First off, congrats. You’ve managed to save up $50k in investment capital. That is a tremendous accomplishment that most Americans would be unable to achieve in their lifetime. Want to know how to invest that $50k and what investments to choose? Paper assets or real estate? Here’s a quick guide to how to invest 50k.
Investing is a great way to build wealth and increase your long-term financial security. It’s a chance to make your money work for you, but you have to take responsibility and know what you’re doing. As an investor, you expect a good ROI with minimal risk. That’s why it’s essential to learn about how different options work and the level of risk involved.
The idea that you have to be wealthy to invest in real estate is popular but is far from the truth. I, myself, am just a middle class Naval Officer investing in Multifamily properties. Not a multi-millionaire hedge fund manager. Real estate investing and owning a piece of America is within your grasp.
Real estate investments do not always require a large initial sum. You can generate passive income and profit starting with as low as $50,000.
It is best to research before investing any money. That’s why we’ve put together this post to discuss different types of investments, how they work and what to expect from them. So let’s jump into it!
How to Invest 50k in Real Estate
You must remember that investing in real estate is a game of supply and demand. Interest rates are high, and oversupply is the norm, meaning that prices will continue to increase as more people enter the market.
You must find a property that will appeal to a large swath of investors to get the best ROI. Here are some of the different kinds of real estate investments.
Real estate syndication refers to the pooling of resources for investment. Therefore, multifamily syndication is a situation in which many investors pool their funds to buy an apartment complex.
In a multifamily syndicate, investors won’t have to worry about looking for and managing a rental property independently like dealing with a tenant’s leaking toilet in the middle of the night.
What Are the Principles of a Multifamily Syndication?
A real estate multifamily syndication is like a partnership.
A real estate syndication agreement involves General Partners (GPs) and Limited Partner/Passive Investors who perform different duties and take on different roles.
- The general partner who manages the deal from start to finish is the sponsor. The sponsor is responsible for locating and managing the exchange once the sale is closed, in addition to the asset management and eventually sale of the property.
- The limited partners/passive investors are in charge of pooling the cash needed to buy a property. Passive investors contribute some of the necessary upfront money in exchange for equity in the multifamily property.
You can use several different types of properties for a syndication deal. However, multifamily syndication is widespread among investors due to its low-risk level and ability to generate passive income.
General partners or sponsors can also be called syndicators. They may either be individuals or organizations who locate deals, gather investors, and manage investments. They have extensive real estate experience as syndicators and are knowledgeable about conducting due diligence on possible acquisitions and extensive market research.
Investing in Multifamily Syndication
Investors in a multifamily syndication profit from the property’s rental income (cash flow) and the potential upside profit received when the property gets sold for more money.
Typically, passive investors are paid between 6% and 9% of rental revenue before the general partner gets paid known as a preferred return or ‘pref rate’.
Most syndications demand a minimum investment of $50,000 from passive investors. But with this amount, it’s hard to make enough to replace your income or plan for retirement.
Fortunately, there is a way to grow your investment and make a good profit with just $50,000. Compounding offers an excellent opportunity to bring in huge returns on your investment in the long term.
- For example, investing $50,000 today will produce $375 in monthly cash flow (using a 9% preferred return).
- Assume the property’s valuation increases to $125,000 after five years (with a 2.5x equity multiple)
- If you reinvest the increased sum in similar transactions, $125,000 will produce $938 in monthly cash flow– a 250% increase in 5 years time.
If this continues for a while, your monthly cash flow will increase significantly in the long term. You may start making up to $65,000 in passive income in 10 years. In 20 years, an investment of $50,000 can grow into millions.
However, this illustration relies on a 2x equity multiple and a 9% preferred return. These estimates do not guarantee future outcomes, even though they may indicate the possible returns. Market dynamics are subject to change.
Commercial Real Estate Based on the Grocery Industry
Even in times of high inflation or unstable economic conditions, commercial real estate with grocery stores as anchor tenants is a relatively stable asset class that can increase over time.
Rent hikes are pre-programmed into leases for Commercial Real Estate (CRE) properties. Tenants will subsequently pay higher rent overall during the life of the lease, which will boost an investors’ cash flow.
If you invest in CRE, you can be sure of steady passive income from tenant rent. Other investment options like cryptocurrencies and P2P lending may not provide the same, steady returns over time.
The triple-net(NNN) nature of these leases also protects investors from price rises that detrimentally impact profitability because costs like taxes and upkeep pass on to the tenant rather than the investor.
Invest in Properties: Fix n Flips
Even though it is an innovative approach to invest $50,000 in real estate, few homes will sell for that amount in the present market. Besides, $50,000 might not be enough to pay for the repairs and the closing costs.
But while it seems impossible, there is a way around it. So, how do you make this work with only $50k in the bank?
Let’s use the illustration below.
Let’s say you decide to purchase a foreclosed investment property using a conventional bank mortgage. The next thing you’ll need to worry about is making repairs and renovations.
Assume the market value of a property is $180K and it is on sale for $150K. The minimum down payment for rental property is 25%, although it’ll depend on other factors.
So, a 25% down payment is $37.5K. Out of $50,000, you’re left with $12.5K. Assume repairs and renovations cost the remaining 12.5K.
- Currently, you own a $180K property.
- You made a $37.5K down payment for the property
- Spent $12.5K on remodeling
- $50K in total expenses
Since you’ve renovated and upgraded, you can offer the property at a market price of $180K.
Remember, you made a $37.5K down payment for a $150K sale, and you still owe the seller $112.5k.
Add your outstanding debt to the amount you spent on investment and subtract that amount from your selling price.
- $112.5K (outstanding debt) + $50K (total investment) = $162.5K
- $180K (selling price) $162.5K (gross debt + total investment) = $17,500
You can see that you make a $10,000 profit from this investment.
However, this calculation assumes you qualify for a 25% down payment. It’s generally a good idea to be conservative with your estimations when calculating repairs and renovations.
Furthermore, giving yourself a margin of error when estimating can ensure that the deal still works out. Unanticipated remodeling costs may pop up, and they can drastically impact your bottom line profits if you don’t prepare for them.
The upside is that you will make more money if everything goes according to plan or save more than you anticipated.
Investing as little as $50,000 in fixing and flipping might be one of the most common methods to make rapid cash. Try to keep your total expenditure from the purchasing price to the repair costs below 80% of the property’s value. A year or two should be enough to reinvest the proceeds from your initial flip into another property.
However, this real estate investment strategy carries a more significant risk than others. Before investing, you should thoroughly investigate the market and the property.
Invest In a Turnkey Rental Property
Investing in turnkey properties is a top investment choice for new real estate investors. Turnkey investments are available in a variety of real estate options and can be a safe and popular option for buy-and-hold investors.
This investment option doesn’t require you to spend money on renovations or upgrades. There is a renter already in place in most cases.
All you need to do is borrow from the bank, place your $50k down payment and purchase the property. After that, the Turnkey or Project Management business will take over the management of the property. Since there are already renters, you won’t have to worry about rental income.
A turnkey investment is one of the safest investing approaches for those seeking real estate-based passive income. Over time, you can go on to start earning up to $3,000 per month.
However, while the property is transitioning from one tenant to the next, there is a potential for short-term negative cash flow. Investors must be attentive to the performance of their properties by examining the property manager’s reports and financial records.
Investors should also do their due diligence on the turnkey company itself as they are placing their trust and money solely in the hands of these operators. Ask for references, look at the previous properties and talk to current tenants and owners within their portfolio. A good turnkey company and property manager will make or break your investment.
Investing in real estate wholesaling gives you an exceptional opportunity to be a part of the industry without owning any homes.
Real estate wholesaling is pretty simple. Below are the responsibilities you will have.
You will agree to find a buyer for the seller.
The wholesaler locates a buyer for the property and makes an offer higher than the seller had anticipated.
If the deal is successful, the wholesaler keeps the profit.
Since you can charge the buyer more, you don’t have to put in the effort or spend money renovating houses or finding other ways to add value.
It may not be obvious, but investing in real estate wholesaling still needs funding. You may need to employ a financial advisor or a legal expert to ensure your contracts are in order. You may also need to pay for advertisements, especially if you’re new to the business
Remember, real estate wholesalers typically work with distressed homes. This concept is due to increased pressure on sellers to make a quick sale, which increases your potential profit margin.
Real Estate Partnerships
Real estate partnerships are similar to syndicated agreements or crowdfunding. However, they are less formal and usually involve two people familiar with each other.
A straightforward agreement between two or more investors might constitute a real estate partnership. It can be family members, friends, or business colleagues. They can set up contracts in which each partner provides a specific amount of funds.
In a real estate partnership, investors pool their resources and experience to buy, build, or lease real estate. This partnership can give them access to more significant real estate deals than if they did it alone.
This flexibility allows you to invest as little as $50,000 and profit from more significant properties. It’s wise to partner with people who thoroughly understand the sector. That way, you can benefit from their expertise.
Invest in Real Estate Investment Trusts (REITs)
Investing in REITs is one of the safest forms of real estate investments. They allow you to own profit-generating properties in various real estate markets.
REITs are total-return investments that offer substantial long-term capital gains and significant dividend yields. REITs operate in important stock markets and own a wide variety of assets. A real estate firm must fulfill different regulatory conditions to be eligible to become a REIT.
Several REITs are available on the stock market. With more than 200 different businesses in varied specializations, the REIT sector is sizable. Any time you construct an equity or fixed-income portfolio, you must consider REITs.
REITs typically invest in a particular category of real estate assets, such as retirement, commercial, residential, and healthcare facilities.
How to Prevent or Reduce Loss
Whether it’s $1 million or $50k, no one wants to lose their investment. There are indeed no certainties and no guarantee of anything. But you can avoid losing money.
Determine what you can’t afford to lose and never invest more than that. That does not mean you’re planning to fail. It just means you should get prepared for the worst-case scenario.
In real estate, there are many strategies you can use to reduce the risk of practically any investment while putting in much effort to increase the returns. Let’s get into it right away.
Invest in Small Housing Markets
Going for the big guns like Southern California, Miami, or New York City might be tempting. But this may be a bad idea, especially if you’re new to real estate investing.
It may not be apparent, but investing in secondary or fast-growing real estate markets can be more profitable than hot markets. Many investors discover later that you may purchase two or three single-family turnkey rental homes in areas like Oregon, Massachussettes, or Kansas while maintaining a very low LTV (loan-to-value) ratio.
Consider Second-grade Single-family Workforce Housing
When you acquire in the right place at the right price, second-grade rental property may produce a stable, reliable cash flow continuously.
Buying second-grade property is ideal if you’re adopting a long-distance real estate investing plan. These single-family rental homes typically draw better eligible tenants, which leads to higher occupancy rates and fewer issues.
Workforce housing is used in several markets to describe simple rental property. People who earn an excellent median salary and live simple lives make up the potential tenants for this kind of rental property.
Study the Investment Property
The investment property study is a step you must always take before buying a rental property. Before you invest, calculate:
- Net operating income
- Anticipated cash flow
- Return on investment
- Cash on cash return
All of this data will clearly and significantly reveal the profitability of your rental property. You shouldn’t invest in a rental property that makes you run at a loss.
Additionally, even though real estate investments are primarily long-term, you should still consider options that can give you short-term returns.
By All Means, Create an Emergency Fund
According to many financial advisors, your first objective should be establishing an emergency fund that can pay for three to six months’ costs.
If you have $50,000 in assets, you shouldn’t put all of it into an investment property. Things occasionally go wrong, even with the best investments. You may have to sell at the worst time if you don’t have extra money.
You’ve heard the saying that “it’s a house, not a job,” so you may feel the need to let your job and house become one. However, it’s not as simple as putting more money into your home to make it bigger.
Home buying is a big deal, and it requires a good strategy. And there are ways you can break into the real estate market, even with a modest investment.
If you have been putting off your investment goals because you don’t have the capital. It’s time to get creative.
Need Some Help?
You can get the best help out there at Pinto Capital Investments.
If you’re interested in learning more about generating genuinely passive income while creating long-term wealth, get in touch with us.