How to Get Into Real Estate with 10K? (99% Odds you will make millions)
Have you got ten grand sitting in your bank and now wondering how to get into real estate with 10K? Wait no more. Real estate has the perfect opportunity for you to turn your ten thousand dollars into millions if you have the patience and the willingness to learn this business.
Do you know? It is by owning real estate that 90% of the millionaires in the world have become so. But can you own even a piece of real estate with just 10K? Yes! It is possible and we will let you know how you can build a real estate empire by investing 10K.
Is Real Estate a Safe Investment?
Before you even start, you should understand that investments offer rewards but have risks at the same time. And when you have limited money, you couldn`t risk it at any cost. So is your 10K safe when you invest it into real estate?
In this regard, real estate is one of the safest investments with high returns compared to any other investments that you can make today with limited capital. The only thing with a real estate investment is buying at the right price and in the right location. And this isn’t rocket science.
Take any investment for that matter, be it stocks, mutual funds, bonds, or precious metals, the returns, a real estate investment can generate, have surpassed them all. Let us take 20 years and evaluate the returns of these investments.
- A 2 Bedroom Single Family Home in Tampa Florida has appreciated by 160.2% in the last 20 years. (1)
- An S&P index has increased by 211% in the last 20 years (2)
- Gold has appreciated by about 542% in the last 20 yrs
- Silver has increased by 317% in the last 20 years.
From the above data and by a straight-line calculation, it seems that real estate has not returned much compared to other investments. But consider the return by investing 10K in 20 years if invested in
- The S&P investment would have become $21,100.
- Your 10k worth of gold in 2000 would now become approx $54,200
- And, your silver is worth $31,700 now.
Would you have become a millionaire with these investments in 20 years? Not. But then the real estate would have reaped even less return than these. Then how come you will become a millionaire by investing 10K in real estate?
The real power of a real estate investment lies in the ability to leverage which is not truly possible with the other above investments.
How to Get Into Real Estate with 10K Using Leverage?
If you get into real estate with 10k and use leverage, your investment can turn you into a millionaire. Let me tell you how.
The average price of a home in Tampa in the 2000s was about $151,500(3). Suppose you have bought this property with your 10K using leverage, it would have been about $330,000 today. Your 10k investment would have reaped you a 3200% return in 20 years. Not a million though, but don`t worry we are getting you there.
So what is leverage???
Leverage in real estate in general terms means obtaining a mortgage to make a real estate purchase. But now you would think if you have obtained a mortgage to buy real estate then you have to make mortgage payments every month. And if that is the case, how come you will pay these monthly payments?
Does it sound like a bad idea to you now? No, it isn`t as your tenants will make that monthly payment for you. What I meant by this is you will buy rental real estate. You will buy real estate by putting downpayment, then rent it up to your tenants.
How much 10K will Get you in Real Estate?
A good credit score and a considerable down payment can take you far in the real estate business. As per the lending tree, if you have a credit score above 700, you can comfortably obtain a mortgage and can easily get an 85% Loan to value ratio. That means, a down payment of 15%.
So, if you have 10k to get into real estate, you can afford to leverage a $70,000 property. Not much, right? Because it’s really unlikely to find a $70,000 property in the US today in a decent neighborhood.
However, instead of a conventional mortgage, you can consider obtaining an FHA Loan.
Getting into Real Estate with 10K Using FHA Loan
The FHA Loan allows you to buy a property with 3.5% down. Now, calculate how much your 10k will let you buy in real estate. You can now buy a rental property worth $300,000 with your 10K.
The FHA Loan standards are strict and there are certain guidelines you need to adhere to. The major being is that it is for first-time homebuyers and you are required to stay in the property for at least a year before moving out. The FHA Loan allows you to buy a multifamily unit with up to 4 units. You can occupy one unit and rent the other units to be able to make your monthly mortgage payments.
So, it means that your 10k is now converted into $300,000. You just need to sort out that your rental business will be able to pay mortgage payments and other expenses every month. Typically $300,000 doesn’t open many options but you will certainly get a few considerable options in many states of the US including Florida (4). A $300,000 duplex in Florida on average rents for about $2000 a month and you will be paying about $1750 in the mortgage.
Not Qualified For FHA Loan? Don`t Worry Investors are even buying with no money down
Understanding the Cash Flow Equation To Get Into Real Estate
You need money to pay the mortgage payments every month and that is where you need to understand the cash flow equation. With the rental property, the rent that you will collect every month should be enough to pay for the mortgage payment and other expenses of the rental business. Not only this there must also be some remainder after paying all the expenses. The remainder is what is the positive cash flow from the rental property.
But, why do you need positive cash-flowing property? It is because a negative cash flow property means you will lose money every month. You need the positive cash flow to invest it further and have some cushion to keep your business running smoothly.
But how will you find a positive cash flow property? It is done by doing a rental cash flow analysis. The good news is that we have written a perfect article for you to help you with the analysis.
How To Get Into Real Estate with 10K and Make Millions?
There are many ways to get into real estate with 10K. However, the only sure shot way to make it to millions is by buying rental properties. And why am I quoting this with certainty? Read this to know how rental properties allow you to generate massive wealth.
Now you may ask from the above example where we considered buying a $300,000 property by investing 10k only. Your 10K might let you control a $300,000 property but how come your 10k will become millions? You are not surely going to become a millionaire with that $250 monthly remainder. Is this what you are wondering?
Buying rental properties favor you in two ways, one is the appreciation part and the other is the cash flow part.
Appreciation In Real Estate
Now consider, you just invested 10k of your own money only but you are able to control a $300,000 property. So tell me, how will your money grow with say a 3% appreciation every year? Though the data suggest, a 3.8% annual appreciation every year in a span of 10 years. (4)
Is it your 10K that grows only by 2% every year? Or is this a 2% increase on the $300,000? Your 10k in the property will grow as per the appreciation on the complete $300,000 property. Now imagine what is your rate of return on your investment.
- You invested only 10K and your $300,000 property will be worth more than half a million in 20 years at a rate of 3% per year. With time, your mortgage will go down, and say after 20 years, your 10K will become more than half a million.
- Not only will the value of your property increase but the rents too will follow the same trajectory. However, your monthly mortgage payment remains the same or even may go down due to decreasing interest rates, further increasing your remainder.
Still, your 10k not reached into a millionaire club? Don`t worry we are close. If I ask you what if you are able to reciprocate the same growth trajectory with more than one property with just your 10k? Will your 10k become millions in these years?
The Concept of Equity and Refinancing in Real Estate To Make Millions
When you buy real estate, you own equity in it. Equity is the amount of money you paid to buy that property. And with time, this equity further grows due to appreciation.
Suppose you bought a $300,000 property with 10k and leverage the rest. It means you have 10k equity in this property and a $290,000 mortgage on it. After 5 years, say this property is appreciated and worth $350,000. Your equity in this property is now 60K, 10k from what you originally paid, and 50K more because of appreciation.
What if you can pull this equity out of your property by refinancing and use it to buy another rental property? Say, this time you obtain a conventional mortgage and put 15% down. So, the 60k down payment can let you buy a $400,000 property.
Calculate again that this $400,000 also appreciates at the same rate and the cash flow from this property is able to pay for the mortgage. After 20 years, your $400,000 property will be worth more than $700,000.
Your combined equity in both the properties after 25 years will be worth more than one and a half million approximately. And if you can repeat this cycle by buying real estate over and over, a snowball effect will take place. Your 10k will be worth millions in a considerably small time.
Real Estate has the word real in it for a reason. Because real estate is a real asset unlike many speculative investments in the market. It is one of the safe investments, not as volatile as other investments where your principle remains at high risk.
But even though owning real estate is not a guaranteed way to become wealthy. It all depends on choosing the right real estate or for that matter right rental properties. A Rental Property business provides rewards but has its own risks. You should always account for this risk and learn what it takes to start a property rental business.
Consider this business a long-term investment business that is not going to turn you into a millionaire in a year or two especially when you start with such a low capital of 10k. Further, when you infuse leverage into the equation, it becomes riskier. Leverage is a double-edged sword, it can do harm more than good if not used wisely.
Got the answer on where to invest your 10K in real estate? Feel free to write your questions or comments if any, related to investing in real estate. And if you feel Rental Properties are not worth the time and it requires a lot from you, consider investing in REITS. Though not as amazing as rental properties. But your money will get the exposure in a real estate investment.