5 Ways To Invest in Real Estate Without Cashing Out Your Savings

You may have heard that investing in real estate is a great way to earn passive income. Yet, you need money to invest in real estate, right? Cashing out your family’s savings or retirement accounts may not be an option for every family. The good news is that there may be other ways to invest in real estate without cashing out your savings.

Invest in Your Personal Residence

A great first step in the world of real estate investing is to invest in your own home. If you already own a home or property, you’re technically already investing in real estate. As you pay down your mortgage and make necessary maintenance and repairs, you’ll earn equity in your home. You'll likely earn a profit whenever you’re ready to sell as long as the real estate market stays consistent. 

An important part of investing in your personal residence is making timely repairs. Routine upkeep, especially to parts of the home like the roof and yard, is crucial to protecting your home’s condition. Keeping up with home and design trends can also help your home maintain its value. Being aware of trending home designs and projects with the highest return on investment (ROI) can help you squeeze as much equity out of your home as possible. Keeping receipts and maintenance records for all home appliances, windows, decks, and roofing is also beneficial.

Some investors may also live on their property while renovating it to benefit from any available tax breaks. Once the home is ready to rent or sell, the investor then moves into another project until it’s completed.

Borrow From Family and Friends

Borrowing funds from family and friends can help you obtain the money you need to purchase a real estate investment property. Partnering with others allows you to divide the costs and minimize the risks. Make sure you’re clear on who makes purchasing decisions and how much each investor earns in returns. It’s always a good idea to cover these details before investing to avoid any disagreements.

Consider Alternative Loans

Even if an FHA or conventional loan isn’t an option for your investment property, you may qualify for alternative loan types. An investment property loan must cover all your up-front costs, which can be expensive depending on how many repairs the home needs. It can take a few months, and sometimes years, to earn a profit on a real estate asset.

Alternative loans can sometimes be a better option for untraditional real estate purchases, like investment properties. Whereas FHA or conventional loans may have strict debt-to-income requirements, other loans don’t. A debt-service coverage ratio (DSCR) loan, for example, considers the profitability of a real estate investment rather than your current income. You can use a DSCR loan for a wide variety of investment types, too, including single-family, multi-family, commercial, and vacation rentals.

Borrow Against Your Home Loan

If you currently have equity in your home, you may be able to borrow against it to invest in more real estate properties. Your home’s equity is the difference between your mortgage balance and its current market value. Some lenders may allow you to borrow against this difference up to 70% or 80% of the available equity. However, it’s important to note that home equity loans typically use your personal residence as collateral. This means if you can no longer make the payments on either property, you’ll lose both in foreclosure.

Earning equity is another benefit of owning multiple properties. When you have two (or more) real estate assets, you’ll earn equity even faster, which allows you to invest in more properties. Some investors may also use their equity to make any necessary improvements or repairs to the home.

Buy Real Estate Investment Trusts

Buying real estate investment trusts (REITs) may be a good option for you if you don’t want to own or manage physical property. With an REIT, you purchase a percentage of a property rather than the property itself. You won’t receive any returns until the property is sold and a profit is realized, and you usually have minimal to little control over decisions related to it. REITs are a type of mutual fund, meaning they carry less risk than purchasing and renting physical real estate.

You have many options available when it comes to investing in real estate. If you’re considering something lower risk, a REIT may be right for you. However, if you want to benefit from the passive income that comes with real estate investing, an investment property may be a better strategy for your needs.