3. Make your home your first investment
Some real estate experts classify your home as a liability rather than an asset. After all, if you own a home, you pay for taxes, property insurance, maintenance, and possibly a mortgage. Put simply, it costs you money to own. But there are ways to offset the liability to potentially become an asset where the property produces income.
Think of Airbnb, the popular homesharing website, as an example: If you have additional space in your home, a garage apartment, or in-law suite, you could rent that space out as a short-term rental. The additional income could help offset some expenses of homeownership or help pay off any mortgage debt at a faster rate. Not all cities or specific neighborhoods allow this, so if you think this is something you’d like to look into, find out what your local zoning rules first. There are websites, like Airdna.co, rented.com, or VRBO’s calculator vacasa that offer free income calculators to help analyze the property’s income potential and viability.
If you don't own your own home yet, the first thing you need to do is save money aggressively. Even with various home buying programs that offer down payment assistance, you will still need to bring money to the table, anywhere from 3% - 10% in addition to being able to afford the cost associated with homeownership.
When you are ready to buy your first home, consider buying a duplex or a property that has the potential to rent an additional unit. This technique has become more and more popular as a way to participate in appreciation, take advantage of many tax incentives of owning real estate, and have rental income to cover the cost of your home each month. Think of how nice it would be to have a tenant paying your mortgage, while you get to live for free, or close to free.
If you don't want to live in a duplex or have to rent out part of your home, try taking advantage of one of the many first-time homebuyer assistance programs. Several programs will help you come up with additional funds for a down payment, reducing your investment to just a few thousand dollars.
Another option to start investing in real estate with little upfront capital is by wholesaling. This specific niche of real estate investment allows investors to make money from a real estate transaction without ever having to buy a property themselves.
When you wholesale a property, you find an off-market seller and get their property under contract to purchase at a set price. Typically this is a low value. You then find a third-party buyer who has cash available to purchase the property and assign the contract to them at a higher price. You get paid the difference between the higher sale price paid by the buyer and the lower purchase price from the seller. You never have to buy the property, nor do you need to have the money to purchase the house. For the lack of a better term, you make a finders fee.
While there are expenses with any investment, wholesaling is relatively cheap. The most considerable cost would be marketing. Sending letters, putting out bandit signs, or advertising online can add up quickly, and the most successful wholesalers spend a lot of money on their marketing.
Wholesaling is an active real estate investment strategy, meaning you would be doing the work to find, acquire, and sell the property. It is very time consuming and requires consistent work and effort. It takes time to learn how to accurately wholesale properties, find off-market inventory, analyze potential investment opportunities, talk with sellers, and grow your network of buyers.
For this reason, this method is not for everyone and is best for those willing to put in “sweat equity” in order to get their foot in the door of real estate investing. Many real estate investors begin here because they can get started with very little money upfront. After completing a few wholesale deals, they often can buy an investment on their own.
As you can see, there are several options available if you want to start investing in real estate on a budget. Some methods may appeal to you more than others, so determine which of the five cheap real estate investments best fits your current goals and get started.