You can create a diversified rental property portfolio that generates strong cash flow by investing $50,000 in real estate, provided that you do it right.
Even though stocks and mutual funds are traditionally seen as the best long-term investment, more Americans view real estate investing as the best long-term investment according to Gallup’s recent report.
There are lots of ways to invest $50,000, but real estate is our preferred strategy since it’s time tested and you can earn income in multiple ways.
So let’s get started. If you have $50,000 to invest in real estate, here are some ways you can start today.
- 1 Five Ways to Invest $50k in Real Estate
- 2 What to Consider Before Investing $50k
- 3 The Importance of Having a Diversified Investment Portfolio
- 4 Before Investing, Here’s What Investors Should Do
- 5 Determining the Investor Profile and Risk Tolerance
- 6 3 Ways to Avoid Losing Money
Five Ways to Invest $50k in Real Estate
Some popular options for investing in real estate include buying stocks related to real estate online, investing money with other people, or buying property one at a time.
REITs are a type of company that owns and operates income-producing property. They are publicly held, which means that they are owned by shareholders. Most REITs focus on a specific type of real estate, like industrial buildings, healthcare facilities, retirement homes, or apartments.
There are many benefits to working in the real estate industry, one of which is the ability to gain a broad exposure to different types of real estate in various markets. This can be a great way to learn about the different aspects of the industry and gain a better understanding of how the market works. Another way to stay financially liquid is to invest in a REIT, which can be bought and sold at any time during market hours.
A disadvantage to owning shares of a REIT is the return. The two largest residential REITs have a dividend yield of just over 4%.
Crowdfunding and real estate syndications are created when a sponsor raises money for a real estate deal by selling shares to a large number of investors. The person who creates a crowdfund is responsible for making sure the acquisition, financing, and management of the property goes smoothly, as well as for finding a tenant and eventually selling the property.
Crowdfunding real estate investments have the potential to provide investors with high returns. However, it is important to remember that each deal is different, so the return on investment will vary from deal to deal. Investing in a real estate company gives you the opportunity to earn a higher return on your investment than you would with a REIT, and you have more control over what kind of property your money is used to purchase.
One potential disadvantage of investing in a crowdfund is that sometimes the best deals are only available to accredited investors, people who have a high net worth or a six-figure annual income.
3. JV partnership
A deal where you are aware of the other investors involved, similar to a crowdfund. Some partners may invest money without being actively involved in the business, while other partners may be actively involved in developing and managing the investment.
Pros: You know who the other investors are. You’re more likely to profit and get tax benefits if you invest in a property with fewer partners.
There are fewer investors involved in this investment, which may make it more risky. Different work ethics and investment strategies can conflict with each other, and poor decisions made by the general partner can lower the potential return.
4. Rehab or foreclosure
The basic strategy of real estate investing is to buy a property at a low price and then sell it at a higher price. There are three main sources for finding below-market rehab and foreclosure properties: distressed sellers, bank REO departments, and auctions.
The potential to make a large profit is the main advantage of fix and flipping for experienced investors who are willing to take the risk of buying a property in an as-is condition.
Cons: Timing is everything. An investor who buys a property during a market downturn may be unable to sell it for a profit. This job requires a lot of hard work and detailed knowledge about the market.
5. Turnkey rental property
A property that has been repaired and updated, often with a tenant already living there. You can find turnkey rental property among all different types of real estate, although it is in high demand from investors who want to buy and hold onto the property.
An investment strategy that may be safe for people looking to passively earn income from real estate. The rentals are managed by professionals and the cash flow starts the day the deal is closed.
One of the potential downsides to investing in rental property is that you may experience negative cash flow in the short-term while the property is transitioning from one tenant to the next. Although you are not the property manager, as an investor you need to stay on top of how the property is performing by reviewing reports and financial statements.
This is one of our cornerstone strategies here at 40PlusFinance.com. To learn more about this, further information can be found at “What is Turnkey Real Estate“
Generally speaking you invest in one property, take the positive cashflow from it and roll that into the purchase of the next property. Once you have two, you take the cashflow from them and roll that into the purchase of a third.
And so on.
It’s what we refer to as our Wealth Snowball strategy and is a cornerstone of our financial freedom plan.
However, with that said, what should you think about before considering real estate?
There are a few things that are important to consider before you even invest a dime in real estate.
What to Consider Before Investing $50k
Before making any final decisions about where to invest your money, it is a good idea to take a look at your complete financial situation. Make sure to pay attention to what your goals are, how long you want to invest, and how much risk you are willing to take.
1. How Much Time Do You Have?
They need to know what they want their money to go towards before deciding on a time range that works for them. If someone wants to save money for a specific goal, like a wedding, they may only need to save for a shorter period of time than if they were saving for retirement. A person who wants to save for a house may need to save for five to 10 years.
This becomes especially crucial when you think about whether or not you want to be a more active or more passive real estate investor.
Personally, we want to stay passive real estate investors and hire a good property management company to handle the day to day tasks of our portfolio.
2. What Are the Investor’s Most Important Financial Goals?
The financial priorities of an individual are most likely determined by their current circumstances. Something to consider is if they have any debt and if it would be beneficial to pay it off before investing any money. This can allow them to begin anew and reduce the amount of money they spend on interest in the future.
Our advice here is to invest for cashflow so that one day our cashflow will exceed expenses.
Be willing to review what your progress is towards your goals. Our financial freedom calculator will help you do just that and give you a good estimate at what age you can retire.
3. What Is the Investor’s Risk Tolerance?
Finally, a person should think about their risk profile. Investments always come with some degree of risk attached to them. Before making any investment, people need to think about how much risk they are comfortable taking with their money.
The Importance of Having a Diversified Investment Portfolio
Diversification is a technique used to reduce uncertainty by investing in a variety of assets or asset categories. Investors should consider diversifying their portfolio by investing in different asset classes. This will help spread out the risk and potential return on investment.
One way to diversify your assets is to buy stocks from a variety of different sectors rather than just one or two industries. If someone only owns one stock, and that stock’s price decreases, the value of their entire portfolio may also decrease. Although an individual stock may not make a profit, if it is just one of many that a person owns, they may still come out ahead overall.
Investors should consider bonds and international stocks as well as domestic stocks to help diversify their portfolios. Other ways to grow their portfolio could be by investing in real estate or alternative assets such as Bitcoin, collectibles, or private equity.
How we diversity our own portfolio is investing in real estate in different markets and different “classes” of properties and neighborhoods.
Before Investing, Here’s What Investors Should Do
Some people may be anxious to start compounding their money as soon as possible, but this does not mean they should invest all of their money right away. You should begin by taking the first three steps listed below.
Getting Rid of High-Interest Debt
The Federal Reserve states that the average interest rate for a credit card is 14.65%. Credit cards usually have an annual percentage rate (APR) of 20% or higher.
The following figures demonstrate why repaying credit card debt should be a priority over investing. This way of investing guarantees a higher return on investment than what most investors will ever see from their portfolio.
Debt with high-interest rates includes personal loans, vehicle loans, and payday loans. If you have any debt with an interest rate of 8% or higher, it’s a good idea to pay it off as soon as possible.
What about debt from a home or college loan? Should they also pay off these loans early? This is a difficult question to answer without knowing more about your personal finances. The loans’ interest rates, risk tolerance, and other factors all play a role.
Creating an Emergency Fund
An important personal finance lesson that the COVID-19 outbreak taught people was the importance of having an emergency fund. An unforeseen catastrophe can result in a loss of income or work at any time.
How much money should you put in your emergency fund? Experts generally recommend saving enough money to cover three to six months’ worth of expenses in an emergency fund. Although this is not always the case, people who are self-employed or retiring may want to save more money for unexpected events.
While investing and creating an emergency fund are both ways to save money, they are not the same. An emergency fund is meant to cover unexpected costs, whereas investing is a way to grow your money over time. No. Putting money aside for emergencies in the stock market might be risky for two reasons:
First, someone may have to sell their investments at a lower price than they bought them for if an emergency arises while they are down. If someone were to withdraw their investment early, they may have to pay fines, penalties, or taxes. This is particularly true when making investments into retirement accounts.
Here at 40PlusFinance.com, we recommend keeping our emergency fund in a cash-value life insurance policy.
Determining the Investor Profile and Risk Tolerance
You need to figure out what kind of investor you are before you start investing. How much risk are they willing to take? The following are the three most prevalent risk tolerance categories:
This group of investors is willing to take on less risk in order to see their capital grow. They tend to be more interested in stability and preservation of their investment. A conservative portfolio is typically composed of mostly bonds and other fixed-income assets, rather than stocks.
Some investors are willing to accept short-term risk if it means they have the potential to gain more in the long run. A moderate portfolio is typically a balanced mix of stocks and low-risk investments like bonds.
Aggressive investors are those who are willing to take on more risk in order to potentially earn higher returns. Portfolios that are aggressive are often heavily invested in stocks, especially growth stocks that have a lot of volatility.
They should think about how much time they have until they need the money when deciding how much risk they are willing to take. Someone who is 33 years away from retirement is more likely to be able to weather the storm of the stock market crashing than someone who is only 3 years away.
Additionally, investors should also consider the size of their portfolio. More risk can be taken on by those with bigger portfolios. A retirement portfolio losing 10% of its value would still have $4.5 million. A 10% loss on a $500,000 portfolio is significant and could cause retirees to worry about their savings lasting.
3 Ways to Avoid Losing Money
Do not invest more money than you are willing to lose. Of course, they’re talking about a worst case scenario.
Although it is true that there is a lot of truth to the advice that one should not put all of their eggs in one basket, the fact is that there are plenty of ways to minimize the risk in almost any investment while working hard to maximize the rewards.
There are three great ways to make sure you don’t lose money when investing in real estate.
1. Don’t invest all of your savings.
If you have $50,000 in assets, you should always keep some of that money in the bank instead of using it all to buy a rental property. You will want to set some money aside for an emergency fund, which in real estate terms is called a “capital reserve” account.
Even though you might have made the best investment decisions, something could still go wrong.
The heating, ventilation, and air conditioning system in your rental property may stop working in the middle of an August heat wave, or your youngest child may need braces. If you don’t have extra funds, you may find it hard to sell your assets. No investor wants to find themselves in that situation.
2. Buy in secondary real estate markets.
Surprisingly, investors find that their money goes much further in markets that are not widely known to the general public. Although it may be harder to find, in smaller markets it is more common to find deals where you can buy multiple single-family turnkey rental properties while still having a very low LTV (loan-to-value) ratio.
Some people don’t feel that owning rental property in small, secondary markets is as glamorous as owning real estate in Southern California, New York City, or Miami.
But let’s face it. Or would you rather brag about owning a property in a lower cost of living market that is generating tons of positive cash flow? Which would you rather have? Would you rather boast about high cap rates and double digit yields your investments are generating?
Personally we invest out of state and in markets where we can take advantage of geographic arbitage.
3. Invest in Class B single-family workforce housing.
Sometimes unattractive investments are the most profitable. Plain vanilla rental property in the right location can generate strong, consistent cash flow year after year.
It’s closely linked to the employment situation in a given area, as workers with good jobs tend to live in better quality units In many regions, rental properties that are average in appearance are typically referred to as workforce housing. The quality of these units is often closely linked to the employment opportunities in the area, as workers with good jobs are usually able to afford better housing. The type of people who would be interested in renting this type of property are those who make a good median income and just want a nice place to live. This includes police and teachers, service workers, and others.
If you’re looking to invest in real estate from a distance, Class B properties are a great option. Because these types of rental houses usually attract more qualified tenants, occupancy rates are higher, and problems are fewer.
An investment of $50,000 can be made in a number of different ways. Here are a few things to consider when trying to determine the best investments for you: -How much risk are you willing to take on? -How old are you? -What are your financial objectives? This also applies if you are wondering how to invest 20k in real estate.
What about you, the reader? How would you invest $50,000?
Article sources & references:
The Kelley Financial Group. ” How to invest $50,000, https://www.thekelleyfinancialgroup.com/post/how-to-invest-50000“