Although most people think of real estate as an investment only for affluent individuals or those with a lot of capital to invest, the reality is that you can invest in real estate with very little money.
For example, many large real estate companies are publicly traded, and you can simply purchase stock in such companies — real estate brokerages, real estate development companies, construction companies, etc.
You can also buy into a real estate investment trust (REIT), which we will discuss in more detail below.
Additionally, one of the newer forms of real estate investing, which allows individuals to participate in deals without investing much capital, is real estate crowdfunding.
What is Real Estate Crowdfunding?
Real estate crowdfunding is a platform (sometimes called a peer-to-peer lending service) that connects individuals who want to invest in real estate with real estate businesses and property owners who need to raise capital for their projects.
These real estate businesses in need of capital can structure their investment opportunities as either debt or equity financing. This means that investors researching real estate crowdfunding opportunities can find deals offering them either debt-based investments (repaid with interest in fixed installments or at the end of a predetermined period) or equity investments, where they can participate in the upside profit on the real estate deal.
Is Real Estate Crowdfunding a Safer Investment?
No investment is guaranteed, and there are risks with all investing including Real Estate Crowdfunding. However, the more sophisticated crowdfunding platforms thoroughly review every real estate deal as well as the team behind it before making it available on their sites for investors.
Additionally, the real estate opportunities offered on crowdfunding platforms do offer the general comfort of investing in a physical piece of property, as opposed to a stock or bond or other nonphysical asset.
Real Estate Crowdfunding for Non-Accredited Investors
Although crowdfunding platforms offer investment opportunities to non-accredited investors, generally prospective investors will need to meet certain criteria, such as minimum net worth or household income.
For many of the real estate investment opportunities available on a crowdfunding platform, however — particularly those that are not publicly advertised — non-accredited investors will be eligible to participate.
Investing in a Real Estate Investment Trust (REIT)
In our last post, we explained that a REIT is a real estate company that models its business somewhat like a mutual fund, by pooling capital raised by investors to purchase real estate (either for ongoing income or for resale).
So, how can you invest into a REIT? The simplest and most widely available way is to purchase shares in a publicly traded REIT company or in a REIT mutual fund. Any individual with a stock trading account can invest in REITs this way.
But accredited investors — typically high-net-worth individuals who meet certain minimum financial criteria based on income and total assets — can also invest in private REITs. These are not publicly traded and are not registered with the Securities and Exchange Commission, which means they do not have the same regulatory requirements to disclose details about their financial records. This is why investment opportunities in private REITs are typically open only to accredited investors.
How Do I Know Which Real Estate Investment Companies to Trust?
Even if you are a high-net-worth individual who would qualify as an accredited investor, if you are new to REITs the safest way to begin investing in these companies is to start with those that are publicly traded.
Why? Because the stock-exchange-traded REITs are subject to the same financial disclosure rules as any other publicly traded company, which means you should be able to find out more about these companies and their investments than you would with if you were researching a private REIT.
Another reason it might be wise to opt first for a publicly traded REIT is that these companies are followed and rated by stock analysts just as businesses in any other industry. This means you can find detailed analysis about public REITs at any of the major stock analysis outlets such as MorningStar or TheStreet.
So there you have it; investing into real estate with limited funds is not completely out of reach. Just as always, be sure to do your own due diligence and research before making any investment decisions.
