Investment property is typically thought of as something owned by people with significant amounts of wealth to throw around. While it’s true that investment by definition requires an upfront cost, it doesn’t necessarily have to be a big cost. Furthermore, it’s possible for your investment to be in a property you plan to live in as well, so you aren’t forced to buy multiple homes to invest.
Long-term investments, which rely on home values appreciating over time, don’t have to be costly at all, particularly if you plan to live there anyway. Foreclosures and auction sales are generally significantly lower price than the average home in any particular area. However, you should be careful about repair costs — homeowners whose homes are on foreclosure or auction typically couldn’t afford to keep their homes, which means they often also have deferred maintenance. You could also look in up-and-coming neighborhoods that aren’t pricey yet, but might be in the future.
Alternatively, there are strategies to reduce the upfront cost of purchasing a home. These include government programs to aid first time homebuyers, enlisting the help of other investors, or utilizing seller financing. Seller financing involves making monthly payments directly to the seller of a home instead of to a lender. Because it’s rarely advantageous for the seller and benefits greatly from knowledge of legal procedures, this is not a common financing method. But if the seller agrees to it, it can help to waive large down payment requirements, and possibly even grant a better interest rate. You might also choose not to purchase an entire home, but just part of one — a Real Estate Investment Trust (REIT) involves trading a percentage of a property on the stock exchange.
One of the most common strategies is actually quite simple. Just buy a home and rent out part of it, while living in it. This is called house hacking, and is usually done with multi-unit properties such as duplexes and triplexes. But if you can’t afford a multi-unit property, you can also buy a single-family residence and rent out specific rooms. This won’t generate as much income as renting out entire units, but frequently has a lower upfront cost.
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