5 Ways To Invest In Real Estate — Even Though You Earn an Average Income
Written by
Martin Dasko
Edited by
Amber Barkley
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Redfin reported that the typical down payment for American homebuyers hit a record $67,500 in June, an increase of 14.8% from the previous year. This is a significant amount of money one must save before buying a property.
While many people would like to enter the real estate market, the recent challenging barriers — caused by increased home prices and higher interest rates — can’t be ignored. This combination of higher mortgage payments and a larger down payment makes investing in real estate difficult. Luckily, there are still ways to invest in real estate to build wealth on an average income.
Real Estate Investments Trusts (REITs)
“REITs are publicly traded closed-end investment funds that invest in real estate directly or through mortgages on real estate,” said Robert R. Johnson, Ph.D., professor of finance at the Heider College of Business at Creighton University. “REITs trade just like shares of stock on major stock exchanges.”
REITs also offer liquidity and diversification that can’t be found through owning a physical property. You can buy and sell your REIT shares like any other stock, so you can get started on any salary as long as you have some money to invest.
Physical real estate ownership also involves a significant amount of time and expertise.
Johnson said, “Additionally, when investing in physical real estate, the properties need to be managed, so the owner either needs to do it herself or hire a property manager. The holder of shares in a REIT doesn’t get a call in the middle of the night because a property needs a new furnace or the plumbing is clogged.”
REIT ETFs
“Perhaps the most liquid and convenient way to invest in real estate is through real estate investment trusts and exchange-traded funds (ETFs),” said Michael Martin, the vice president of market strategy at TradingBlock. “When you buy these exchange-traded products, you can sell them whenever the market is open.”
REIT ETFs combine various REITs into one investment, so you don’t have to risk your funds on one company. Some investors prefer to diversify their REIT investments to reduce risk. You can get the same benefits from investing in REITs but with additional diversification — and you can get started on any salary.
Martin added, “Popular products in this space include the Real Estate Select Sector SPDR Fund (XLRE) for ETFs and the iShares Core U.S. REIT ETF (USRT) for REITs.”
House Hacking
“House hacking is a great way to enter the real estate investing market if you have an average salary or lack the capital needed to purchase properties,” said Ryan Barone, the co-founder and CEO of RentRedi. “This is where you rent out portions of the home that you live in.”
The best part about house hacking is that you can get creative — you can lease out extra bedrooms to roommates or rent out other spaces, such as basements, garages and driveways, to maximize the returns you can generate from your home. You can even convert spaces in your home into a gym or yoga studio that can also be rented out.
Barone said house hacking can help you afford to buy a home and make it faster to pay down a mortgage and build equity. He added, “Once you’ve amassed enough capital from house hacking, reinvest it in additional rental properties and grow your real estate investment portfolio until it replaces and even exceeds the income from your 9-to-5 job.”
This strategy could help you invest in real estate on an average salary and provide yourself with a decent side hustle that could eventually replace your main job.
Real Estate Crowdfunding Platforms
You can get started with a small amount of money with real estate crowdfunding platforms. This is where you pool your funds with other investors to invest in various real estate types, from REITs to farmland across the country.
Platforms like Fundrise allow you to start with as little as $10 to get your foot in the door. You can find a crowdfunding platform that works best with your income and savings to test the waters with real estate.
Government-Backed Programs
“Many first-time buyers aren’t aware that numerous down payment assistance programs exist through local and state agencies, which can significantly reduce or even eliminate your initial cash needs,” said Derrick Barker, the co-founder and CEO of Nectar. “These programs often come in several forms: outright grants that never need to be repaid, forgivable loans that are eliminated if you stay in the home for a certain period, or interest-free loans that make the down payment much more manageable.”
Even if you don’t qualify for assistance programs, there are government-backed loan options that make homeownership more accessible for those on an average income.
Barker added, “FHA loans require just 3.5% down, VA loans offer 100% financing for veterans, and USDA loans provide zero-down options in qualifying rural areas.”
An experienced mortgage broker can help you learn more about which programs are available to you so that you can get started, even if your income or savings aren’t where you want them to be yet.
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