What is the best way to invest $25k in real estate? Having $25k to invest comes with unique opportunities and challenges.
For many people, $25k is a solid amount of investment capital and can kickstart your real estate portfolio. However, $25k doesn’t go as far today as it once did. For example, years ago, you may have been able to use $25k as the down payment on an investment property. But with current home values, you may need more like $100k to invest in real estate via direct ownership. $25k is still a lot of money, but your investment options are probably limited to alternative real estate investment types. The good news is that there are several to choose from!
So, how should you invest $25k in real estate? Here are five options to help you make the most of your investment funds.
5 Ways to Invest $25k in Real Estate
1. REITs
REITs (Real Estate Investment Trusts) are companies that own income-producing real estate. Investing in a REIT allows you to own a share of the company and entitles you to a share of the profits in the form of dividends. You can use the dividends to supplement your income or reinvest them to purchase more shares of the REIT. By reinvesting your dividends, you can take advantage of compounding interest for exponential growth.
Because each REIT owns multiple properties, they are automatically diversified. However, REIT investors have the option to spread their funds across multiple REITs to add even more diversification.
Some REITs are publicly traded, meaning they are listed on the stock market and open to all investors. Others are private and are open only to those with connections. Private REITs may require that you be an accredited investor. Accredited investors meet specific income or net worth requirements set by the Securities and Exchange Commission (SEC).
What to Know About Investing $25k in REITs
Minimum investment amount: As low as $1,000 for some REITs (others can exceed $25,000)
Return potential: Moderate
Risk level: Low
Pros: Strong liquidity, passivity, professional management
Cons: Lack of control and tangibility
2. Private Equity
Private equity is when multiple investors buy into a deal together, often sharing responsibility for the management of the project. The project could be anything from a simple house flip to a multi-family development. This is common in real estate because pooling funds allows investors to access more valuable deals than they would be able to own independently.
The difficulty with private equity is often finding and vetting opportunities. Private equity investments are not offered to the public, so you would have to rely on your connections to find deals. Additionally, you would need to trust your partners and be comfortable making project-related decisions with them.
While private equity is still a solid option for well-connected high net worth individuals (HNWIs), the challenges of this investment type prevent many investors from choosing private equity. In recent years, the aggregate exit value of private equity investments has dropped by over 20%.
What to Know About Investing $25k in Private Equity
Minimum investment amount: Some deals may offer a buy-in of as little as $25k while others can require $100k+
Return potential: Moderate to High
Risk level: Moderate to High
Pros: Access to larger deals, flexible offerings
Cons: Lack of government regulation, only available to accredited investors, can be difficult to find, investors may disagree on management or design decisions
3. House Hacking
House hacking is when you earn income from your private residence. There are many ways to implement this flexible investment strategy, some of which require no investment capital. For example, you could rent out an already-furnished bedroom in your home. Or you could lease out parking or storage space you have available.
When you have $25k to invest, you have even more options. Consider the following:
Live-in flip. You can invest the money in renovating your current home and then sell the property. Ideally, your investment amount will boost the resale value by enough to cover your total investment and turn a tidy profit. This is called forced appreciation.
Build an ADU. ADUs (accessory dwelling units), also known as in-law suites, guest houses, or casitas, are separate living spaces built on your property. This space can be rented out to create passive income every month. While $25k probably is not enough to cover the full build, it could serve as a down payment for a construction loan. Alternatively, you could tap into your home equity with a home equity loan or HELOC as a way to finance your real estate investment.
Purchase a multi-unit property as your primary residence. While most investment properties require higher down payments, you can get favorable financing on primary residences. So, if you purchase a duplex, triplex, or even four-plex with a low-down payment loan (like a conventional loan, FHA loan, or VA loan), you could live in one of the units while earning rental income from the other(s). A 3.5% down payment on a $500,000 duplex, for example, would come to $17,500, leaving money available for closing costs or making the unit(s) ready for market.
What to Know About Investing $25k in House Hacking
Over the past decade, real estate crowdfunding has surged in popularity. Crowdfunding is similar to private equity as multiple investors pool funds to finance a project. However, unlike private equity, crowdfunded deals can be offered to the public. This makes unique deals more accessible. And by reaching a wider pool of investors, crowdfunding can offer lower buy-in amounts.
Crowdfunded deals are managed by a real estate sponsor. The sponsor makes decisions about the project, including scouting and vetting potential deals, choosing how to improve the property, and managing the day-to-day operations. This professional management is ideal for investors who don’t have the experience or time to manage properties on their own.
If you have $25,000 to invest, you can allocate all your funds to a single project or diversify your capital across multiple deals. Learn more about crowdfunding pros and cons to see if this is a good fit for you.
What to Know About Investing $25k in Crowdfunding
Minimum investment amount: Around $5,000 for some projects
Return potential: Moderate
Risk level: Low to Moderate
Pros: Low investment minimums, flexibility, passivity, access to deals beyond your means, the ability to easily diversify
Cons: Lack of control over design or management decisions and lower liquidity than REITs
5. Real Estate Syndication
Real estate syndication is very similar to crowdfunding, but it offers a few more advantages to investors. The basic model is the same: deals are offered to the public and multiple investors pool funds to finance a project, which a real estate sponsor manages from start to finish.
But there are some differences between syndication and crowdfunding. Most importantly, syndication offers a more stable legal structure with equity. All investors of a syndicated project are typically made members of the trust or LLC that owns the property. This gives investors an equity stake in the underlying real estate.
As with private equity and crowdfunding, syndication investors can choose from a wide range of investment opportunities. Syndicates may offer buy-and-holds, vacation rentals, fix-and-flips, and multi-family developments and rentals. Minimum investment amounts vary, so you might invest the full $25k in a single project or spread that capital across multiple projects with lower minimum investments.
What to Know About Investing $25k in Real Estate Syndication
Minimum investment amount: As low as $10,000
Return potential: High
Risk level: Low to Moderate
Pros: High return potential, low investment minimums, flexibility, passivity, access to deals beyond your means, the ability to easily diversify, deal-by-deal control, ownership stake in the underlying real estate, professional project management
Cons: Lack of control over design or management decisions, lower liquidity than REITs, only available to accredited investors
Investment Options with Gatsby Investment
Investing $25,000 in real estate is a strategic move that can yield significant returns, especially when you partner with industry experts like Gatsby Investment.
Gatsby Investment is a California-based real estate syndication company that specializes in making unique deals with high-return potential available to investors all over the world. With investment minimums as low as $10k for single-family projects and $25k for multi-family projects, we have opportunities that meet your $25k investment budget.
Our focus is on maximizing return potential in the hot Southern California market. We are proud to have earned average annualized returns of 23% for our investors from 2017 through 2023!
