How To Invest $10k, $25k, or $50k In Real Estate

Step #2: What are your financial and investing goals?

This sounds like a big question, but if this is your first $10k investment, then just start by answering a few basic questions that will point you toward the right investment for your ideal lifestyle.

Financial influencers, pundits, and certified advisors will quickly point you toward an astounding number of investing options (an overwhelming number perhaps). It may seem easy to find options of where to invest $10k. To make a decision that is right for your financial goals, it’s helpful to start by looking at what you’d like to get out of your investments.

In other words, what are your investing goals, both short-term and long-term? If you’re new to investing, start with these questions:

1. When do you need to use your investment income or passive income? 

Are you planning on using your real estate investment income in retirement, perhaps 30 years from now? Or, are you looking to start using your income as soon as possible? 

Many investors initially look long-term, toward retirement, when they envision living off of passive income. This is, after all, how we’ve been taught – that we must work long and hard to reach the reward of retiring one day.

Things have changed.

Today, many professionals want the security of having passive income streams now, not just in retirement. Many jobs are less reliable and it is common to change careers many times while finding something that works for your desired lifestyle. Along the way, we’re all making small changes to work toward our ideal lifestyle (see Step #1). 

So, you may want to plan on using your passive income from investing earlier than retirement, to give yourself that freedom of time sooner.

2. How much passive income do you need? 

You may have heard of the Financial Independence Number, or FI number, which is the amount of net worth you need to have in the stock market in order to start withdrawing your annual expenses indefinitely (without running out of money). To find your FI number you’ll multiply your current yearly expenses (say $60k) times 25, which would be $1.5M in this example. 

This is a great quick-and-dirty back-of-the-napkin calculation you can do to have a ballpark for your net-worth goal. However, this number is traditionally used in pursuing financial independence through investing in index funds via the stock market. The math changes a bit when you’re leveraging passive real estate investments because your money is working in multiple ways.

The bottom line is that you actually need a much smaller net worth to begin living off of $60k/year when invested in real estate syndications versus index funds. 

In fact, if you invested $10k a year in a real estate syndication, you’d surpass $60k in cash flow (not including the profits from the sale of the properties) in year 24, with a total net worth of $1.0M. With index funds, you’d have to wait 34 years to reach that $1.5M financial independence number and safely withdraw your $60k/year.

It gets better.

Your real estate investment continues to grow faster. By year 40, your net worth is $3.85M, whereas your index fund portfolio is at $1.67M. This means that you’ll be able to quickly increase your passive income beyond that $60k/year, or start using your cash flow before year 24 and continue to see incredible portfolio growth.

3. What is your risk tolerance, or risk profile?

Traditional financial planners paint a picture of a risk spectrum here. From the low-risk portfolio (more bonds than stocks) to the high-risk portfolio. Real estate syndications don’t necessarily label investment opportunities this way. This means that you’ll be looking at the elements within a deal to evaluate if there are risks associated that you are comfortable taking.

For instance, you may see that a real estate syndication opportunity will be securing fixed-rate debt financing. This means that the deal won’t be impacted by rising interest rates. Many investors find this a great way to mitigate the risk of increasing debt payments due to interest rate hikes by the Fed. You are the only one who knows how much risk to take.

Now that you’ve saved your money, you likely want to invest it in the best possible way to accelerate progress toward your goals. Let’s take a look at the best way to invest $10k, $25k or $50k. 

We’ve broken these into different stages of investing based on where you may be if you have saved $10k versus having saved $50k. That being said, you may love an option presented in the $10k options for your $50k investment, so be sure to check them all out.

Related Article: How To Set Goals For A Strong Year Of Real Estate Investing

The Best Way to Invest 10k

The following ideas will help you decide how to invest $10k for passive income. They’re certainly not all the ways to invest $10k, but they are some of the most popular and the ones we, ourselves, have seen to make the biggest impacts. We’ll present some benefits and challenges to each so that you can evaluate them against your goals. 

#1: Invest $10k In Real Estate Crowdfunding

When you’re looking for how to invest $10k in real estate, joining a passive real estate syndication investment through a real estate crowdfund is a great way to get started. Thanks to new SEC regulations and technologies, deals that were previously only open to accredited investors are now open to everyone including non-accredited investors, at lower investment minimums (like $10k) than ever before.

This isn’t the kind of real estate crowdfund you’re likely familiar with. We aren’t talking about investing in a blind fund of properties just as you would a blind mutual fund.

This kind of real estate crowdfunding investment allows you to invest alongside the experts, talk with the ownership team and ask questions, and evaluate the specific assets where your money will be invested. 

The best part is that you get all the benefits of investing in real estate without any of the hassles of tenants, toilets, or termites. This is one of the only true forms of passive real estate investing. You get regular distributions (cash flow) from the asset’s income (such as rent), tax advantages that can lower your annual tax bill, and even receive proceeds from the sale of the asset to reap some of those sweet appreciation rewards.

Pros of Investing $10k In Real Estate With Crowdfunding:

• Regular distributions (depending on the deal structure) with preferred returns in the 7% – 9% range.
• Earn proceeds when the asset is sold (appreciation!) in typical hold periods of 5 years.
• You know exactly which property your money is invested in.
• You can ask questions directly with the ownership and management team to perform your due diligence on the deal.
• The process to invest is easy inside the platform that takes care of all income calculation requirements and follows all SEC regulations.
• Anyone can invest via a crowdfund offering (such as the Goodegg Growth funds) as long as they meet certain income requirements determined by the SEC (don’t worry, these are calculated for you during the investing process).

Cons of Investing $10k In Real Estate With Crowdfunding:

• Your initial $10k investment is illiquid for the duration of the hold period.
• There is often a limited amount of space for crowdfunding investors in a single deal and may fill up quickly.
• You may not be able to use any of your earnings until the end of the hold period, typically around 5 years.
• You have to find a new investment for your earnings and original capital once the property is sold (approximately every 5-years).

Related Article: Real Estate Crowdfunding: Passive Investing For Non-Accredited Investors

#2: Invest $10k In The Stock Market

The second obvious choice for to invest 10,000 dollars is to buy stocks through a brokerage account, a individual retirement account, real estate investment trusts, or a health savings account. Most people think about investing in stocks through financial advisors or a brokerage firm and using individual retirement accounts, like an IRA or a 401(k). You’ll be taxed on the earnings you make as regular income, whereas a retirement savings account gets taxed when you go to take those earnings out – after age 59 ½.  These are typically how people buy mutual funds with their investment account.

There are two broad categories of funds for stock market investing: mutual funds and index funds. If you invest in mutual funds, you may be paying very hefty fees (like 1% – 3%) that greatly handicap your ability to compound your earnings and grow your investment portfolio. 

Many stock market investors, especially those in the FIRE community, opt to invest in index funds as an alternative. These funds have the lowest expense ratios and are created to track a particular index, like the S&P 500, rather than a group of stocks chosen by someone who thinks they can pick the winners. 

Spoiler alert: almost no one can pick the winners in the stock market investing game.

Investing in the stock market (through mutual or index funds) is certainly passive and can be hassle-free after initial account set-up. However, the market fluctuates drastically. Most proponents of the stock market point to the data that shows how the market has steadily increased over the last 100+ years, but that’s an average. Individual stocks are considered high risk investments by most.

Some years, people see half their stock market portfolio disappear. That would be a hard year to start retirement. 

Pros of investing $10k in the Stock Market:

• It’s easy to set-up accounts or work with an advisor to get started. 
• It’s easy to automate investing every month directly from an account and reinvest earnings every year.
• Data shows most mutual and index funds do increase in value over a long time period due to compound interest.
• You can apply the 4% rule to create a target financial independence number and work backwards to invest enough every year accordingly.
• Tax benefits exist when using certain retirement accounts.
• You can withdraw money inside non tax-sheltered accounts anytime.

Cons of Investing $10k in the Stock Market:

• Stock prices are volatile (and so are stock values), which makes short-term investing more at risk of large portfolio losses (or gains, on the flip side).
• Over the long term, stock portfolio growth is slower than a passive real estate investment portfolio. 
• Large funds include stocks from businesses of all kinds – even the ones you may not want to support.
• You must rebalance accounts, if investing on your own, which typically happens annually.
• If investing with a financial advisor, high account fees may lead to large losses over the long-term.

#3: Invest in Your Kid’s College Fund (529 Plan or Real Estate)

Parents who save for their kid’s college tuition will be giving a huge gift to their children. The gift of zero student debt. It’s hard to think about our kid’s starting their adult lives with massive amounts of debt to pay off.

This option may be important to you based on your findings from your ideal lifestyle. Do you value sending your kid’s off to college or believe that having a higher degree is essential to a successful life? If your answer is no, this likely isn’t an option you’ll need to consider.

Technically, a 529 plan is just another way to invest in the stocks, but with limitations around how you can use your earnings. A 529 plan is typically used to save money for a kid’s college or other education-related expenses.

Most people only know of this type of account to leverage investing as a savings tool to build their kid’s college fund. However, any type of investment can be used to grow a college tuition fund. For instance, you could place money in a real estate crowdfund to grow, and then into a more liquid form of investment as your kids get closer to college-age. You may be able to purchase stock in real estate investment trusts with these accounts, but keep in mind that you don’t own those underlying assets.

There are tax-deferral benefits to investing in a 529 plan. But these aren’t often compared to the tax advantages of real estate earnings, which can be substantial. It’s worth it to circle-up with your CPA to see how these two options could impact your tax bill as you save for your kid’s college expenses.

Pros to Investing $10k in a 529 Plan:

• Investment grows on a tax-deferred basis (post-tax dollars) much like a Roth IRA.
• Tax-free withdrawals are allowed to purchase education-related expenses
• It’s easy to set-up and contribute.
• You may qualify for state tax benefit for your contributions.

Cons to Investing $10k in a 529 Plan:

• You can’t use the money for anything other than education-related expenses without incurring large fees and paying additional taxes.
• You can only invest in the stock market with these funds, which means this account is susceptible to all the pros/cons presented in the previous section.

#4: Invest $10k In A Whole Life Insurance Policy

Whole Life insurance is like the misunderstood family member among insurance products. Many FIRE proponents cite its higher premiums as a waste of money. But, there is great power behind a whole life insurance policy – if you know how to leverage it to amplify your investments.

With a whole life insurance policy, it is possible to be earning a return in two places with the same dollar. Let me explain.

When you pay your premium every month or year, they are invested with guaranteed distributions around 3 – 4% typically. Soon, a cash value amount is available to pull out using a simple interest loan. However, your full premium amount is still growing with compounding interest.  

Meanwhile, you can invest that cash amount (in say a real estate crowdfund with a 7% preferred return) and use the cash flow to pay back the loan. After the loan is paid off, your full cash value becomes available to invest again. 

When using your cash-value funds to invest, it may be wise to select an investment that has better short-term cash flow, like a hotel investment. This will help you pay back your loan quicker.

Pros to Investing $10k In A Whole Life Insurance Policy:

• You can invest your money in two places at once using a loan against your policy.
• You also get life insurance that can be used in the event of a life-threatening illness or death (that doesn’t go away at the end of some “term”).
• Death benefit amount can be used in retirement as income.

Cons to Investing $10k In A Whole Life Insurance Policy:

• It may take a couple years to build up enough cash-value to begin using your funds to invest.
• You must be diligent about paying back your policy loans in order to not accrue additional interest (otherwise your death benefit will decrease).

Related Article: How To Use Whole Life Insurance To Maximize Your Investments

How To Invest $25k

You’re onto the next big step in your investing and have saved up $25k to invest. Take a minute to celebrate! Let’s take a look at some different ways to think about how to invest $25k versus $10k.

First, having a larger sum of money can open up new opportunities that require higher minimums to get started. You’ll see some of those ways to deploy your $25k below. However, you may want to begin thinking about your investment diversification strategy at this stage.

How To Think About Investment Diversification 

First, investors seek to diversify their investments so that they are less vulnerable in the case that one investment drops in value. It is the old “don’t keep all your eggs in one basket” advice that we, personally, love (one of the inspirations for our company name – Goodegg Investments). 

If you are 100% invested in the stock market and we hit several years of a recession or downturn, your entire portfolio will suffer. You may be finding ways to make money even in retirement because withdrawing the same amount from your account will reduce your overall net worth by much more.

Imagine going from confidently withdrawing that $60k/year we presented earlier from your $1.5M portfolio, to suddenly seeing that portfolio drop to $750k. If you pull out the same amount, you’ll run out of money much sooner.

Similarly, if you invest all your net worth into one property, you are at risk of losing everything if something unexpected happens, such as a natural disaster not covered by your insurance policy. 

If you’re ready to deploy a larger sum of money, like $25k or $50k, you can begin thinking about how to diversify your portfolio to reduce your market exposure and risk. This may mean selecting a different investment vehicle as your previous investments. It may also mean that you decide to break up your money into smaller amounts and invest it in multiple places or in multiple real estate assets with different business plans and geographical markets.

How To Evaluate Your Investment Performance

If you’ve saved $25k to invest, you may have already invested smaller amounts in years prior. This is a great time to look back at how those investments performed.

First, look at historical averages, if investing in something like the stock market (via a 401(k), 529 Plan, or money market account). How do those historic numbers compare with your stock market returns? Since the stock market investing game is typically a long-term game, then this may not show much. You can also look at how much of a tax savings you received if investing in a tax-deferred account. Was that tax advantage meaningful for you?

Second, look at projected returns and the business plan for a passive real estate investment. How do the projections compare with your actual distributions? Have you been receiving updates explaining the implementation of the business plan? If something hasn’t gone according to plan, how did your team respond and how will it impact your return over the life-cycle of the deal.

Taking the time to look back will help you decide how to invest next. You may find that one investment outperformed another. You may also find that one investment took much more of your time or just left you feeling helpless. Take your findings and use them as guideposts for deploying your new source of capital.

 

How To Use Your Investing Goals To Update Your Investing Strategy

Finally, take a look back at your life-by-design goals and your investing goals. How have your previous investments helped you make progress? Do you need to update your goals due to changes in your desires or current situation?

You may find that you actually want passive income sooner, or you are willing to work harder and make more money now, so that you can reach retirement sooner than you originally projected.

Take the time to update your goals, timelines, and investing targets. Creating a life-by-design is an ongoing process, not a once-and-done activity. We’re constantly changing and so should our goals. As you uncover new desires, you’ll begin to see common threads or a small handful of priorities emerge as evergreen goals. These will serve as your guideposts. Just don’t expect to see them in your first few years of living intentionally. It takes time to develop, but it’s worth it.