How To Invest in Real Estate With $500: 3 Methods

Real estate investing has long been considered one of the best ways to build wealth. In fact, Gallup poll results consistently show that Americans believe real estate to be the best long-term investment, even above stocks and other assets.

However, traditional real estate investing has been limited in the past to investors with large sums of money and the ability to get approved for loans. The good news is that thanks to fintech platforms and fractional ownership, there are now more options than ever to start investing in real estate with little money. You could even invest in real estate with just $500.

Here’s why you might choose to invest in real estate, why traditional real estate can be a challenge, and how to get started with whatever amount of money you have.

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Why choose real estate investing?

Real estate investing has plenty of benefits. Here are a few reasons you might add property to your portfolio.

Diversification

Real estate can be an effective way to diversify your portfolio. If you’re already investing, chances are your portfolio includes the basics, including stocks and bonds. Buying into real estate could be an opportunity to add another asset class with returns that aren’t necessarily correlated to the rest of your portfolio or the stock market.

Recurring income

Real estate, more than some other assets, can lend itself well as a source of recurring income. For example, if you own or invest in rental properties, you could have rental cash flow coming in every month. And that’s on top of potential long-term financial benefits such as tax advantages and property appreciation. and

Tax benefits

The IRS allows real estate investors to enjoy certain tax benefits, including the ability to deduct mortgage interest, business expenses, and depreciation. These tax benefits can reduce the overall cost of your investment.

Appreciation

Real estate generally appreciates over time. According to data from the Federal Reserve Bank of St. Louis, average home sale prices have increased from $42,200 in the third quarter of 1975 to $501,100 in the same quarter of 2024. Over those nearly 50 years, that’s an increase of nearly 1,200%. That’s considerably less than the S&P 500 returns of more than 6,000% during the same period but still significant.

Variety of options

Today, there are many ways to invest in real estate that don’t involve just buying property for yourself. Nearly 66% of Americans own homes in 2024, according to the Federal Reserve Bank of St. Louis. But while this is one of the most common forms of real estate investing, there are plenty of other ways to invest in real estate, directly or indirectly.

How to invest in real estate with just $500

There are three primary ways to add real estate to your portfolio for $500 (or less): REITs, real estate funds, and crowdfunding.

REITs

REITs — short for real estate investment trusts — own and manage income-producing real estate. Individual investors can earn a percentage of the profits by buying shares in an REIT.

REIT shares trade just like stocks, but when you invest in them, you’re buying a portion of ownership in the company’s properties. This could include office buildings, shopping malls, and residential buildings like apartment buildings. And as a partial owner, you get a share of the income produced by each property.

One primary benefit of investing in a REIT is that these trusts must pay at least 90% of their taxable income to their shareholders. In return, they’re eligible for certain tax benefits. This makes them one of the best options for investors who want to receive dividend payments.

While the price varies by company, you can start buying shares in REITs for less than $50.

Real estate funds

A real estate fund is a mutual fund or exchange-traded fund (ETF) with underlying real estate investments. Some real estate funds invest in REITs, while others invest in other companies. While many real estate funds are publicly traded, others are private funds only available to certain investors. When you’re just getting started, you’ll likely narrow your focus to those that are publicly traded — private REITs often require very high incomes or net worths.

Like other types of funds, real estate funds can be either actively or passively managed. An active fund has a fund manager who regularly buys and sells assets. A passive fund, on the other hand, tracks a specific benchmark index.

A couple of popular examples of passive real estate funds include the Vanguard Real Estate Index Fund (VGSLX) and the Fidelity Real Estate Index Fund (FSRNX). The Fidelity fund has no minimum investment, meaning you can start with as much or as little as you want.

Real estate crowdfunding

Another way to invest in real estate with $500 is through real estate crowdfunding. Like other types of crowdfunding, this pools money from many different people toward a common goal — in this case, investors pool funds to purchase real estate. You can choose individual projects you’re interested in and earn a share of the profits for each.

There are many different real estate crowdfunding sites on the market, some of which are only available to accredited investors. You can qualify as an accredited investor if you have a net worth of at least $1 million, excluding your primary residence (either alone or with your spouse), or you have an income of at least $200,000 (or $300,000 if combined with a spouse).

Here are a few of the best real estate crowdfunding sites:

• DiversifyFund: DiversifyFund allows you to invest in apartment buildings in high-growth cities. DiversifyFund’s business model involves fixing up properties to increase their value and rental income. DiversifyFund also sells its properties, passing the profits along to investors. You can get started with as little as $500.
• Groundfloor: Groundfloor is an automated investing platform that lends money to other real estate investors. You contribute as little as $10, and the platform invests your dollars across all available investments (loans to people flipping properties), resulting in a well-diversified real estate portfolio. You’re technically investing in real estate debt rather than the property itself, so your profits come when the debt is repaid.
• Fundrise: Fundrise allows you to start investing in real estate for as little as $10. When you join Fundrise, you choose a specific diversified portfolio, and Fundrise will continue to add more diversification, even if you don’t add more money. Portfolios may include asset-backed securities, real estate debt, and more.
• Arrived: Arrived has a unique business model that allows you to browse properties, many of which are single-family homes, and choose which to invest in. It differs from other options in that you aren’t buying a diversified portfolio, just ownership in a single property. You buy shares in a specific property and then earn a portion of the rental income. Arrived’s minimum investments start as low as $100.¹ <p>Arrived Homes, LLC ("Arrived Homes" or "Arrived") operates the arrivedhomes.com website (the "Site") and is not a broker-dealer or investment advisor. All securities related activity is conducted through Dalmore Group LLC, a registered broker-dealer and member of FINRA/SIPC, located at 525 Green Place, Woodmere, NY 11598. You can review the brokercheck for Dalmore. An up-to-date Dalmore Form CRS is available</p> <p>*Returns study disclaimer: To estimate the returns from rental property investing we took the combination of rental income dividends from Arrived rental properties and the historic property appreciation growth. For rental income, we used annualized dividend yields based on the Arrived property Q2 and Q3 dividend payments. That includes 2 quarters of payments for the first 6 properties and 1 quarter of payments for 22 properties. While these dividends paid have actually averaged 6.1% on an annualized basis. That means for every $100 invested, you would have received $6.10 of annual dividends. However, after compounding it and considering the time value of money, over a 10 year period it will result in a compound annual growth rate of 5.6%. The result may not seem intuitive since we start at a 6.1% dividend, but the effects of </p> <p>compounding at a 4% rate bring this number down slightly over a long period of time. For property value growth we took the Zillow Home Value Index (ZHVI) that is specific to Single Family Homes and measures the typical home value for properties in the 35th to 65th percentile range and ending 10/31/21. This data shows that the compound annual growth rate (CAGR) of property value in the USA for the last 20 years has been 3.97% per year. Assuming this 3.97% annual property value appreciation and a 65% mortgage, the resulting equity returns would be magnified to 6.1% per year.</p> <p>For the above annual return calculations, we are also adding assumptions around real estate transaction costs & fees so that those are taken into account when calculating the final investment returns. We are assuming that on the initial investment there are upfront transaction / other costs of 6% and selling costs of 6% when the property is sold. We are also assuming that the investment is held for 10 years. So if we then combine the 6.1% property value growth returns and the 5.6% dividends from rental income, our findings show an 11.7% annual return on investment over a 10 year holding period.</p>

There are many other crowdfunding sites for real estate investors. However, many have minimum investments of considerably more than $500. You may need anywhere from $5,000 to $25,000 to get started. If you can afford a higher minimum investment, check out Crowdstreet, EquityMultiple, and RealtyMogul.

Advantages of alternative over traditional real estate investing

Traditional real estate investing — which generally involves buying a property by yourself — typically requires significant money and access to credit. Banks often require down payments of 15% or more for investor loans, and qualification depends on the type of property you're buying, its value, your credit score, your sources of income, and your debt-to-income ratio (DTI).

And all this effort is just to buy a property. It doesn't factor in the costs of rehab if it needs renovation, nor does it include the responsibility of managing the contractors after you've bought the project. When finished, you'll either flip the property or hold onto it as a rental. Flipping houses has the potential for a quick profit, while rental properties offer a stream of monthly income that may be more appealing to investors working with less capital.

Alternative real estate investments, such as REITs, real estate funds, and real estate crowdfunding, make this type of investing more accessible to the average person.

FAQs

Bottom line

If you want to invest in real estate without the responsibilities of owning traditional real estate, consider REITs, real estate funds, and real estate crowdfunding. Real estate crowdfunding platforms offer easy account setup, diversification of assets, and minimum investments as low as $100.

When comparing real estate investing platforms, consider your investing goals and approach. While some platforms offer diversified portfolios of various real estate types, others allow you to invest directly in individual properties. No matter what method you choose to invest in, consider the potential risks and how the investment will fit into your overall portfolio.