If you have $40k to invest in real estate, what’s the best way to put it to work?
There are many ways to get started or to allocate more of your capital to invest in real estate. That’s true whether you are starting from scratch with zero, or have millions you need to deploy. Though what’s best if you are wanting to test the waters in a new type of investment with around $40,000?
What’s Important?
The great news is that once you have $10k to $50k to invest, you can begin to get access to better investment opportunities. Those which are typically reserved for more sophisticated and connected investors. This can include participating in larger, more sound, and profitable investments.
Still, if you are limited in the capital, you also need to work to limit your risk. If you only have $40k, this is probably not the time to bet it all on your first DIY fix and flip house project. Nor to invest in some exotic island construction project.
At the same time, you should be seeking strong (risk-adjusted returns). You need to grow that capital. Whether it is through relatively short-term turns with lump-sum payouts or dividends which can be reinvested and compounded over the years ahead.
How To Invest $40k In Real Estate Right Now
These may be some of the best ways to invest what you have right now.
Real Estate Syndications & Partnerships
These are opportunities to participate in larger and more profitable deals alongside other great investors. It means a lot of equity going into a project versus taking on a lot of personal debt to fund something. There will also likely be an experienced managing partner who will handle all of the day-to-day, manage the accounting, and ensure you are primed for tax time.
These deals may be new construction, acquiring undervalued properties and renovating them, or buying cash-flowing properties to hold. It may involve multifamily or portfolios of single-family homes.
Mortgage Notes & Private Lending
Private lending has significant advantages at this level of investing. It can be far more passive and less intensive than flipping or trying to be a landlord. It also means brick and mortar collateral, with the expectation of regular cash flow.
There is a steep learning curve to become a direct private lender or to safely and profitably invest in mortgage notes. With this amount of limited capital, on your own, you would typically be restricted to second mortgage notes or the least desirable types of collateral.
Mortgage Debt Funds
Instead of doing it on your own, investing in private real estate investments like mortgage debt funds can give you the best of all worlds.
You get the pro-management, and you are investing with other sophisticated investors. You can also tap into asset classes like private lending and mortgage debt. At the same time, you are benefiting from all the economies of scale, and access to better quality assets. Here you can find less volatility, with attractive passive income yields.
Summary
What’s the best way to invest $40k? There are many opportunities in real estate today. Consider what is most important to you. Then find the option in this list that best checks the boxes for you.
