Before I share with you how to get involved in real estate with a small piggy bank behind you, let me first describe to you two different types of real estate investing…
- Active investing: This helps grow your capital. If you have $10,000 and you want to have $100,000, active income and doing projects like rehabs, which produce active income, will help you grow your capital.
- Passive income: This would be to acquire rental properties or acquire pieces of rental properties that pay you paychecks every month. We also call this mailbox money because you just go to the mailbox to collect your returns, and that is all the work you have to do.
These are the two different types and two different mentalities of real estate investors. It really depends on you and your financial situation, whether you want to take that $10,000 you have in a bank and grow it, or you just want to invest it and see it grow over ten years and don’t want to think about it and don’t want to get your hands dirty.
First, I’ll describe how to grow that $10,000 into $100,000, if that’s your goal. Of course, it’s going to take much more work than the passive income side, but you will definitely reap the benefits if you could figure it out.
There are a couple different strategies that I would go about if I wanted to build up on my $10,000. One of those would be to do rehab projects and then to actually lend money on rehab projects. Of course, they’re going to be very small projects, but there are definitely ways that you can meet an investor and invest on their rehab projects to grow your capital.
What do I mean by this?
One way that I’ve done in the past with a small piggy bank like that is I’ve gone to investors who are raising hard money for their projects and are looking for some extra capital to finish the project off, because, of course, hard-money lenders don’t lend 100% of the project cost. So these investors are looking to fill what is called ‘the gap’ on their projects.
For funding the gap you’ll then get a percentage of the profits on the back-end. So that’s what these investors are looking for, and this is a way in which you can grow your capital by investing in the gap on these rehab projects. You wait six to nine months and get your funds back, plus a little bit of a return. This is the way that I’ve grown my $10,000 as well. While it takes a little bit longer to find the right investor to invest with and the right projects to invest in, it is definitely a way to grow your cash.
Another way to grow your cash would be through the BRRRR strategy, I would call it a modified BRRRR strategy. The BRRRR strategy is buy rehab, rent, refinance, and repeat. That is more of a passive income model but it can be modified to where you can buy a property, rehab it, rent it out, and then resell it. That is one that I’ve also done in the past with my rental properties.
What I’ve done is I’ve gone and bought properties, used hard-money lenders to fund the property and the rehab, I put my $10,000 into the project, I find a tenant, I get it rented out, and then I turn around and go sell it sort of as a turnkey rental property to another investor.
This process does take a lot more work. Since it now is your project, you have to actively be managing it, you have to find boots on the ground to manage it. If it is out of state, you have to find a realtor to help you find these properties. You have to do your due diligence and make sure that all the numbers make sense. You have to find a trustworthy contractor or a trustworthy property management company as well. So this process does take a little more time. And it’s a lot more about team building, especially if you are investing out-of-state. It’s a lot more about building the team and then waiting for the right property to arise.
But if I have $10,000 finding a team is free, and then waiting for the right property is free as well, so you’re not spending any of your $10,000 to wait for the right opportunity to arise. And when the right one does, just make sure you have everything lined up so that you can close quickly and get the property going, and then, hopefully, within a three to six month period you can flip that property to another investor who can then reap the passive income from the property that you’ve just flipped.
Let’s say your mentality was that you didn’t want to really grow the capital, you don’t want to put a lot of work into the property, you just want a paycheck for your $10,000 every month. This is another great option, and this option would be for somebody who maybe has a full-time job, doesn’t really want to get into real estate, knows a little bit about it, but just wants to place their money in a promissory note, which is just a bank that pays more interest, and reap the benefits.
The way that I would go about investing $10,000 passively is, again, investing with other investors. Full-time real estate investors are always looking to raise capital from sources, and while $10,000 wouldn’t be a lot of money and might be too small for a lot of investors, it definitely would be something that some investors would be looking for. I know personally on some of my projects I’ve gone and raised funds from friends and family for $10,000. I’ve done this in the past and I normally pay these investors a great return on their money, way more than they’re making at the bank. So that’s one way to invest with another investor.
Another way to create passive income with that amount of money is to invest in a turnkey rental property. There are many turnkey rental property providers who have the property already done, the property is rented out, the property has a property management in place, and normally these companies are very good, but you just have to market value for the property. Normally the cash flow is pretty good, around a 12% to 15% ROI. Even ourselves we have sold a couple of these turnkey rental properties to investors where they only had to come up with $10,000 to $15,000, and they can have their own property that is already rented out, it has a property manager in place, and it’s ready to go. And normally our return on investment for our investors that we sell to is about 15% to 20%, a little bit higher than normal.
In the end, investing in real estate, even with a little amount of money, is difficult, but it is not impossible. It depends on what route you want to go and what strategy you want to deploy. Do you want to grow your capital or are you looking for more of a hands-off passive income approach. Both of them are fine, but you have to know before you get involved what you want to do and how much you want to be involved in your business. The active side can be a full-time job at times, maybe not when you’re working with just one project or just $10,000, but as you begin to grow, it is very time-consuming.
If you have any more questions or are interested in learning a little bit more about our turnkey properties, comment below or reach out to me and I will definitely get back to you.