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How to start investing in real estate with just $50K?

How to start investing in real estate with just $50K?

So, you have been able to save some money and have built up $50,000 and want to get involved with real estate. You’ve seen the disaster that the stock market is going through with its response to COVID-19 and are looking for a safer place to invest. Real estate is a great choice but there are a few other things to consider before you take the plunge.

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You need to make sure you tick off the following boxes before investing that $50,000.

  • Build an emergency fund: The value of an emergency fund is being shown today during this pandemic crisis. It is recommended that your emergency fund be large enough to cover your expenses for 3-6 months.
  • Pay off debt: You absolutely want to pay off any high-interest debt that you have before investing. The interest you pay on a credit card will almost certainly be more than you will earn on an investment.
  • Life insurance: This is about taking care of your family should the unthinkable happen to you. The rule of thumb here is to insure 10X your yearly income, but talk to an insurance professional as personal circumstances can vary greatly.
  • Save for kid’s education: If you have children you may want to consider putting a portion of your available funds to help pay for college. Again, discuss with a professional financial advisor first.

If you have been able to tick off those boxes and still want to invest that $50,000 then real estate is a terrific option.

Advantages of Real Estate

  1. Investing in income producing real estate can establish a passive income stream for you that will be consistent and reliable for years to come.
  2. Real estate appreciates over time, so even if you do nothing with the property you will have an asset that grows in value.
  3. Real estate can diversify your portfolio to provide protection against the unwanted volatility of the stock market.
  4. You will be protected against inflation since your income producing property will also be raising the rent each year.
  5. Your investment will be protected by the value of a real tangible asset so you can sleep comfortably at night knowing you are safe.

Ways to get involved in Real Estate

Ways to get involved in Real Estate:

Purchase a REIT: A Real Estate Investment Trust is a company that invests in real estate and earns a profit by doing so. With the profits they issue dividends to their shareholders and this is how you can make money. It’s important to note that this not really any different than investing in the stock market. You own shares in the REIT company. You do NOT own or have a stake in the real estate that the company invests in. This is still technically investing in real estate but I would argue there are better ways to get involved.

House flipping: This is truly investing in a real asset. House flippers make a profit when they sell their asset. Obviously, the only way to turn a profit is to make sure your expenses are less than the re-sale price of the house. People who house flip for a living are laser focused on costs.

The largest cost is the price of the house to begin with. You will want to look at distressed houses or those with motivated sellers. Ideally, the worst house in the best neighborhood that you can afford. Then you need to consider the costs of renovations and repairs. Houses sell well when they are lived in rather than empty so another cost is staging the property. Costs for real estate agents and lawyers’ fees. And don’t forget the property taxes during the time you owned the house. Your $50,000 should be able to secure financing so you can afford all of this but then, that is another cost – interest on your financing.

It is certainly possible to make money this way but it is difficult and you need to get some experience. Consider partnering with an experienced flipper first.

Rental properties: This is one of the best ways to make money in real estate. Your $50,000 should be enough for a down payment for one or even two properties that you can then rent out and earn an income from. Once again you need to keep careful track of your expenses including taxes, financing costs, repairs and property management fees (if you don’t do it yourself).

Private Real Estate Investment Fund

Private Real Estate Investment Fund: If you don’t want to take on the responsibility of ownership (taxes, financing, repairs, tenant credit checks, kicking troublesome tenants out, upgrades and renovations, etc) then you should look at a turn key solution. Let’s look at the KASA Investment Fund as an example.

Investors purchase a share of the KASA Investment Fund and this investment is secured with the real estate in the fund’s portfolio. The Fund uses your money to purchase beachfront property and then develop a luxury hotel on the property. The fund uses their experience and connections to secure the very best deals and begins to generate income from the hotels. Massive advantages include:

  • Investors are paid quarterly disbursements upwards of 15% per year.
  • Prime beachfront locations appreciate at a premium rate.
  • Instant equity is generated when the hotel is completed.
  • Your principal is 100% secured by the real estate in the Fund.
  • You can invest within your IRA to realize all the tax advantages.
  • Diversified away from the unwanted volatility of the stock market.
  • Diversified geographically within the portfolio.
  • Hedge against inflation since rents increase over time.
  • Experienced proven management team.
  • No hassles from renters – they do all the day-to-day managing of the hotels.
  • Their hotels are affiliated with Small Luxury Hotels of the World which is an international brand that guarantees 5-star quality and experience.
  • You can even visit the properties to have a fabulous vacation at owner discounts.

The only disadvantage of the KASA Investment Fund is that, just like any real estate investment, it is not liquid. When you want to sell you have to offer your share to existing investors first before you can open it up to anyone else. If you can make your investment of $50,000 within your IRA to take advantage of the taxation benefits then so much the better.

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