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How to Invest $50,000 in Real Estate

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So, you’ve saved up a chunk of change, and now you’re wondering, “How to invest $50,000.”

In this stock market climate, you want to look at real estate. If you’ve worked hard and saved up $50,000, you’ve set aside a fantastic amount to start investing, but it won’t be enough to buy in every market.

But before we give you our secret behind how to invest $50,000 in real estate, every new investor needs some warnings.

🚨 Warning: Don’t invest what you can’t afford to lose comfortably.

Investing in real estate comes with risks. Placing your hard-earned money in one or two properties only to leave you financially exposed could drive you down the road of financial ruin. Problems will always arise in life and investing. Therefore, it’s crucial that you ensure you have a financial buffer to protect you.

🚨 Warning: Don’t over-leverage to buy rental properties.

Depending on where you’re investing, $50,000 is a down payment savings that can stretch your home buying power to comfortably buy you 1-3 properties using leverage with conventional loans. But then monthly debt payments and property taxes will eat up your rental income. As a result, you’ll end up spending your cash flow paying off existing debt and stressing about making sure payments on monthly debts are made. Furthermore, what happens if one or more of your properties becomes vacant? Then you will be liable for the entire loan payment.

If you’re a beginner in real estate investing, you want to be cautious, but you also want to grow your business quickly. So you should start small and take your time before tying yourself with monthly payments. Otherwise, you’ll end up tying up all of your funds in real estate assets that won’t produce the result you need to live the life you want. Fortunately, there are ways and areas you can buy homes with all cash, avoid a costly loan program, and kickstart your investing journey.

All good things take time.

If you think buying 1-3 investment properties will make a massive difference in your life, unfortunately, you are mistaken. If you’re buying in an area with high rents, most, if not all, your income will go towards paying your monthly payments. It will take years of loan payments and rent increases before you’ll see significant cash flow.

However, if you’re buying in an area with inexpensive real estate and lower rents, you will probably not experience the same level of appreciation. Both options have downsides. You need to remember that real estate investing isn’t a short-term investment. You must be diligent, set up a great investment foundation, and stay focused on buying cash-flowing properties.

But what if there was a way to invest in real estate to help build your capital so you can own more properties?

Monthly debt payments are your enemy. Buy all cash.

Yes, this goes against almost every single real estate guru’s advice. But if you’re just getting into real estate investing, it takes time to learn the ropes. Buying with all cash means that you’re limiting your risk exposure. It gives you the time to learn how to estimate approximate expenses you’ll face as a landlord. If you don’t think unexpected expenses will arise as a landlord, think again. Every property will eventually need repairs and maintenance, whether a dishwasher, water heater, furnace, or roof.

Always underestimate your income and overestimate your expenses.

Your investment decisions should be based on a worst-case scenario, so we recommend avoiding debt. Don’t invest what you can’t comfortably afford to lose. For example, if you sink all your funds into a down payment, what will you do when a problem arises, either with the property or your personal life?

The cost of financing real estate.

Leveraging isn’t free, even if you use down payment assistance programs, a payment assistance grant, or an FHA loan and get a low mortgage interest rate. Avoiding leverage is all about security, especially if you only have a low or moderate income or can’t commit to a sizeable down payment. You shouldn’t go into credit card debt to buy a TV, and you probably shouldn’t go into mortgage debt to buy an investment property (unless you know what you’re doing). In addition, new investors need cash flow, and a monthly payment is a risk.

If you can buy a property with all cash, your monthly obligations are low, which makes all the difference. If the property becomes vacant or if you plan to renovate the property, you should be able to cover expenses with your own income until the property is leased or sold.

So, if you have $50k to invest in real estate, then the maximum home price you should be looking at is $50k (including closing costs).

Using a down payment means monthly expenses.

If you know that the only way to get into real estate is by using your savings as a down payment or even getting a down payment assistance grant, then you need to know your options. While there may be some benefits to using finance to purchase real estate, there are also significant risks involved.

For example, if your down payment doesn’t meet the 20% loan-to-value amount, you will be hammered by mortgage insurance costs, which will eat into your before-tax income. These additional costs can add up to hundreds of dollars each year, which will eat into your profit and make it harder to grow your portfolio.

The risk of foreclosure shouldn’t be underestimated.

If you are unable to make your loan payments, you may be forced to sell the property or risk losing it to foreclosure. This can be particularly problematic in the event of an economic downturn or other unexpected financial setbacks.

A foreclosure or short sale not only ruins that single investment but will make it difficult for you to get financing on any subsequent investments or a primary residence.

Where can I buy a house for $50k?

If you can only spend $50k on a house, you need to find a market with opportunities at a lower purchase price. The Midwest has the lowest housing costs in the country. These states are best for finding cheap houses:

  • Michigan
  • Ohio
  • Illinois
  • Kansas
  • Missouri
  • Oklahoma

House prices don’t need to be $500,000! You just need to be in more affordable markets. Find a niche market with amazing A and B-class properties that you can actually purchase.

Some great affordable markets where you can find deals on fixer-uppers include:

  1. Toledo, Ohio
  2. Omaha, Nebraska
  3. Kansas City, Missouri
  4. Oklahoma City, OK
  5. Kingsport-Bristol, Tennessee-Virginia

How to Find Cheap Houses Under 50k: A Few Tips for Real Estate Investors

Look for distressed properties, foreclosures, or auctions. There are some fantastic deals if you are diligent in your search and creative in how you buy properties. Investors can buy distressed properties at a discount and find deals through foreclosures or auctions.

In Midwest markets, it’s possible to buy properties for $20-30,000. Then, you can invest another $10-15,000 to renovate and improve the property so that it’s move in ready for the next buyer.

Can you do the work or project manage yourself? The more of your own effort that you put into your fix-and-flip project, the more profit you will make.

By buying and renovating distressed properties, it’s possible to turn a $50,000 asset into a $100,000 asset. You just need to find the right market and the right deal.

What’s the right time to focus on rental income?

After completing several fix and flip deals, ideally, you have enough “‘lazy” capital to start parking money in rental properties to increase your passive monthly gross income. That means you still have enough cash to continue doing fix and flip deals while some remain tied up in an income-producing asset.

Financing: there’s a time and place.

Once you have a couple of properties in your portfolio, and are comfortable being a landlord, then perhaps you are ready to use leverage.

Make sure you shop around for the best mortgage rates. Be aware of your debt-to-income ratio, extra costs like mortgage insurance, and conventional loan rates. It’s always best to have a larger down payment. Today’s mortgage rates are out of control, so be wary and strategic with your financing. Remember, investment loans don’t have the same interest rates as primary residence loan programs.

Build your portfolio.

Don’t stop at just one rental property! Keep pushing forward with your fix and flip strategy until you have acquired enough rental properties that allow you and your family to live a financially free lifestyle. The more equity you have in properties, the more cash flow you will have!

If you’re ready to start building a real estate portfolio and love what Toledo has to offer (great cash returns and super cheap properties) but don’t want to move out here, get in touch. We’d love to discuss your options and find out if an Ohio Cashflow turnkey property is the right asset for you.

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About the author

Picture of Kelsey Heath
Kelsey Heath is a real estate content specialist with an extensive background in residential, industrial, and commercial property. She has been involved in the industry for a decade as a professional and personal investor, gaining a deep understanding of the market and trends. With a passion for written communication, Kelsey loves helping people understand the sometimes-complicated concepts behind real estate and is now a sought-out guest and ghostwriter.