Real Estate Investing for Beginners: Getting Started With Little to No Money

Back in the early 2000s, while you were busy perfecting the layout of your Myspace profile and waiting two days for LimeWire to download Kanye West's "Gold Digger," Kyle MacDonald was busy trading a single paperclip for a two-story farmhouse. (Sidenote: If you remember his blog, One Red Paperclip, it's time to start using an eye cream).

It took him 14 trades to get there, but he did it in under a year. The paperclip became a pen, which became a doorknob and then a camp stove. Eventually, he worked his way up to a box truck, then a role in a direct-to-video movie, and finally: his first real estate investment.

This isn't totally unlike the way real estate investing for beginners works. Normally, you'd start with an affordable property, use the cash flow from that one to finance another, and then another...until you're sitting on a beach somewhere sipping on mai tais while the money flows in, living that passive income dream.

We wouldn't advise starting with a paperclip, but nowadays you can get started in real estate with just a $1 bill, which is close enough. Thanks to real estate investment trusts (REITs), real estate crowdfunding, house hacking, and more, real estate investing has never been more accessible. Here's how to get started with little to no money.

Real estate is a great way to add some stability and diversity into your investments. It generates passive income on a monthly basis, which provides a huge boost to your financial security.

Many investors like the fact that it's tied to a real physical asset they own, and it can provide lower risk and higher returns than the stock market. If you were lucky enough to buy a house in the Bay Area in 2012, it would have nearly doubled in value by 2018. This six year doubling time is slightly better than the stock market's standard of seven years, and with real estate, you have a physical asset you can rent out or live in while you're holding onto it.

One of the biggest draws of real estate investing is that you can essentially use someone else's money to get started. If you want to invest $100,000 in the stock market, you have to have $100,000. If you want to buy a $100,000 house, you only have to have enough for a down payment, and you can borrow the rest.

That being said, real estate has its downsides. It's obviously less liquid than most investments (if you need the money fast, you can't simply sell your house in a matter of days). You also have to have more money to get started than you would with investments like  stocks or cryptocurrency—a standard down payment is 20% of the purchase price of the house. There can also be a learning curve with real estate, so beginners might find it tricky to get started. Luckily, the best real estate investments for beginners listed below solve both those issues.

Imagine you and 1,000 of your closest friends all got together to chip in $1,000 each and invest in a million dollar real estate project you knew could provide huge returns. If you don't have 1,000 friends ready to invest, Real Estate Investment Trusts (REITs) are the next best thing.

REITs are like mutual funds for the world of real estate. Whereas mutual funds pool your money with lots of other investors to buy stocks and bonds, REITs pool your money with other investors to buy property. You don't have to go through the process of buying or managing real estate, and on top of that, you don't have to have very much money.

Historically, REITs have outperformed stocks, and they tend to be less volatile than the stock market as well, which minimizes risk. The best part? Apps like Concreit let you get started investing in REITs with as little as $1. Nope, we didn't forget the zeros on that number.

Real estate crowdfunding is a newcomer to the real estate investing game but it's already taking off. Unlike donating money to your Aunt Kathy's best friend's GoFundMe to build a home addition for her dog, you'll actually see returns when you put money into these platforms.

Similar to REITs in many ways, real estate crowdfunding platforms like Fundrise let you pool your money with other investors, and those funds are then invested in private REITs (that is, REITs that aren't traded publicly). You're helping to crowdfund real estate projects that aim to appreciate in value. There's potential for high returns and dividends, and you don't have to know a lot about real estate to get started.

There's still a low financial barrier to entry with real estate crowdfunding too, although not as low as some apps that let you invest in REITs. Fundrise, one of the most popular real estate crowdfunding apps, requires a minimum of $500 to get started. Your money isn't as liquid in real estate crowdfunding platforms either, so they're better for long-term investing.

If you've ever seen one of those ads on Craigslist for a house in search of a 7th roommate to live in a dimly lit corner of the living room that's walled off using cheap curtains, it was probably posted by a house hacker.

House hacking has become one of the most popular ways for people who want to get started in real estate investing but don't have a lot of cash to buy their first property. You still have to buy a house to start house hacking, but the plan is to then live in one room and rent out the others, ideally generating enough rental income to cover your monthly mortgage payments. If this happens, you're living rent-free while gaining equity in a house you own.

With the right cash flow, house hacking can be your ticket to becoming the next Barbara Corcoran. However, if you buy a property that's difficult to rent out, or doesn't bring in enough rent to cover the mortgage, you might have to resort to renting out the broom closet to make your mortgage payments. You also have to have enough cash to cover a down payment, although first-time homebuyer and down payment assistance programs like FHA loans, you might only have to put 3.5% down—that's $3,500 on a $100,000 home.

Now that you've got a better sense of the different ways beginners can invest in real estate, here's how to get started on any budget.

Real estate investing app HappyNest lets you invest in commercial real estate with as little as $10. You can buy and sell REIT shares within minutes by downloading the app and connecting your bank, making it one of the easiest ways to get started in real estate investing in addition to being one of the most affordable. Returns are on the low-end with HappyNest, but investment risk is also very low.

Arrived Homes lets you buy shares of income-generating rental homes for as little as $100. Arrived is unique because you can pick individual properties to invest in—a benefit usually reserved for investors with at least 5 figures to invest. While this doesn't necessarily offer the diversification benefits that investing in a fund or REIT would, investing directly in individual properties gives you control over where your money is going and allows you to invest in what you see as promising up-and-coming markets. And with such a low minimum, you can diversify by buying shares in a handful of different individual properties across different rental markets. (edited) 

With Fund That Flip, you can invest in residential redevelopment real estate projects with as little as $1,000. These are short-term projects—such as flipping a house—so the typical investment horizon is just 6 to 12 months. This means you can start to see returns in the form of interest payments in just months, and on average, investors get their principal back in about 10 months. You do have to be an accredited investor to invest with Fund That Flip.