Investing in the Crazy Real Estate Market with a Small Amount of Money

Post by 
Joel Salazar

As a financial asset class, real estate is known for its stability and lends itself well towards long term wealth building strategies.

Yet, in the last year, the real estate market has gone to the moon. Housing market prices have surged  a mind boggling 19.2% over the past year. We have not seen this kind of increase since 2008. That year, housing prices jumped by 14% leading up to the housing bust. The remarkable price increases we see today are being driven by lack of housing inventory, low mortgage rates, and a flood of new buyers coming out of the pandemic.

All of this is to say, today’s housing market is not exactly friendly to the new real estate investor.

To make matters worse for investors, the Federal Reserve is increasing interest rates to fight rising inflation. This is bad news for real estate investors financing their investment with a mortgage or other loan. Higher interest rates mean they will have to pay significantly more over time on loans.

So, unless you have enough money to put a significant amount down on physical property, you may want to consider other avenues of real estate investment.

Fortunately, opportunities still exist in this crazy real estate market to make profitable investments with a small amount of money.

REITs

Investing in REITs is one option to avoid the headaches of buying property in a sizzling real estate market with rising interest rates.

REITs use your money to purchase and manage properties, saving you the trouble of having to do it yourself. Many established REITs exist that offer consistent, quality returns and are legally obligated to annually pay out to shareholders in dividends.

REIT shares are much easier on the wallet than property in today’s real estate market, with some entry level shares starting at $100 or less.

Relevant for today’s economy, established REITs have shown resilience against inflation and recession as well.

Buying REITs is a solid option if you’re looking to add real estate to your portfolio without having to delve into today’s chaotic, expensive real estate market.

Here are some REITs that are strong alternatives to direct investment in a wild real estate market.  

Crowdfunding

Crowdfunding platforms are also a great alternative.

More so than REITs or private equity funds, crowdfunding is the cheapest way to get into real estate investment. Some equity crowdfunding platforms have basic investment options starting at $10.

 Crowdfunding is set up so that groups of investors can pool small amounts of money to purchase costly high-quality assets.  Contributing investors get an ownership stake in the investment venture, unlike REITs. Command of this stake gives investors rights to a portion of the venture’s profits.

If you aren’t in a strong position to purchase property in the current market, crowdfunding platforms provide profitable real estate investment options with a private equity-like experience.

Conclusion

The Federal Reserve is issuing interest rate hikes not seen since 2000, which does not bode well for borrowers.

Higher interest rates mean borrowers will have to pay more in the long run for loans taken out now.

While higher interest rates fight inflation, they also create a poor environment to buy property in.

The bottom line:With rising interest rates and inflated real estate prices, borrowing money for a real estate purchase right now will likely cost you more in the long run.

While notoriously hard to predict, some analysts expect the real estate market to cool as sellers will have to lower prices as high rates and prices will reduce buyer demand. The simple economics of the situation suggests that prices in the market will have to eventually fall to meet consumer demand if buyers are unable to pay the current high rates and prices.

If this is the case, it may be in your interest to hold off on purchasing property until prices fall and, in the meantime, look to invest in options that do not require financing, such as REITs or Crowdfunding.

For more info on REITs, crowdfunding, and new Birgo projects, stay tuned to Birgo Insights.

Keep Up With Birgo

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
THere's More

Posts You Might Also Like

Birgo Capital

The 10 Real Estate Twitter Accounts You Should Be Following

Join us as we continue our tour of real estate social media. We’ve already covered RE meme accounts and RE Reddit threads (x2), and we’ve arrived at our next stop: RE Twitter. Twitter has been and continues to be a valuable source for real estate news, advice, and how-tos. Here are the top 10 accounts you should be following.
Birgo Capital

An Update on Interest Rates: June 2022

Take a deep dive into the current state of interest rates and what it means for real estate investors.
Birgo Capital

Coolest Pieces of Real Estate in the World

As of April 2022, the median price of a house is sitting right around $391,200. That’s nearly a 15% increase from April 2021. Safe to say, the market is red hot right now. The prospect of finding a realistic listing on Zillow right now may be starting to feel like a pipe dream. Well, speaking of pipe dreams, here’s a look at just a few of the coolest properties in the world.
Birgo Capital

Swaps: a primer

Investors who’ve been around the real estate block a few times invariably know what swaps are. But swaps can be complicated business — and worse, to the uninitiated, they might sound like something they’re not. So today, let’s dive in and talk about swaps.
Birgo Capital

r/realestateinvesting, Part the Second

Last time we talked about Reddit, you guys went wild for it. We continue to think Reddit is pretty great so we aren’t surprised that yinz are back for more. We don’t want to keep you waiting, so here it is: another dive into r/realestateinvesting.