosed or most likely – would be using it for investment purposes only and not for their personal residence.

Second option, you can scale down the size of your investment, if you had $5,000 to put towards a down payment then that would allow you to purchase a house up to $25,000.  Even in Phoenix, that won’t buy you a whole lot but there certainly are houses, condos and mobile homes that can be found in that price range.  In fact, returns can be very high on some of those properties but they are usually much more management intensive.

The next way to invest is to purchase equity in an existing, publicly traded company, or group of companies.  If a particular geographic area and investment strategy is particularly appealing to you then you can research companies that match what you are looking for.  REIT’s or Real Estate Investment Trusts are publicly traded companies that invest in real estate.  They are attractive to investors as they are required to pay out 90% of their earnings back to shareholders.  There are also a lot of them and they encompass a variety of different investing strategies.  Some invest in apartment buildings, some office, some single family housing, some even invest in land for timber.

Still another way to invest in real estate with $5,000 is to purchase tax liens or deeds.  In Arizona an investor can purchase the property tax lien on a property and receive up to 16% interest annually when the owner pays off the lien.  In the off chance that the back taxes are never paid back by the owner then the holder of the lien (the investor) can foreclose on the property.  For more information on tax liens and how they work see my previous post on tax liens.

The last way is to attach your money to a pool with other investors.  Hedge funds, private equity groups and other investment groups solicit funds from individual investors, then pool those funds to target a particular investment opportunity.  Most hedge funds and private equity funds require minimum contributions in the $1M+ range, however, there are other groups that will take smaller contributions (including MCA Properties).  There are many of these companies out there and some do provide enormous returns, however, some funds have lost large amounts of money for their investors and indeed, as Bernie Madoff proved, some funds are simply scams.

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