There are a lot of reasons not to invest, good and bad. It's good to wait to invest until you've paid off high-interest credit card debt. It's bad to wait because you're nervous about how long it will take to fill out the brokerage account application.
One of those reasons is salary. If you make $50,000, you may think it's impossible to invest, in real estate or stocks, until you're making more money, especially in an inflationary environment. Obviously, it depends on your situation, but there are things you can do. Just because you can't buy a 100-unit multifamily building or a huge office-warehouse doesn't mean you can't do anything.
Let's discuss three things you can do to start investing in real estate, even with a salary of $50,000: start saving, buy REITs, and buy your residence.
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1. Start saving
The first step in any type of investing is having the cash to make the investment. If you can get $5,000 to $10,000 saved, you should be able to find a property somewhere to buy. Here's a step-by-step plan:
- Pay down debt and establish reserves: Before you start saving to invest, pay down any debt that has an interest rate over 8% and save some money in a rainy-day fund. If you're paying high interest on debt while trying to save, you're losing money.
- Create automatic savings: Set up a savings account or brokerage account that you'll just use to save for real estate down payments. Once it's going and you've decided how to invest, create an automatic deposit into it each month. It could be $50, or 10% of your income, or any other number that works for you.
Once you have automatic savings momentum, do whatever you can to keep it going. Cut other expenses, pick up more shifts, just keep that automatic savings going. - Increase your income: The final step is to increase your income. Work hard and efficiently to get a promotion or a better offer from another company. Freelance online or drive for a rideshare or food delivery app. Take courses to increase your skills. Again, do what it takes to increase your income.
2. Buy REITs
It will probably be awhile until you can make any big real estate purchases, but you don't need much money to buy REITs. Real estate investment trusts (REITs) are stocks that buy and lease real estate. If they pay out a significant portion of income as dividends, they aren't liable for corporate taxes.
You can buy a REIT with as little as $25 in a brokerage account or, sometimes, buy directly from the company with a dividend reinvestment plan (DRIP). If you choose a good investment, you'll have a passive income source to inflate your savings. You could even buy low-volatility REITs in your down payment account.
To get started with REITs, choose a type of real estate that interests you and that you know something about. For example, if you work in healthcare, look at healthcare REITs; if you work at a warehouse, look at industrial REITs. Having some knowledge about the industry will help you learn about the REITs that you may invest in.
After you invest, listen to the REIT's quarterly conference calls and read the financial reports. REIT management teams use the same language that you'll find when investing directly into real estate. So, not only will you do a better job tracking your stocks, but you'll have a leg up when you start buying real estate.
3. Buy your residence
I'm a big proponent of living in residential rental properties before you rent them out. You spend a lot less on the down payment, gain local knowledge you may not have otherwise, and give yourself time to build up more reserves and capital for the next investment.
As a beginner, you will also get time to learn the mechanics of owning real estate generally, such as how to pay property taxes, appeal appraised values if necessary, or respond to HOA complaints or get on to the HOA board. You can also pay your mortgage down quicker if you want. It is easier to do these things when you live in the property than from afar.
The first step to buying a residence is getting preapproved for a mortgage. Get your credit score as high as possible, have money saved for a 5% to 10% down payment, and aim for a monthly payment that is no more than 30% or so of your monthly income. Once you have the mortgage down, you can work with an agent to find a place that works for you.
