How To Invest $100,000 In Real Estate In 2023 (7 Powerful Tips) (2024)

You have $100,000. You want to invest it in real estate. Where do you even get started? Most people associate “real estate investing” with people who have millions of dollars.

But it doesn’t take that much to purchase a rental property.

In fact, if you just want to get into real estate investing, you just need a few dollars. So, here’s how to invest 100k in real estate — from rentals to REITs.

1. Buying a Residential Property or a Second Home

A lot of people don’t realize that their home is an investment. In fact, it’s usually the first investment you should make.

Put $100,000 down on a $500,000 home today, and in 30 years when you’re ready to retire, it will be fully paid off. It may have appreciated in value over that time to a $1,000,000 home.

Putting money into your residential property is a great idea. It increases in value. It saves you rent money. And it gives you a place to live rent and mortgage-free in your twilight years.

A second home is similar. You can sell it later. You can rent it for passive income. And you can take loans against it.

Many investors are of the opinion that you should put as much as you can afford into your home. Your home will eventually pay off for you as a source of equity.

Of course, that also assumes rates are low. If you can get a three percent or lower mortgage rate, you have very little reason not to treat your home mortgage as an investment property.

You just shouldn’t exceed a reasonable amount of cash flow. And when looking at your residential property as a type of property investment, consider its future value. Is it in a desirable area? Is it going to go up quickly or slowly? How hard will it be to sell?

The common pitfall when buying a residential property is purchasing more house than you can afford. So take the time to sit down and look at your books. You want to maintain good cash flow for future investments.

Just because a bank will give you the money doesn’t mean you can afford it!

2. Becoming a Landlord For a Rental Unit

Or multiple rental units. Let’s go over how to invest 100k in real estate through a rental property.

Becoming a landlord is one of the most common types of property investment. It’s also one of the best ways to invest if you’re wondering how to invest 100k in real estate.

Once you pay off your mortgage, your rental income becomes passive income. That’s especially true if you’re working with a property management company.

A lot of people end up having three, four, or even more properties as a real estate investment.

But it depends on your risk tolerance.

Your rental properties could need new foundations, new roofs, or structural supports. Every year, there are new repairs and improvements.

Your early years aren’t likely to have positive cash flow. Rather, your cash flow and income improve after the property has been completely paid off.

At the same time, owning properties is one major way to develop real capital growth.

There are even ways that you can buy a rental property within a self-directed retirement account. But you’d need to talk to your financial advisor.

If you don’t want to manage your properties and hate the idea of being responsible for them, this might not be the best option. But if you like the idea of having a lot of passive rental income in the future, it’s worth thinking about.

The major issue people run into is not having the time or money to manage a rental property. If you have $100,000 to invest, you should set aside some amount for future costs. And don’t expect a fast return. It will take time.

3. Purchasing Part of a Commercial Property

If you’re deciding how to invest 100k in real estate, commercial properties are an excellent asset class to be in. Most people think they need millions for a commercial property to be an investment option.

But many developments actually collect from multiple investors, and the floor for that investment could very well be $100,000 or less. You should look around for properties that you’re interested in and that you believe in.

Owning commercial real estate can be a great stepping stone. Commercial real estate traditionally performs very well. It is desirable. You can sell your stake if you desire. Otherwise, you can reap the benefits of the leases.

If nothing else, having a commercial property can diversify your portfolio. It may not be as safe as having a traditional IRA, but it’s a sound investment strategy.

You can talk to a commercial property agent to learn more. Some commercial properties are true passive investing. Other commercial properties require some management. If you can buy a small commercial property in your area, you might even become a commercial landlord.

While being a commercial landlord is more complex than being a residential landlord, it’s almost always significantly more lucrative. Commercial landlords have clients who stay longer (usually 4-year or 5-year terms) and pay more. They also tend to demand less, though this varies depending on the income property.

A problem with investing directly in commercial real estate is that you can get most of your money locked into a single venue. If that happens, you may not be properly diversified. This is why people will frequently look at REITs or other opportunities.

Always talk to a commercial real estate investor before you start investing in commercial real estate. Commercial real estate has many more challenges and potential foibles than residential real estate, which most people have some basic familiarity with.

4. Investing in Public or Private REITs

A REIT is a Real Estate Investment Trust. Essentially, it’s a bundle of real estate assets that you can invest in. You can invest in a public REIT right through your brokerage account.

A REIT is a very low-risk investment compared to directly owning property. This is because you’re purchasing a stake in an already diversified real estate portfolio.

Public REITs tend to be more stable performers, while private REITs can be more volatile. However, they can also see greater levels of return.

You should know that investing in any REIT is going to be inherently higher-risk than stocks, mutual funds, or an ETF. But by the same token, whenever it yields returns, those returns will almost always be greater.

You can do your due diligence by investigating the REIT and its historical performance. Just like mutual funds, there are a lot of REITs out there, and many of them focus on specific areas.

Many people start by investing in REITs but become disenchanted because they aren’t making as much money as they wanted.

They start branching out to riskier investments because REITs may yield steady and slow. They may go from investing in a REIT to investing directly in real estate or picking up an investment property.

But that doesn’t mean that REITs aren’t a great place to start. Every investor needs low-risk investments. REITs can be the foundation of a well-balanced portfolio and a way to hedge against your higher-risk, more involved investments.

5. Becoming a Partner in a RELP

A RELP (Real Estate Limited Partnership) is a partnership formed with the express goal of engaging in real estate investment.

Again, your risk is limited because it’s diversified.

A RELP is like starting a company that’s focused on investing in real estate. But the benefit is that its passive income.

Once you start investing in a RELP, the managing partner manages all the investments. They will be responsible for the asset allocation; you’ll just provide part of the funds.

But that also means that you need to put a lot of faith in the managing partner. And you need to do your research to make sure that they are an accredited investor with experience.

The advantage of a RELP is that the RELP will have significantly more capital to invest with.

Instead of investing in a single condo, you can have some money invested in a dozen condo buildings.

This type of diversification strongly reduces risk.

It’s a lot like a private REIT, but because you’re investing with the help of a managed partner, you do have a more direct investment. And you do have some control because you and the other investors can vote out the managing partner if they fail to build your portfolio.

A RELP can be complicated to organize. Usually, you will need to network to find the best opportunities. There are RELPs online that are funded frequently; these can be a good place to start.

The biggest issue is that your RELP can be managed poorly, and if it is managed poorly, you could potentially lose your money. So, you may not want to gamble everything into a REIT, especially if you don’t have a personal relationship or personal knowledge of the person managing it.

If you feel as though you’re a capable and experienced investor, you can always think about setting up and managing your own RELP.

6. Flipping a House or Condo

Want to get some work done? Let’s take a look at how to invest 100k in real estate through flipping a home.

This form of investing is certainly not passive income. But it’s a great path toward financial independence.

Flipping a house or condo is best done for people who are confident in their ability to manage a large-scale project.

You don’t need to be a handyman. But you do need to know the basics of renovating a property.

Many people make quite a lot of money flipping houses or condos.

But be careful. Check with financial experts so you can avoid issues such as paying too much capital gains tax.

Flipping is hard work. And you may not always make money. There will always be projects that go over budget and run out of time.

The advantage is that each project is a discrete project. Once you’re done, you’re done. There’s no lingering like with rental properties.

At the same time, every time you sell the property you experience a capital gain. You can shove the money into your Roth IRA, but there are limitations.

Comparatively, if you just buy a property and hold it, you aren’t going to need to pay capital gains taxes until you sell it.

House flipping can lead to disaster for those who aren’t knowledgeable about houses. You need to know everything about houses, including how well properties sell in the real estate market and how to tell whether an HVAC system needs to be replaced.

For others, it can become a very lucrative side business.

While you can certainly rise to a challenge, it’s important that you don’t over-extend yourself. Consider looking into something like a home renovation loan, which could provide you with borrowed dollars to renovate a property. Your cash could then be used for incidental issues that could otherwise sink you.

A new flipper should never try to flip more than one house at a time. Focus on getting the first one done perfectly so you can develop good processes next time.

7. Investing in a Stock or Mutual Fund

You can also just take some money from your savings account and invest it in stock, exchange-traded fund (ETF), or mutual fund that’s focused on real estate.

Altogether, this is actually the safest way to use your money if you’re unfamiliar with how to invest 100k in real estate.

Stock markets are more volatile than ETFs or index funds. So, they can still be risky. But, taken as a whole, the stock market will generally rise.

Index funds diversify you more than just investing in a single stock on the stock market. But investing in the stock market can yield higher gains if you know what you’re investing in.

While you should never pull money from an emergency fund to start investing in stocks, stocks are still good to have in any portfolio. And an index fund can help you round out your risk tolerance.

A financial advisor can walk you through how to invest 100k in real estate. With the help of an advisor, you can create a well-diversified real estate portfolio.

You’ll get completely passive income. You may not make as much as directly investing in real estate. But your earnings are less likely to be volatile, and your income will be more predictable.

Over time, most people will reduce their positions in stocks and increase their positions in index funds, ETFs, and bonds. These are lower risk and less likely to be volatile toward retirement age.

But when you’re young, you want to invest as much of your cash as possible in your retirement accounts, which in turn should be invested in stocks. Stocks are going to grow more dramatically over time.

Because of fractional shares, you can actually start investing in these types of investments with as little as $1 in cash. That also means that you can start investing without dipping into your emergency fund. And you can invest your cash slowly until you get a handle on it.

FAQs on How to Invest 100k in Real Estate

Do you need $100,000 or more to invest in real estate?

No. You can start wealth investing right away. Once you’ve built your savings and your emergency fund, you can start pumping money into your retirement fund. Your retirement fund dollars can then be invested in real estate stocks, ETFs, and mutual funds.

But having $100,000 or more does open up new doors. You can invest directly in residential or commercial real estate. Or, you can become a landlord. You could also start a company.

What qualifications do you need to become a real estate investor?

You don’t need any particular qualifications to invest your cash in the real estate market.

If you want to do something complex, like buy a real estate investment in a self-directed IRA, you may need to consult with a professional.

But anyone can buy a house, condo, or stocks and mutual funds.

There are a lot of reasons to put your cash in real estate. And there are a lot of options for those who want to develop their real estate income.

What are the lowest-risk real estate investments?

The lowest-risk real estate investments are mutual funds targeted toward real estate. These investments tend to be very well-diversified. Further, they have low fees.

You should always be targeted toward diversifying your cash. Most of those invested in the real estate market should have at least a few mutual funds and index funds targeted toward real estate.

What are the highest-risk real estate investments?

Directly purchasing real estate to flip is usually the highest-risk investment. Miss a major foundation issue or roof issue, and you could actually find yourself losing cash on the project.

This is closely followed by rentals. If a rental goes vacant or if a renter doesn’t pay for a year, you can lose a significant amount of money. And in many areas, that’s how long a full eviction could take.

But recall that high-risk investments usually also have the greatest yields. If you’re really looking to make money on real estate, you may be interested in putting your cash where it can be the most useful.

Is real estate the best type of investment for your money?

It’s hard to say what the best type of investment is for a given person. It’s not universal. Before you start to invest your cash, especially a significant amount, you should talk to a financial advisor.

But real estate has always been known to be a remarkably stable investment. It’s a great investment because you build equity while also getting passive income, such as rental income. And it’s a resilient market because land is a finite resource.

Who should you talk to about investing in real estate?

There are three professionals you may want to talk to when investing in real estate: your tax accountant, your financial advisor, and your investment real estate agent. Each of these will have separate insights into how investing in real estate may impact you. You need to consider not only the current market but also your long-term goals.

Can you invest in real estate through a retirement account?

If you’re wondering how to invest 100k in real estate, there are many ways to invest through a retirement account. You can purchase stocks and mutual funds that are targeted toward real estate. Some retirement accounts even let you borrow money against them, so you can purchase a home. And you might be able to invest directly in real estate through those accounts.

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