How To Invest 50k In Real Estate
This article is part of our guide on how to invest 1 million dollars for income, available here.
The average person has a lot of questions about how to invest 50k in real estate. After all, this is a large sum of money, and people want to make sure that they are making the best decision possible.
In this blog post, we will answer common questions people have when investing in real estate and provide you with our top tips for investing $50,000 in real estate!
Before investing $50,000, you must decide what kind of risk you’re willing to take. Some people are eager to increase risk in exchange for maximizing returns. Others choose to play it ultra-safe with minimal risk. Every investor has their investment strategies, but the most successful investors understand how to locate investments that balance high returns with low risk. But real asset classes like multifamily offer some of the safest investments with the highest returns.
You should also figure out what type of work you have time for. Some investors want to be 100% passive, while others want to have more of a role in the day-to-day. Every investor has different goals, but the more passive something is, the more time you have in your day to focus on your career or other investments.
Buying a Home and Renting it Out
Buying a property you rent out can be a great way to start building your investment portfolio. Assuming you can secure a mortgage (without taking on high-interest debt), you would be able to buy a rental property for about $250,000. It would be best if you aimed to collect 1% of the purchase price in rent every month. In this case, you’d want at least $2,500 per month. Rental income at 1% of the purchase price will likely lead to a cash flow positive property which is the goal. It’s important to remember that every property is different, and proper due diligence should be done before you start investing money.
You also might want to buy a distressed home that needs work and renovate it. The renovation cost would have to be factored into your investment. This can also be a good option if you have construction knowledge and friends who can help with labor. It’s an excellent place to start but not a good option if you want to scale your business, as you can only work on one property at a time. It’s also risky since you can’t make money with the property until the work is done.
Starting with single-family rentals can be a great way to invest $50,000 in order to invest in real estate, but you have to be prepared to become a landlord. Even with maximum leverage, bringing in enough income to make sense of highering property management is hard. If you’re looking for more passive options, Reits and Syndications are the better options.
Investing in REITs
Another way to invest $50,000 without too much risk is by investing in real estate investment trusts. These are investment funds that own many properties, and you can invest in them by purchasing shares in a similar way you would invest in the stock market. You can buy into some of the largest REITs for as little as $100. It sounds great, but there are a few disadvantages.
Why REITs Aren't as Great as They Appear to Be
Many advantages of real estate investing involve tax benefits, but REITs are the exception.
First, the income you generate is taxed as regular income. This can be a significant disadvantage if you’re in a high tax bracket.
The second problem is that the share prices of REITs are very volatile and can go up and down. This volatility is a problem for most investors.
The third disadvantage is that you’re not actually investing in real estate. You’re investing in a firm that owns real estate; therefore, you’re investing in real estate indirectly. Meaning if the company goes bankrupt, you could lose all of your money.
Flipping a Home (Make Sure to Have an Emergency Fund)
Flipping a home is another option for investing 50k. To do this correctly, you need to buy an existing property with the plan of reselling it at a higher price within 12 months or less. This is an excellent option if you have time and money to put into it. You should be prepared for all the costs associated with fixing up the house and potential unexpected repairs that may occur after buying it. Make sure you have extra cash as an emergency fund to get through these issues.
All of Your Own Money
In some markets in the United States, you can do this with all of your own money. Or, you can buy a 50k home and then use borrowed money for the repairs from a friend or family member. Once you sell the home, you can pay back the borrowed funds. Some very savvy investors will use credit card debt to purchase the materials or other parts of the renovations, further reducing the cash they need, which can be another great way to complete the flip.
You could also partner with someone to take on a larger project and work together. You could split the profits 50/50 and do the flip together, or your partner can remain passive and invest more money into the deal to compensate. You could get your partner to invest 100% of the funds in exchange for you doing all the work. You could even give your 50K to someone else as a joint venture partner and leverage their time and experience to share in the flip profits.
There’s no right or wrong way to do this as long as both parties agree on their contributions and profit splits. Whatever agreement you and your partner come to should be written down and signed by both parties to reduce to likelihood of a dispute. This can be an excellent way to start property investing but it comes with a relatively high level of risk.
Using Hard Money Lender to Flip Houses
Depending on your risk tolerance, you can use a hard money lender to buy properties that sell for about five times your down payment. In this case, it would be a home that would sell for about 250k. These lenders are asset-based, meaning they don’t care a lot about your income or credit score (some do, but it’s not nearly as significant as a traditional financial institution). Although you’ll have to make interest payments, this is a great way to get your money to achieve a higher return on your 50k but it is a bit riskier.
Leveraging your 50k
Here’s a quick example:
A home that costs 40k, needing 10k in repairs, might only be worth about 90k. That leaves a gross profit of 40k. In this case, 50k produces a 40k profit, an 80% return on investment (known as ROI).
Another home that costs 150k with 30k in repairs would require 180k to complete. If a lender can fund 80% of the costs, you’d receive 144k from the lender. This means you can pay for the home and repairs with about 36k. The 14k leftover can pay the loan every month until it’s sold. If the house can sell for 250k, you would gross 70k, which is a 140% ROI.
These examples are overly simplistic to make them easier to understand. The truth is that after paying your closing costs, broker commissions, insurance, property taxes, and other expenses related to renovating the house, you would make much less profit.
Flipping Houses in NOT EASY
However you decide to do it, you shouldn’t get caught thinking it’s a breeze. Many investors believe this investment strategy is easy, but that is not the case. Flipping homes can be very profitable, but only if done correctly. The math needs to be carefully calculated to mitigate risk, and repair costs need to be as accurate as possible.
The Problems With Flipping Homes
If you don’t do this correctly, or if you get unlucky and run into unforeseen problems (which happen even to the most experienced investors), you could lose money. The most common way this happens is if the property doesn’t sell right away or the repairs cost more than you budgeted.
A lot of problems also happen from miscommunication with contractors. The most common ones are having to spend more money on items that weren’t included or dealing with lower-quality finishes than anticipated after the fact. Even if this isn’t the case, many bad contractors out there will take advantage of you in any way they can. Some will even take your first deposit and run off without completing work.
Ways to Mitigate Risk of 50k cash
Putting money into a house that needs work can be one of the riskiest things you can do if you’re new to investing. You must have a solid business plan going into it. Make sure to get multiple contractor quotes to ensure that you know the actual condition of the structure before you buy it. Also, ensure you understand the neighborhood and what most buyers want. Before you close, you need to be realistic about what your property will be worth.
Best way to invest $50,000 in real estate
A syndication is a group of investors who combine their money to acquire a property. This is hands down the BEST way to invest money. Multifamily syndication investments are safer than flips or single-family rental properties because your investment is usually diversified across many units.
Since multiple investors can purchase more significant, stable, and overall higher-quality properties than they could buy on their own, these investments provide the most insulation from unforeseen events that anyone with 50k would ever have. Syndications are also one of the best ways to invest $200,000 in today’s market.
What is a General Partner
Every syndication has a General Partner (GP) or a small group of GPs. GPs are responsible for locating the multifamily investment, negotiating the price and terms, performing due diligence, arranging the first mortgage, and collecting money from Limited Partners (known as LPs).
After successfully closing on the property, GPs are responsible for actively executing the business plan by adding significant value to the asset, usually renovating, and paying out monthly/quarterly distributions to the LPs. An excellent thing for LPs is that they don’t have any liability beyond their initial investment.
A GP is usually a highly experienced real estate investor with an existing presence in a particular market with pre-existing property management and contractor contacts, which all LPs can benefit from. The advantage to GPs is that they’ll receive a small piece of the upside in the deal, which is excellent for LPs because their interests align with the LPs.
If you want to succeed as a new investor, it’s wise to take an experienced person’s investment advice, but even smarter to invest with them. Also, investing in syndications is 100% passive, which means the investment doesn’t take up any of your time.
Frequently Asked Questions About How to Invest 50k in Real Estate
A savings account is probably the safest place for any investment, but it comes with a serious problem, especially in today’s economic environment. Although your money at the bank will be safe and your return is guaranteed, you’ll lose purchasing power due to the rapid inflation in today’s markets. This is because banks don’t offer a high rate of enough return. Among very safe investments, multifamily real estate is the best. Since they cost millions of dollars, you can invest in one fractionally through syndication.
Multifamily real estate assets over 50 units are the best place to park money. Real estate syndications are an excellent way for investors with under a million dollars to invest in these properties. The risk is ultra-low, and the returns are fantastic. The stability you can get from such a large asset class is unmatched. Also, the growth potential is very high because when monthly rents increase slightly, the extra income is realized over all the units every month, which results in a higher net income and a drastic increase in property value.
How to Invest 50k in Real Estate - Conclusion
Now that you’ve read this blog post, we hope you feel more confident about investing in real estate. You can click here to join the Willowdale Equity investment club if you want to get private access to exclusive multifamily investment opportunities where minimum investments start at $50,000. You should have the necessary information to make informed decisions about how to go about it.
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