How to Invest in Real Estate with Less than $10,000

I recently wrote an article about how to make $10,000 a month with rental properties. I have personally surpassed that number and will keep going, but not everyone is at that stage in their investing life. What about those who do not have much money and are looking to get started investing in real estate? Can you do it with less than $10,000? Yes! You can definitely get started investing in real estate with less money than you think. A lot of people will say you need 20% down or 25% down, but there are many ways to get started with much less.

How much money do you usually need to buy an investment property?

A lot of people will say you need 20 or 25% down to buy an investment property. They are right if you are buying a strict investment property and using a traditional bank to do it. However, that is not the only way to buy an investment. There are many different types of financing and so many different ways to get into the game without having a huge bankroll.

One easy trick to use is you don’t buy a strict investment property and that is the strategy we are going to talk about here. You can live in one part of a property and rent out the rest or live in a property and then turn the property into an investment after you move out.

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Is it legal to rent out a house you live in?

A lot of people and even lenders will tell you that it is illegal to rent out a house you bought to live in. They are right if you never live in it or do not meet the guidelines in the loan documents. Almost all owner-occupied loans in the United States will require the borrower to live in the property for at least one year. That is what it says in the loan documents and that is what is required. I have had many arguments with people who say it is still illegal to rent out a home that you bought with an owner-occupied loan, but after repeated requests, they have not been able to provide proof or any documentation of it being illegal.

You also do not have to refinance the loan or sell the home to an LLC, after you have fulfilled the obligation in the contract you can move out and rent the home. If you buy a multiunit property you can rent out the other units while you live in one unit. Depending on the zoning laws in your area, you may even be able to rent out part of a single-family home that you are still living in as well. Some banks and lenders may not like it if you constantly buy new properties as an owner occupant and turn them into rentals but that does not make it illegal!

Why does buying a house to live in require less money?

Why would you go to the trouble of buying a house to live in and then turn it into an investment? The answer is simple, it takes less money! Owner occupant loans require less money down and are often easier to get than investor loans. Instead of putting 20 or 25% down to buy an investment property, you can put 3.5%, 5%, 3%, or even $0 down in some cases!

If you are looking to buy a $100,000 property that is a huge difference: $20,000 down versus $3,000 down. The more expensive the property is the bigger than difference becomes. On a $300,000 house, it would be $60,000 verse $9,000!

The reason that you can buy a house to live in for less money is the government wants people to buy houses. Real estate is a huge contributor to the economy. The government insures loans for banks that offer low money down loans for owner-occupants. Other banks know they must also offer low money down loans if they want to compete with government-backed loans.

How can you buy a house with $10,000 or less?

As you can see you can put very little money down when buying a house to live in and at a later date turn it into a rental property. You do not have to be a first-time homebuyer or not make too much money. Anyone can qualify for these loans with decent credit and a steady job.

If you do not have good credit or a steady job, you may have some issues getting these loans or any loan for that matter. There may be some other financing options available but work on your credit and get a steady income as it makes everything so much easier! If you think you have problems talk to a lender asap to see what they think and if there are problems they can help you figure out how to fix them.

You will need more than just the down payment to buy the house. You will also need to pay costing costs, which can add another 2 to 4% to the down payment. However, it is possible to ask the seller to pay these costs or even find grants in your area that will pay some or all of them. In many areas of the country, it is possible to buy a house with $1,000 or less!

What is the catch when putting so little money down?

There are some catches when you put little money down on a house. The banks will require mortgage insurance on most loans. Mortgage insurance is an extra monthly cost the buyer must pay. It makes the loan payments more expensive, but with the right property, it should be worth it to still buy with little money down.

There are some loans like VA and USDA that will offer low down payments for owner-occupants and have no mortgage insurance. It is also possible to get the mortgage insurance removed on some loans after a couple of years or to refinance the property into a new loan that will remove the mortgage insurance as well. You are not stuck with it for life.

When you buy a house with an owner-occupied loan, the house must be in livable condition as well. You cannot buy houses that have major problems unless you use an FHA 203k loan.

How do you turn the property into an investment?

The requirements of an owner-occupied loan usually say you must live in the home for one year. That does not mean you leave one room vacant and say you live in it, while you actually live somewhere else. You need to live in that house more than 50% of the time. If the house needs some work, most loans will give you time to make repairs and then move in. FHA gives you 90 days, but you may have more time with the FHA 203k loan. Make sure you talk to the lender and read the loan documents which will outline the requirements.

Once you have lived in the house for one year, you can move out and start renting it. Or, if you were house hacking (renting part of the house while living there) you can move out and rent the unit or part of the house you were living in. You do not have to tell the lender or refinance the property. You do want to tell your insurance agent so that you have the right policy in place. You might want to tell the lender to send your mortgage payments to the new address if you move.

If you do this over and over, the lender will see it. They may give you some trouble getting new loans but it is not illegal. If a lender does give you trouble getting a new loan, shop around and find a lender that does not have a problem with it. Usually, local banks and credit unions are great to work with.


Buying a house to live in can be a great investment in itself, but when you turn it into an investment property as well, it can be an even better investment and a great way to become a real estate investor with less money. I wish I would have used this strategy more when I was younger!


How To Invest In REIT – Are REITs good investments?

This guest contribution is by Ben Reynolds and Samuel Smith of Sure Dividend. You may remember Ben from his other guest posts – How I Became A Successful Dividend Growth Investor and Reaching Early Retirement Through Dividend Growth Investing. REITs are a topic that come up often with Making Sense of Cents readers, so I’m glad the experts at Sure Dividend are talking about this subject today. Enjoy!

Ben Reynolds with Sure Dividend here.  Sure Dividend is focused on helping individual investors build high quality dividend growth portfolios.

And to that end I wanted to inform Making Sense of Cents readers about the opportunity for investors to invest in real estate in a diversified manner through Real Estate Investment Trusts (REITs). 

We started covering REITs in detail at Sure Dividend back in 2016 because they have unique characteristics that make them a compelling choice for investors looking for current income and income growth.

Our audience at Sure Dividend was interested in learning more about REITs, so we did our research.

I learned how REITs are required by law to pay out at least 90% of their income to their shareholders. 

That’s a powerful concept that means REITs share the vast majority of what they make with investors.

I learned that REITs have special tax advantages that make them more efficient vehicles to pass income to investors.

And I learned how easy it is to both invest in and diversify with publicly traded REITs versus traditional real estate.

These characteristics showed us we need to cover REITs because of the benefits they offer to income investors.  Keep reading to learn more about this special category of investment.

The term Real Estate Investment Trust was originated in 1960 by the United States Congress and has since been adopted worldwide to describe a special tax-advantaged vehicle for collective real estate investments.

We have compiled a list of publicly-traded REITs, along with important financial metrics such as dividend yields and market capitalization.

Similar to what mutual funds do with companies, REITs allow investors to invest in a diversified real estate portfolio without actually having to buy, manage, and finance properties themselves.

Furthermore, most REITs are publicly traded on a stock exchange and allow investors to participate in the ownership of large scale, well-diversified real estate portfolios in the same way as investors would invest in any other industry.

REITs are structured as corporations, but are unique in that they are exempt from corporate income taxes as long as they comply with specific rules to quality as a REITs. According to NAREIT, a REIT must:

  1. Invest at least 75% of its total assets in real estate.
  2. Derive at least 75% of its gross income real property rents, mortgage interest income, or from real estate sales
  3. Each year pay at least 90% of its taxable income to shareholders in dividends.
  4. Have a board of directors or trustees.
  5. A minimum of 100 investors must own shares in the REIT.
  6. 50% or less of its shares may be held by fewer than six individuals.

These rules are there to protect shareholders, assure discipline in capital allocation and reduce conflicts of interest between the manager and shareholder.

Why invest in REITs?

Historically, REITs have returned 15% per year on average and outperformed all other asset classes by a large margin:


REITs have been enormously lucrative to investors who got in early and knew what they were doing. In addition to the greater total returns, REITs generally pay higher dividends, are less volatile, and provide valuable inflation protection and diversification benefits.

About 90% of millionaires credit real estate investments as a major contributor to their net worth, and REITs allow you to invest in real estate with the added benefits of professional management, diversification, liquidity, low transaction cost, and passive income.

How to invest in REITs?

Investing in real estate is costly and time consuming.

You need to deal with brokers, contractors, lenders, tenants, and property managers. From due diligence till completion of a deal deals can extend for months or even years and transaction costs are generally 5-10% of your purchase price.

REITs make this entire process much easier, cheaper, and faster.

All you need is a brokerage account and in a few clicks of mouse, you can start investing in REITs through the public stock exchange just like you would when you invest in any other stock. Fees are just a few dollars – if not free – and trades are executed instantly in most cases.

How much of a good thing do you want?

While REITs have proven to be very attractive long-term investments, it is important to remain well-diversified and not put all your eggs in one basket.

How much you decide to invest in REITs depends greatly on three factors. These are your return objectives, your ability to take risks, and your willingness to take these risks.

While there is no one-size-fits-all solution for every individual, it is reasonable to suggest that a well-diversified portfolio containing exposure to REITs can minimize volatility while maximizing long-term returns.

David Swensen, legendary manager of the Yale endowment fund, recommends to invest ~20% of your portfolio in REITs. His track record makes him a superstar among institutional managers and much of his success came from real estate investing.

Other financial advisors commonly recommend 15-30% exposure to real estate investments, and we believe that this is a fair suggestion.

In the end, it comes down to your personal investment objectives and what you feel comfortable with.

How to pick good REITs

Picking good REIT investments comes down to your personal investment objectives and what you feel comfortable with.

In a nutshell, the ideal REIT investment opportunity would include the following factors:

  1. It has a differentiated strategy that creates value
  2. It generates resilient and steady cash flow.
  3. It has the balance sheet and pipeline to sustain and grow its asset base through cycles.
  4. It pays a superior yield that is well-covered through cycles.
  5. It trades at a valuation that is significantly below average.

If the REIT possesses many of these characteristics, it is likely to be a big winner in the long run. Obviously, it is very rare to find such cases because if a REIT is this great, it will likely trade at a premium valuation.

No selection process is bullet-proof. However, it is essential to have some core filters which you can use to minimize losing investments while maximizing your chances of picking winning investments.

The four filters we look at are:

  1. Is management aligned with investors in REIT governance structure, compensation, and insider ownership? Generally, internally managed REITs with considerable insider ownership of the common stock and compensation that is linked to performance will outperform REITs that lack one or more of these traits.
  2. Are the assets considered high quality or low quality? The more challenged the sector is, the more important it is to insist on quality. Same-store NOI, leasing spreads, and occupancy are great indicators to look at when trying to determine asset quality.
  3. Does the REIT have a strong balance sheet? Looking at credit ratings is an easy way to do this, as well as the debt-to-asset, fixed cost coverage, and debt to EBITDA ratios relative to the sector.
  4. Does the REIT offer an attractive valuation? The more sure you are of the REIT passing the first three filters, the less of a discount you need to insist on, but generally it is good to buy REITs that trade at a discount to their historical price-to-FFO and/or price-to-NAV (net asset value) ratio.

Putting it all together

REITs can be great instruments for long-term wealth compounding and passive income generation. That said, not all REITs are built equally.

For more aggressive and adventurous investors, picking individual REITs can be a fun and rewarding way to invest in real estate.

For those wanting to remain passive and/or who lack confidence in their ability to pick winning REITs, investing in ETFs like Vanguard’s VNQ REIT fund is advisable.

Are you interested in learning how to start REITs?

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