How to invest $50K in Real Estate to generate $200K or more!

$50,000 is more than enough to get you started on your way to becoming a real estate mogul. Ideally you want to turn your $50,000 into $200,000 and more and real estate is a great way to accomplish that. Flipping, renting, REITs, partnerships and crowdfunding are all ways to invest your $50,000 nest egg and turn it into something big!

House Hacking: When you are just starting out the thing to do is to use the space you already have to start making money. I’m talking about your own home. I know a guy who just after college bought a triplex and lived in one section and rented out the other two. The money he made from the ‘other two’ allowed him to live for free in the ‘one’.

After a few years he moved into a very nice townhouse and rented out all 3 sections of the triplex. Once again, his rental income paid the costs of his townhouse and so he lived for free.

If you live conservatively you can eventually own two properties in great locations and the rent you earn from one can be enough to cover your expenses for both pieces of real estate. When you are ready to step up to a bigger property you can sell one unit and plow your profits into the newer, better, bigger piece of real estate. Always keep one property to rent out which helps pay the expenses of the other.

Flipping: Another way to get started if you don’t like renting is to find a piece of real estate that you can live in but that needs some work. Because the property is in need of refurbishment this will keep your up-front costs down. With a minimal deposit and very attractive mortgage rates right now this will leave a hefty portion of your $50,000 to make improvements to your property.

In this scenario you want to own the worst house in the best neighborhood, that way when you fix it up it will be appreciating even more. The difficulty, of course, comes from having to live in a construction zone for a couple of years. The reason you need to wait for a few years and have to live in a construction zone is that there are tremendous tax advantages that you accrue when you eventually sell.

All the shows on reality TV seem to flip houses in weeks, but to do this you end up paying quite a lot of income tax. The IRS gives you a break if the home you sell is the home you have been living in for more than 2 years. This is called your primary residence and the savings are significant.

For example: You can deduct the mortgage interest on up to $750,000 in mortgage indebtedness on your primary residence and when you sell you have tax free profits of $250,000 if you are single or $500,000 if you are married. (Note: please consult a tax professional before you think of selling your home).

If you are at all handy with tools or are friends with a trusty contractor the house flipping strategy can be very lucrative. Be very aware of which renovations are likely to add overall value (kitchens, bathrooms and finishing a basement) versus those that don’t (living rooms and bedrooms). Just remember that there are closing costs including agent commissions that you need to account for before you start calculating your profits.

Rentals

Turnkey Property: There are companies out there that offer turnkey solutions to would be real estate investors. They will help you find, analyze, buy and manage rental properties – essentially, they take your money and invest it for you. This can take a lot of the time and hassle of dealing with rental properties off your hands, but they charge you for their services.

Some turnkey companies will buy and fix the property as they have contacts with tradespeople, others will search for completed properties. Still others will focus on fixer-uppers and encourage you to pay for repairs and upgrades. Most companies either manage the rental units themselves or work with a professional management company directly

You will need to research which company appeals to you and your investing style. Also be careful of how much they ask you to chip in for repairs.

Partnerships: By partnering with another real estate investor you can go after larger deals. Good investors are always looking for partners with cash to spend and good investors are able to find good deals. The more partnerships you make the more deals you can do the more everyone makes money.

It can be difficult to find partners to go in on a deal with, so the best thing to do is to ask your personal network of contacts if they or anyone they know invests in real estate. It is also a good idea to attend local investor meetings and try to expand your network.

Look for someone who has different strengths than you do. If you are good with financial deals look for someone who is handy with construction. Your two different skill sets will combine and save you money in the long run.

REITs: Real Estate Investment Trusts are companies that invest in real estate and trade publicly on the stock market. You simply buy their shares and hope they know what they are doing. There are many different REITs out there that specialize in every market niche you can think of and some are very, very profitable.

However, when you invest in a REIT it is the same as buying the stock of any other company. The shares are NOT backed by the real estate that they own. It is possible to make money this way but it is not as safe and secure as investing in the actual real estate itself.

Real Estate Crowdfunding: Real estate crowdfunding is a creative way to pool investor’s money so as to pursue huge real estate projects. This is a form of passive income for you the investor because the fund takes care of all the details. You can actually invest in multiple deals this way depending on the minimum investment required of the particular fund that you are interested in.

Funds advertise online so as to appeal to a wide range of accredited investors, and take a lot of the due diligence off your hands. The best funds have professional executive teams and lots of experience. Of course, there is a fee for all this great service but if you want passive income and potential for great returns it just might be the best way to go.

Conclusion

No matter your risk tolerance, investing style or available cash there is probably some type of real estate investment that is just right for you. Taking the plunge into real estate investing can be fun and very profitable. You can get involved directly in rental real estate or have a management company look after all the details. With crowdfunding you can sit back and watch your monthly checks come in to your mailbox.