How to Invest in Real Estate with Little Money: Investing Strategies for Teachers

Real estate has always been a sought-after investment. For teachers specifically, real estate investments offer a way to balance out the generally low salaries that are plaguing the world of education. The problem most people see with real estate is the enormous cost to acquire even just one property and then the maintenance that comes with owning investment properties. While owning rentals or flipping houses can be really good deal for teachers who have the means and skills to do so, I want to talk about how to invest in real estate without huge upfront costs and without having to remodel homes for flipping.

Real Estate Investment Trusts

Real Estate Investment Trusts, called REITs for short, offer a way to invest in income-producing real estate the same way you would buy stock in a company. A REIT is a company that owns or leases income-producing properties. They get their capital from a pool of investors- people like you- by selling shares of stock. In turn, these investors receive dividend payments. REITs are required to pay at least 90% of their taxable income to their shareholders in the form of dividends each year. This is why REITs are a very popular addition to many investment portfolios. In fact, if you have an investment plan, like the 403(b) for public school educators, you likely already have some exposure to real estate through REITs.

Pros and Cons of Owning Shares of REITs

Here’s the major benefits to putting your money into REITs:

• Frequent dividend payments (sometimes monthly) result in regular, truly passive income
• Shares of REITs are very liquid (unlike some types of physical property) so you can sell easily at any time
• You can start investing with a just few dollars
• You can gain exposure to different types of real estate like commercial, medical, etc.
• You do not have to actively manage or insure property
• You do not have to go through the mortgage or closing process

Here’s the downside to REITs:

• The share prices of REITs can be more volatile than the price of an individual home
• Dividends are taxed at your regular income tax rate
• No control over the properties

While investing in REITs isn’t risk-free, the reason I think they make a good investment for teachers is because it can be done with so little cash.

Let’s look at some numbers. Just taking my current neighborhood as an example, homes are selling for an average of $290,000 right now and renting for an average of $1,500 per month. Let’s just say you purchased a home for $290,000 cash and you were able to immediately begin renting it out for $1,500 per month. If you had no other expenses, it would take you about 16 years to make your money back. But, in 16 years (barring any crazy disasters) your home would most likely be worth a lot more and you’d be able to sell at a good profit. However, there are a lot of expenses that go into maintaining a rental. You are responsible for any HOA fees and for property taxes. Repairs that the home needs also fall onto your shoulders. If you didn’t buy the home with cash, you’d also have to account for your interest on your mortgage and there’s your required homeowner’s insurance as well. Long story short, there are a lot of expenses associated with owning a rental property.

Let’s use Realty Income (O) as our REIT example. Currently (on October 4th, 2021) shares of this REIT are selling for around $66 per share. Realty Income pays a monthly dividend of $0.236 per share (or $2.832 yearly). It would take you about 23 years to make $66 on one share of this REIT. However, just like you would own the home after making your initial investment back, you will also own the shares of the REIT after making your initial investment back but you would not be paying to maintain a property during the time you own shares of the REIT.

It’s important to note that not all REITs make good investments, so you do have to research them and figure out the health of the company before you invest. What is really great about REITs is the low cost to enter an investment. There are many REITs available for less than $10 per share. But even your more expensive REITs can be purchased in fractional amounts if you have a broker that supports fractional shares.

How to Purchase REITs

You need a brokerage account that grants you access to stock exchanges in order to buy shares of any publicly traded REIT. Opening a brokerage account is easy and can usually be done completely online in as little as one day. I have a preference for using Webull as one of my main brokers, but there are plenty of options available.

I like Webull because it has a good mobile app, they offer IRAs (including Roth IRAs), they allow the purchase of fractional shares, they don’t charge commissions for buying and selling securities, and I find the platform to be very user friendly while offering some advanced features as well. If you are interested in using Webull as your broker, you can sign up here and get free bonus stocks just for signing up and funding your account with any amount of money. That’s a great way to begin your investing journey!

A Plan for Investing

A recommended way to build your investment is by dollar cost averaging. Instead of throwing all your money into an investment at once or trying to wait until prices seem low, you would choose a regular interval to buy a REIT (or stock or any other tradable asset) and make a smaller purchase regardless of the current price. This is how you build a long-term investment and avoid getting caught up in the volatile price changes. Over time, you end up with a good average price on your investment. So, you might decide that you can spare $50 per month to build an investment. After choosing which REITs you want to purchase (it’s good to have a few different ones- diversification is always beneficial!) you should pick a date each month, or after each paycheck or weekly- whatever works for your budget- and buy the REIT you have settled on. This is another reason I love having a mobile app for my investing- I set a reminder on my phone for the 5th of each month. I move $100 into my Roth IRA on Webull and then pick up a few shares of REITs or dividend stocks. It doesn’t take long to do and because I can do it all on my phone, I don’t put it off or forget about it.

Read more about the benefits of Roth IRAs in this post.

Another great option for teachers building investment income is to use your TpT store earnings to fund your brokerage account. Not sure about opening a TpT store? I write about what kind of profits you might see as a real teacher selling on TpT here. If you take a set percentage of your monthly Teachers Pay Teachers earnings and invest in stocks or REITs, you are really ding yourself a huge favor by rolling your passive TpT income into a passive REIT investment for higher returns!

Types of Accounts

If you’re looking to boost your retirement, you should look into opening a Roth IRA because of the tax benefits. If you want something to build income that you plan on using before you hit retirement, then you’ll just need a simple brokerage account, not an IRA. You have a choice between a cash and a margin account when you sign up on Webull and you can take a closer look at the difference here. Generally, a cash account works just fine if you are just going to pick up a few shares here and there to hold for the long term.

As teachers, it’s really important that we educate ourselves on how to make financially sound decisions. We aren’t rolling in the dough from our paychecks, but if there’s one thing that teachers are good at, it’s thinking outside the box and being flexible. We should be extending that into our finances and taking control of our income!