As many before have found out, investing in real estate to "hold and rent" may sound like passive income but it rarely is.  You will be getting calls 24/7 for repairs and problems.  An option would be to use a property managment company as a service.  They take care of all of the problems and collect rent, but you still end up paying for the fixes plus their fees for the service.

To answer your main question though about how to acquire real estate with little money down, it is certainly possible but the glory days of purchasing foreclosures and short sales for pennies on the dollar are long gone.  With decent credit you will probably need at least 20% down to purchase a property and maybe more.  Banks look differently at purchasing for investing and purchasing for a primary residence.

May I suggest, if you are wanting to invest in real estate instead of the stock market to either spread your risk, or you just think the stock market is too volatile (you could very well be right) then you should definitely look at a REIT or real estate investment trust.  There are many types on the market and they make real estate a true passive investment.  There are several newer ones such as Fundrise that allow a normal small investor to partake in large real estate investments.

Once you get your feet wet with some investments into REIT's (and you still want to pursue your own purchases) you can start looking around and talking to people about what it takes to do your own investing. Its not for the feint of heart.

Also keep in mind most real estate investments including REIT's are not liquid.  That is, if you need money for an emergency you would have much difficulty tapping this investment.  If you are holding stocks and bonds you can cash out quickly.

That's why its really important to have the following strategy

1) Eliminate all debt you possibly have. Low interest car loan and mortgage should be the only debt you have (and would be nice to not have a car loan at all also depending on your situation)

2) Have a cash reserve of 3-6 months living expenses (not in 401k, IRA etc)

3) Contribute as much as possible to your employer offered plans. Note some 401k and IRA monies can be put into REIT's, they don't all have to be in stocks and mutual funds.

4) Invest any extra monies on a regular basis in the vehicle of your choice.

Good luck to you!

 

 

@DipperDave Great tips, thanks for sharing!

I am personally going the route of REIT's for now until I can have a better financial position to be able to invest in my own properties.

I have been using Rich Uncles REIT for a while now but have constantly heard a lot about Fundrise and I intent do try them out in the future.

There are so many ways to invest in real estate these days. It is one of my favorite investment options.

REITs are great and easy to invest in. They are traded on the stock market and can be bought and sold easily. Many of them also pay monthly dividends like ORC or O.

You might think of trying AirBnb. Any extra space you can rent out to people and earn extra cash. I live in Dallas near the Cowboys stadium and whenever there are games I just rent out a room and make off like a bandit. You just have to keep you place looking nice and clean take some good pictures for the website and you are off and running.

If you want to invest in real estate, but you don't have enough to purchase a rental property you can look into a real estate crowdfunding companies. Seems like these are popping up left and right these days. Fundrise, RealtyMogul and Crowdstreet are a few. I have personally tried Fundrise and it is great for real estate investing if you do not want to put down $10,000 or more initially.

Always remember to do your research before investing and investigate what fees they charge.

I've been thinking a lot about REITs. The problem, if I understand the vehicle correctly, is that you don't get a say in what commercial properties are bought in what cities, so that's high risk to me. Somebody please correct me if I'm wrong here and you do get to make a lot of the choices in REITs, or if there are REITs out there that allow you to pick and choose cities/property areas.

Then I started to realize that my biggest passive investment vehicle is my house, as it is with most Americans. We've started to think about how we can modify it for when our teens move out and rent part of it as a separate unit. With that, we could rent half of it for about the mortgage we pay, so that seems like a great passive investment to me. I think we will try this.

Another thing I've been thinking about is trying to save enough for a down payment on another house as a rental property. Unlike REITs, I know my city, my area, the real estate and rental prices, and the economy. But I'm not sure if this is really passive income bcz being a property manager/landlord is certainly not work-free.

So, I'm having trouble deciding whether to go the REIT or buying my own investment property route. Leaning toward my own investment property because of control issues--LOL---but then it's not really passive income anymore. Any advice or thoughts? Or those of you who have a piece of a REIT, let me know how you are doing on returns. I'd be happy with 7-8%, and if I could get into the double digits, I'd be elated!

Most lenders will only allow you to mortgage 80% or less on investment or vacation property so you will need more than a minimum down payment if you are not paying cash for a house. Being a landlord can be costly so just know what you are getting into. 

Thanks, mintjulep, I didn't know that. Maybe I should talk to a mortgage lender first. Would this higher % down payment hold true for a residential property that I could say my son or daughter was going to move into? Does it hold true for commercial properties as well? Some extended family members of mine were landlords years ago and have warned us against it because of the difficulty of finding good renters, but I have an "in" with a couple of university departments and feel certain I wouldn't have any problem finding stable, grad student renters that would be around for several years at a time.

Elizabeth Barnett posted:

Thanks, mintjulep, I didn't know that. Maybe I should talk to a mortgage lender first. Would this higher % down payment hold true for a residential property that I could say my son or daughter was going to move into? Does it hold true for commercial properties as well? 

Yes, I would talk to 1 or 2 lenders. The mortgage company considers anything in addition to your primary residence as an investment and/or vacation property, no matter who is living there. 

I found a sweet spot for renters when I owned a couple of rental properties many years ago.  Like you have a contact, I did too in the new home construction field.  I did short term rentals to people waiting for a new home to be built and completed, which was usually 6 mos to a year.  Since the tenants usually were approved for a new mortgage, I trusted they had acceptable credit and funds.  I had great success with a generous lease cancellation policy with no pressure on the tenants to vacate. Though they signed a one year lease, I was very flexible.

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