Dear long-term investor, here you will find everything about investing in real estate. We start with an introduction to investing in real estate (for) beginners. We look at the risks and returns. We also compare real estate vs. shares. And finally, you will find many tips on how to invest in real estate with little money. That's the interesting thing about investing in real estate: it is one of the best long-term investments. Both experienced investors with lots of money and small beginners with little money can participate in real estate.
In addition to this content, on this page you will also find 100+ knowledge articles about real estate investing (for mobile, scroll down).
Let's get started!
Investing in real estate with a lot of money is not that difficult. Investing in real estate for beginners is more challenging. Basically, there are 5 ways to invest in real estate, namely:
Investing in real estate is most interesting for the long term. As a beginner, it takes a long time to get a good start, but it is possible.
Investing in real estate funds is best suited for beginners. Unlisted real estate funds, in particular, offer an attractive combination between:
Listed real estate funds are called REITs. This stands for Real Estate Investment Trust. Basically, they provide the same benefits as unlisted real estate funds. There is one big difference: listing. On the one hand, listing means faster entry and exit (liquidity). On the other hand, it means higher risk, because more knowledge is needed about the financial valuation of REITs (for the right entry moment).
Finally, we can invest in real estate through crowdfunding. This option is in our view the least interesting alternative. The return is significantly lower. Crowdfunding is interesting to use for raising capital. This way we can invest in real estate with little money.
Real estate funds are the most accessible for investing in real estate with little money. Investing in publicly traded real estate funds (REITs) is for advanced investors. More on that later. As a beginner, however, it is wiser to start with unlisted real estate funds. Over time, as capital, returns and knowledge increase, you become more advanced and can move into REITs and/or real estate investing.
Real estate funds are the best way for beginners to get a start within the world of real estate. When you participate, you book money into the fund. This fund, managed by management, invests the money of all participants in real estate. The strategy of the fund is important because it determines risk and returns.
In exchange for participation, we as early-stage real estate investors receive a dividend payment. Depending on the fund, this is monthly, quarterly or annually. The amount varies per fund and is between approximately 4 - 8.5%.
The disadvantage to this type of investment is that we do not defend ownership of the property. The advantages have been mentioned above. As a beginner, investing in real estate funds is attractive because of the low entry threshold. Most funds can be started with a small deposit of €100 to €1000.
Note: there are big differences between real estate funds on return and risk. Choose the best depending on your personal preference.
In our opinion, investing in real estate is best done through buying up real estate. This requires more time and knowledge. Also, we need a higher capital. But if this fits within the financial situation, it offers the most advantages in the long run.
The biggest advantage to investing in real estate is that we gain ownership. When buying house or apartment, we become owners. Not only can we collect rental income from it. We also enjoy potential increases in value over the long term. For example, the value generally increases at least proportionally to the increase in inflation. In other words, it is an inflation hedge with rental income (so it is better than gold).
Real estate also has advantages over shares. There is no price loss. We prefer shares to real estate, precisely because of the potential price increase. But as a beginner, investing in real estate is relatively safer than shares.
Of course, it is not without risk. Two of the biggest risks are: mortgage debt and vacancy. Make sure you only invest as long as the debts can be borne in case of vacancy!
Is it possible to invest in real estate with little money?
Yes, there are possibilities although it is time-intensive. These possibilities come down to acquiring external capital. This can be done with friends and family (not recommended) or, for example, through crowdfunding. We do not opt for such a construction. In our opinion, it is better to start with your own capital. After buying the house you can possibly refinance it at an interest rate lower than the rental income. But beware of the increased risk!
Read more about how to start with real estate investing.
Successful long-term investing is possible with a diversified investment portfolio. Investing in real estate has risks and returns. The higher the desired return, the higher the risk. At least, in most cases. As with shares, it is possible to reduce the risk and increase the return with real estate. Nevertheless, there is always risk, and this is why diversification is a must. Both within real estate and outside it (equities, commodities, loans, ...).
The risks depend on how you want to invest in real estate. Unlisted real estate funds offer lower risk than REITs. And REITs (usually) offer lower risk than real estate.
Generally speaking, when it comes to risk to real estate investing, you can think of:
Basically, the lower the risk, the lower the potential return. Yet there are ways to increase returns with lower risk. This always comes down to: knowledge. Knowledge is power. Both when investing in real estate and stocks. Therefore, as a beginner, it is necessary to invest in knowledge first.
These are examples of how to reduce risk in real estate purely on the basis of knowledge:
In short, with more knowledge (which requires commitment) risk can be reduced.
How high is the return when investing in real estate (for beginners)? This depends on knowledge, experience and momentum. The average return ranges from 6% (real estate funds) to 10 - 15% (real estate).
Read all about stock investing.
Why invest in real estate is not an isolated question. After all, we invest for capital growth and/or (additional) income. The question is more: why invest in real estate and not in other investment opportunities? Especially when investing for beginners, there are several factors of interest. However, everything depends on how you start.
In essence, this is why invest in real estate:
The two big advantages of real estate investing are (1) monthly cash flow and (2) inflation hedge. Value appreciation is nice, but we should not count on this in cost-benefit analysis (guard against wishful thinking).
Also beneficial to real estate is that there is a small chance of depreciation. For example, the rule of Warren Buffet, an investor in stocks, is to never lose money. If a stock falls by -50% we need +100% to break even at all!
Still, stocks offer interesting advantages.
A big advantage of investing in real estate vs. stocks is the lower chance of depreciation. With stocks, the risk of losing money is usually higher. Especially for novice investors. This is because they buy popular (hype) shares in a hurry, without looking at fundamental valuation (strategy + financial ratios).
On the other hand, shares can yield much higher returns than real estate. In particular, advanced investors who invest enough time can achieve high returns. That is why it is worthwhile for novice investors to also immerse themselves in shares.
Imagine: you have been working for a listed company for years. This company is currently featured very poorly in the media. Its share price has plunged by 40%. Yet you are 95% sure that this company will make a lot more profit in the future. In fact, based on calculations, it appears that the share price is now even cheaper than the company is actually worth (intrinsic value).
Investing in this type of company is called Value Investing. It is the way to achieve very high returns. Think about +15% return per year. And in some periods this can even be +50% per year.
Read all about investing in stocks here.
Now let's go more concretely into how to invest in real estate with little money. As a novice investor investing in real estate with little money is almost impossible to do. If you want to buy a small apartment in a small town, you will spend at least €40,000.
We have already indicated that unlisted real estate funds is the best way beginners with little money.
A real estate fund can be seen as a large basket in which all kinds of different real estate objects are contained. This can be anything: houses, supermarkets, retail properties, etc. Some real estate funds still require a minimum stake of 10,000 euros or higher. But there are also real estate funds where you can start with a small amount. These types of funds make it possible to invest in real estate with little money.
Below I give you practical tips on how to invest more successfully in real estate funds with little money.
Money investing is all about return, risk and time. That is the beauty of investing in real estate with little money. If you take the time to leave small amounts fixed for 20 or even 30 years, you will become considerably richer.
That's why our focus is on long-term investing. Make use of yield-on-yield or dividend-on-dividend. Each year you generate return on return, which in the long run leads to exponential wealth growth.
Although I am mainly active within the stock market, I also have positive experiences with real estate funds. Below I give you some tips if you want to invest in real estate with little money:
In the context of investing in real estate with little money, REITs are low risk. A Real Estate Investment Trust is the same as an unlisted real estate fund in terms of content. However, there are differences in terms of conditions, risk and returns.
These are the main characteristics of REITs:
Given the low entry values, REITs are perfect as a real estate investment with little money. However, it is not just for beginners. This is because the risk is also higher. More knowledge is required regarding, among other things, financial analysis.
An alternative with lower risk are so-called REIT ETFs. An ETF can be seen as a collection of several REITs. This way we do not invest in one real estate fund, but in dozens. And that at the same time.
REIT ETFs offer the lowest risk, relatively speaking, when investing in real estate. Inherent to this is a lower return.
Would you like more information? Read all about investing in REITs here.
You can buy REITs via an investment platform. For this you need to open an investment account. Buying a REIT is fairly simple. Search for the desired REIT and buy X number of shares. This works the same as with shares. Therefore, getting in is very easy, even for beginners.
Note, however, that this is only the beginning. Real estate always goes through a cycle of good and bad economic times. Buying in a dip can lead to very high returns. Are you buying at the highest peak? Then -40% loss is just as much a possibility.
However, timing the market (buy low, sell high) is not that easy.
Therefore, learn how to invest in REITs and stocks. This is a profession all its own.
In my opinion, the biggest advantage to a REIT for those who want to invest in real estate with little money is the higher returns. Real estate funds are less risky and provide more stable dividends of around 6 to 8%. With a REIT, however, you get a higher annual dividend of 7 to 10%. And that can be added to share price gains. The latter, however, also entails more risk, because a price can also fall, causing you to lose money. This is the consideration that you will have to make yourself.
Do you want to invest little money in real estate and get higher returns? Then a REIT is a potentially better choice. But beware: thanks to a REIT, you can also lose or lose your stake faster. So if you do this, do it only with money you can spare.
Here are the advantages of REITs compared to real estate funds:
And these are the disadvantages of REITs compared to real estate funds:
A good source of inspiration are knowledge platforms and investment platforms. If we look at knowledge platforms I have some personal tips for you. For example, I personally read articles from Forbes.com almost every day. You can use the search function on Forbes.com to look for articles about REITs. Besides this knowledge platform you also have other websites like Investing.com and Investopedia.com. Of course, you can also just search through Google yourself.
The trick to finding the best REITs is by simply doing a lot of research. It's better to invest dozens of hours of your time in advance to research the best REITs. By doing so, you will increase your own chances of success. Also, if you are going to invest in real estate with little money, I can imagine that you want to make nice returns.
Crowdfunding is a fairly new development that can also benefit investors. For example, crowdfunding lends itself to investing in real estate with little money. The principle is that together with other individuals you can invest money in real estate projects. Think of a housing development, a new commercial building, restaurants, et cetera. There are always developers and real estate projects that can use money for their investment. You as a private individual can also invest in this through a crowdfunding platform. An example is Crowdfundmarkt, but there are some other platforms as well. On these you will find not only investment projects in real estate, but also for other projects such as those of entrepreneurs.
Personally, I have no experience with crowdfunding. I also find it less interesting than real estate funds and REITs. Therefore, it is not part of our list of the best investments. There are better ways to get higher returns.
Nevertheless, it is fun and cool to invest in entrepreneurial projects through crowdfunding. Not for real estate, but for these other projects.
A fourth, more risky, way for investing in real estate with little money is to use money from others. In this case, you don't need money yourself, but you can invest real estate. To do this successfully, though, you need a little more explanation than these few rules. The essentials come down to:
The latter can be done through platforms such as crowdfunding, with banks or with investment companies.
Another option is to buy property with the surplus value of your own home. For this, however, you need a mortgage. It is also extra risky if you cannot pay the rent when the property is vacant.
Real estate experts do the following: they buy several properties and try to sell them directly to an investment company. In exchange, you give, say, a 6% return. You yourself can then keep about 2 - 4%. Of course this is not enough, so you need many properties at the same time. And that means high risk.
For all the adventurers and travelers among us, I have a final creative tip for investing in real estate with little money. I'm talking about buying up real estate in developing countries. Example:
Suppose you have 10,000 euros available to invest. In developing countries like the Philippines or an African country, 10,000 euros is worth much more. Sometimes up to a factor of 10 or 20. So with the same 10,000 euros, you might have 100,000 "euros" of value in a developing country. In the Netherlands you cannot buy a house with 10,000 euros, but with this amount you can buy a house in a developing country.
If you travel a lot and you know a few "gems" in the world which are not yet tourist attractions, then it can become very lucrative to develop these areas. In this case, you can even attract larger investors for when you want to start a large real estate project. Well, for many of us this is "far from our bed", but the real entrepreneurs will see the opportunities in this. And it's needed. Because anyone who wants to start investing with little money will have to get creative. Whether that is in the real estate market or in other investments, it doesn't matter.
In this knowledge article, we have discussed ways and means of investing in real estate. From real estate to (un)listed real estate funds / REITs. We have discussed the risk and return when investing in real estate. And finally, we went into detail on how to invest with little money.
Investing in real estate for beginners is more than realistic. It is an excellent long-term investment for capital growth. Start small: choose real estate funds with attractive dividends and lower risk. In time, expand into real estate, such as houses and apartments. And, years later, you can add additional risk diversification through stocks and alternative investments.