One of the most common questions I get when I tell people that I work with investment property specialists is where do you get the money to get started and buy your first real estate investment?  It’s knowledge I took for granted because I was introduced to real estate investing at a young age.  This is actually something I should add to my list of investment tips.  So today we are going to talk about small investments and how you become an investor and purchase your first rental property or flip with only $5000 dollars.  I’m sure you’re wondering how you can buy a house with such a small investment, so lets get started.

We aren’t going to buy a $5000 dollar house, instead the way to go is to find a few more people that want to do some small investing, but only have $5000 as well and you all pool your money together to purchase a house to flip.  That way you spread the risk out over a larger group of people.  This isn’t just a matter of having everyone pitch in $5000 dollars though, you need to structure it properly so that everyones small investment turns into a large one down the road.

So what are the best small investments?  They are going to be homes in the $30,000 dollar range where you have 7 or 8 people each throwing in their $5000 dollar contribution giving you a total of $40,000 to work with.  That will give you the initial $30,000 to purchase the property and another $10,000 dollars for updates, repairs, and carrying costs.  If you spend your money wisely when doing upgrade and repairs you should be able to sell the property for around $60,000 dollars when you’re done.  Giving you a net profit of $20,000 dollars that then gets split between the 8 initial investors.  When you divide up that return each person will get $2,500 dollars.  While $2,500 dollars doesn’t seem like a lot of money, it is a 50% return on your initial investment which is a great return!  When I do a real estate flip on my own I usually shoot for a 15-20% return and you’re more than doubling that.

After your group does two of this type of real estate investment you’ll have doubled your original small investment and can either double the amount of homes you want to flip, or just keep going at that pace until each of you has enough to go out on your own and either continue to flip properties or purchase your first rental property in cash.

There are a few considerations that need to be addressed before you go around asking for $5000 dollars from people.

1. Form an LLC and make everyone equal partners
2. Put one person in charge of finding the properties
3. Assign tasks to all other people in the group
4. Communicate

Small investments are a great way for beginner investors to get their feet wet in real estate without having to take out a loan or borrow money from a family member to get started.  Remember some of the best small investments I’ve seen where deals in the $20,000-30,000 dollar range so I’d start there.  Another great way to cut costs is to find a real estate agent that could be part of the group.  That way you are reducing your costs of buying and selling the property and you’ve also got someone with some experience to help with finding that perfect first small investment.

Tags: beginner, best small investments, first investment, group investing, small investing, small investment, small investments