Traditional real estate investing has been limited to investors with large sums of money and the ability to get approved for loans. But innovative fintech platforms are among the apps changing how we invest when it comes to everything from stocks to real estate to collectibles.
These apps make real estate investing accessible to more people through simple technology and reduced minimum investments. In fact, you could start investing in real estate with just $500.
In this article, we'll share why you might choose to invest in real estate, why traditional real estate can be a challenge, and how you could get started in real estate with just a small amount of money.
Why get started in real estate investing?
Investors might add real estate to their portfolios for many reasons, including: for diversification, as a hedge against inflation, for monthly income, and for the ability to use leverage (borrowed money). Real estate investing also offers a variety of investment options, such as direct ownership, real estate investment trusts (REITs), and tax liens.
Real estate is a popular investment choice for beginner, as well as advanced, investors. According to the U.S. Census Bureau, almost 66% of Americans own a home, which is often their biggest single asset. Additionally, the U.S. Department of Housing and Urban Development (HUD) found that there are nearly 48.5 million rental units in the United States. Of these rental units, the split in ownership is about even between individual investors and business entities.
Beginners often start investing in real estate as a way to build their net worth quickly. Wholesale real estate, which involves wholesaling properties to larger investors, is an accessible way to get started when you don't have enough money to buy a property yourself.
Passive investors can also start small by using one of the best investment apps, some of which let you begin with minimum investments as low as $500. With so many options, the barriers to entry for beginner real estate investors have never been lower.
The challenges of traditional real estate investing
Traditional real estate investing requires significant money and access to credit. Bank loans often require down payments of 15% or more for investor loans, assuming that you can qualify for the loan. Qualification for the loan will depend on the type of property you're buying, its value, your credit score, your sources of income, and your debt-to-income ratio.
This complicated process can be overwhelming to the beginning real estate investor. If you don't have the money for a down payment, it is even harder to qualify for a loan.
And all this effort is just to buy the property. This doesn't factor in the costs of rehab for the property if it needs renovation work. 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. Each of these strategies has its pros and cons — and requires sustained effort on your part.
Because traditional real estate investing requires so much time, energy, and money, many investors (from beginner to advanced) are shifting to passive real estate investments through fintech apps. Some of these have the added benefit of allowing you to get started investing with only a few hundred dollars.
How to invest in real estate with just $500
If you're wondering how to invest in real estate without the normal headaches and large capital requirements of traditional real estate investing, these two real estate apps might be right for you.
Fundrise is another real estate platform that offers increasing levels of customization as investors grow their portfolios. Clients can open a Starter account that is invested in 5 to 10 projects for just $500. Total annual fees for individual investors are 1% – advisory (0.15%) and management (0.85%).
Investing a total of $1,000 gains investors access to Fundrise’s Core portfolio. Here, investors may choose a portfolio with the goal of creating supplemental income, long-term growth, or balanced investing. For investors with even larger balances, the Core, Advanced, and Premium portfolio strategies offer additional levels of diversification and functionality.
Fundrise offers a variety of real estate investments for its users to choose from. Options include apartments, single-family homes, and commercial properties.
Investors could earn returns on their investment in two ways: dividends and appreciation. Fundrise offers quarterly dividends that are paid 15 days after the end of each quarter. Your investment might also increase due to appreciation of the properties held in your fund and therefore you could have the ability to profit from them when they are sold. Fundrise monitors the value of each asset and periodically sells them when it feels they are at peak value.
Fundrise could be a smart choice for investors who plan to grow their investments and who want access to advanced features and strategies as their balances increase.
… or read our detailed Fundrise review.
DiversyFund enables people to invest in a portfolio of multi-family apartment buildings for as little as $500. Investors can choose to invest on a one-time or recurring basis, and any monthly dividends they earn are automatically reinvested into their portfolio. There is the potential for additional profits from appreciation when buildings are sold.
Investing with DiversyFund is completely passive for real estate investors. DiversyFund only offers one investment option — the DiversyFund Growth REIT — so it is an uncomplicated choice when investing in rental real estate. The fund managers handle all the responsibilities of managing the properties, so investors don't have to.
Diversyfund owns all of its properties rather than raising funds for third-party projects, like some of its competitors. It uses the collective buying power of its investors to purchase multi-family apartment buildings of 150+ units. This opens up a class of properties that the average investor could not afford. Users of the platform do not pay management or broker fees. Instead, DiversyFund earns its money as a real estate developer based on the success and liquidation of its projects, just like its investors.
Diversyfund buys apartment buildings with positive cash flow that have the potential to increase in value after renovations. These upgrades often lead to higher tenant rents, which can boost investor returns. Monthly income from tenants is distributed to investors and reinvested into the fund to maintain its buildings and acquire new ones. Over time, properties are sold and any profits are distributed to investors when a particular fund closes.
DiversyFund could be a smart fit for real estate investors who want to invest in apartment buildings without the hassle of collecting rents or managing tenants.
… or read our detailed Diversyfund review.
How do beginners invest in real estate?
Beginners have several choices when they start investing in real estate. You could purchase a REIT stock, invest in a real estate mutual fund or ETF, start wholesaling, or use a real estate app. The best investment apps for real estate have a small minimum opening balance, low fees, and portfolio diversification across several properties.
How much money should you save before investing in real estate?
In the past, investors needed to save large sums of money before they could start investing in real estate. If you're wondering how to invest money today, fintech platforms have made investing easier and more accessible than ever for many consumers. Now, you could start investing in real estate with as little as $500.
Is now a good time to invest in real estate?
Investing in real estate should be viewed as a long-term project. According to the National Association of Real Estate Investment Trusts, annual returns of REITs have outperformed stocks more than 56% of the time since January 1990. Adding real estate to your portfolio could be beneficial to your returns and diversification, but there is no guarantee that will happen. Keep in mind that investing, whether in stocks or real estate, is inherently risky, and past performance does not indicate or guarantee future success.
If you want to invest in real estate, without the responsibilities of owning traditional real estate, consider using real estate investment apps. They offer easy account setup, diversification of assets, and minimum investments as low as $500.
When comparing Diversyfund vs. Fundrise, consider your investing goals and approach. DiversyFund invests solely in large apartment buildings making for a very hands-off investment. By comparison, Fundrise offers a variety of investment options across several types of real estate. Additionally, Fundrise offers more advanced strategies as your portfolio size increases. Whichever platform you choose, you no longer have to worry about the high financial barriers to real estate investment that used to exist in the old days.
- Simple investing in single-family rental properties
- More than $5 billion in completed SFR transactions since 2016
- Unique vacancy protection or 30-day money-back guarantee for some properties
- Make investment decisions using insights, proprietary data and technology