Real estate investment often seems like the exclusive purview of the ultra-wealthy, but there are many more opportunities available to investors than buying mountain homes or luxury skyscrapers. Investors with $100,000 can make meaningful moves within the industry to grow their wealth. Whether $100,000 is your entire investment budget, or only part of it, read on to learn about some potential real estate investment options.
Life Bridge Capital is a leading real estate syndication company offering our investment partners the opportunity to leverage shares of multifamily rental properties into a passive monthly income. Learn more
Factors to Consider
The worthiness of an investment lies in the eye of the individual investor. Someone who makes several hundred thousand dollars per year can exercise a higher level of risk than another investor nearing retirement with not quite enough in the bank.
When planning an investment of this size, it’s important to keep a few key things in mind. Your personal goals and limitations should guide you throughout the selection of the investment:
- Liquidity of the Investment. Determine your comfort level with having the money inaccessible for long periods of time. Especially for those investing a large portion of their savings, the ability to withdraw the money for emergencies may be a deciding factor.
- Control of the Investment. Put careful thought into whether you can take the back seat in the investment and stay there. If doing so seems untenable, be judicious in the investment you choose.
- Passivity of the Investment. Be just as honest about the time you have to invest as the money you have. Would you prefer an active or passive investment? Choose an investment that fits into your lifestyle.
- Risk Tolerance. Decide up front how much risk you are willing to take and hold firm on that decision. Follow the decision made with a calm, unaffected mindset rather than when caught up in the excitement of a promising project.
Wise investing should be your goal. Remember that the premise of investing is not just to grow wealth, but also maintain it. With these key considerations understood, let’s explore some ways you can invest 100k in real estate.
Real Estate Syndication
With minimum investments commonly around $50,000, your $100,000 can open the door to potentially multiple real estate syndication opportunities. Real estate syndication, similar to crowdfunding, is the process by which a group of investors contribute funds to an overarching syndication company that purchases, renovates, manages, and then sells the property. Multi-family properties are a popular syndication projects, because the monthly rental payments from the tenants can yield early and regular revenue, and there can be an opportunity to significantly increase equity by renovating or adding new amenities to the property.
The syndication will be managed by a sponsor who is the real leader of the project. The individual investors all contribute funds toward the project but are not responsible for any legwork. Instead, the sponsor handles all of the work for the project while individual investors can enjoy regular passive income. Everyone involved in the project will split any income and equity growth according to the terms of the syndication contract.
Syndications can be exciting opportunities to earn passive income and get a payout at the end when the property sells. You will find different syndication structures that govern the order of investor payout. Some trend more toward early returns, while others give investors a bigger piece of the equity pie at termination.
Pros & Cons of Real Estate Syndication
Although online platforms are making it easier for investors and sponsors to connect, it can be challenging for unaccredited investors to find a project. On the bright side, once you select and finalize your investment, the sponsor handles all the legwork regarding the property.
Prepare to have your money tied up for 5 to 10 years when investing in a real estate syndication. Investors will ideally see regular income through rent collection over the lifecycle of the project, but ultimately, the funds remain invested until the project terminates upon the sale of the property.
On the other hand, favorable IRS rules regarding property depreciation and mortgage interest, along with a lesser tax rate, help investors to keep money in their own pocket instead of the government’s.
Interested in learning more about real estate syndication or upcoming opportunities? Contact Life Bridge Capital today.
Real Estate Investment Trusts
Perhaps one of the easiest ways to invest in real estate with $100k is through Real Estate Investment Trusts (“REIT”s). The process will seem familiar to anyone who has purchased and traded stock online.
REITs are investment funds that own or finance income-producing real estate properties. The REIT then pays out at least 90 percent of its taxable income from the income-producing properties to the shareholders.
Most REITs operate on major stock exchanges, like the NYSE, and investors purchase company stock. You can then see growth in the value of the stock, but the dividend payout is the main draw to this type of investment.
Investors can research the performance of each REIT and invest in any combination and in any category. REITs often specialize in specific types of real estate, like commercial, multifamily, hotels, and more. Popular REITs include:
REIT Exchange-Traded Funds
If REITs sound appealing, but researching enough companies to spread out a $100,000 investment does not, consider REIT exchange-traded funds (“ETF”s). ETFs are investment funds that are bought and sold like stock. Each ETF is essentially a pre-set combination of investments.
An REIT ETF is an ETF that deals solely in REITs. Going this route saves investors the effort of researching, monitoring, and managing each REIT. Instead, you can analyze the performance of the ETF alone.
Look for REIT ETFs on any platform that you use for retirement or other investing. Vanguard’s VNQ is one popular option.
Pros & Cons of REITs and REIT ETFs
REITs and REIT ETFs are among the most accessible of real estate investments. For example, Vanguard VNQ has no minimum investment. Investors can also pull their money out at any time, making this the most liquid option on this list.
The downside is that the rate of return will likely be lower than that of the other investment options. REITs do carry particular risk by specializing in certain industries or types of property. If an industry experiences a downtown, REITs for corresponding properties will feel the pain as well.
Purchasing a Property
Purchasing a property is likely what many people first think of when considering real estate investing. But with only $100,000 to invest, you may be imagining a foreclosure in the middle of nowhere. Buying an inexpensive property that you can own debt-free is certainly an option. Unfortunately, in many metro areas, a property less than $100,000 is unlikely to produce income.
Your $100k investment could instead become a 20 percent down payment on a property in the $400,000 range. Just be sure to keep plenty of cash in reserves for the inevitable maintenance and repairs as well as for periods of tenant vacancy. Multifamily properties reduce the risk of being completely vacant and earning no income.
Alternatively, you may keep the investment property for your own use. Rather than paying for a hotel or rental when you travel to a favorite location, you could be staying in, and paying for, your own property. Most importantly, you could be making memories in a property you own, which is very valuable.
While family vacations do not pay the bills, your property could pay for itself and your vacations, if turned into a short-term rental when you are not using it. You might consider hiring a property management company to assist with renting the property or manage it yourself on platforms like VRBO or AirBnB.
Pros & Cons of Purchasing a Property
Owning a rental property gives investors the chance of a two-fold source of financial gain. The monthly rental payments should provide a regular monthly income. Second, the owner can realize gains from an increase in property equity in the future when selling the property.
Steady rent payments from a reliable tenant provide a great source of predictable monthly income on a property that is also growing in value. That is an investing win/win. On the other hand, it can be hard, unpleasant, and even unpaid work if you do it all yourself and run into trouble collecting rent. DIY landlords are customer service representatives, marketing specialists, bookkeepers, and repair people all in one. Being a one-person operation will likely not feel like passive income even though that is how the IRS classifies it.
Property managers can do everything from find tenants to hire maintenance staff to reduce the owner’s workload, but their services add to the expenses and eat away at the owner’s profits. Reliable, easy-going tenants could also diminish the burden of being a landlord. But as 2020 showed us, even the most stable employment can evaporate, leaving your favorite tenants without income.
Given the low interest rates on consumer savings accounts and CDs, investing savings in real estate is more attractive than ever. And, thanks to options like REITs and real estate syndications, it is actually possible to invest in real estate with $100,000 or less.
With that budget, consider how active and aggressive you want to be in the world of real estate. Your investments can be as simple as a few taps in an app on your phone, or as complex as buying an entire property and becoming a landlord.
As with any investment, investors should always remember that real estate does still carry the risk of loss. Be judicious in the projects you pursue, and always be careful not to overinvest to the point of lacking liquid funds for emergencies.
If you’d like to learn more about how you can generate passive income through real estate syndication, contact Life Bridge Capital today!