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Getting serious about your finances and your future requires you to understand income-producing investments. As the term “wealth” implies, the goal is to accumulate an abundance of valuable assets or money. To get started on your investing career, you’ll need to find investment vehicles that require a low capital investment, but produce robust returns over time.
In other words: How can you invest small amounts of money?
What Are Low Capital Investments?
A capital investment is the amount of money that is required to enter into an investment.
When the term low capital investment is used within the context of investing, it means the amount of money that is pushed into an investment, with the expectation to earn a return on your money over time.
When this term is used within the context of a business, it is the money invested into a business venture with the expectation of earning it back, plus more.
Investing is one of the most intelligent ways to use your money. Instead of putting your money toward things that you want now, investing lets your money compound (grow) over time.
As Warren Buffet says, “The 8th wonder of the world is compounding interest.”
Using Low Capital Investments to Achieve Passive Income
If you’re new to investing, one of your biggest hurdles will be finding investments you can get into with a low amount of money up-front.
If you only have $500 or $1000 right now, but want to get started with investing, then you’ll need to learn about low capital investments and how to invest on a budget.
In the future, as you earn more money and your net worth increases, investing will become much easier because you’ll qualify as an accredited investor.
But, what do you do right now while you’re just getting started?
Is it really possible to create passive incomes streams outside of your job if you only have a small amount of cash?
The short answer is, YES. Regardless of how much money you have right now, there are ways to move it into investment vehicles where you can start earning passive income flows today.
If I was your mentor, I’d first encourage you to go after earning $100 in passive income per month. Then, as earning passive income became “real” to you, we would work together to increase that number.
Personally, I had enough passive income to replace my active income by the time I was 30 years old. But really, age is irrelevant. What’s important is that when it comes to creating passive income streams, anyone can do it if they’re taught the right approach.
If you haven’t achieved financial freedom yet, it’s likely because your parents and teachers taught you to use investment options like a 401(k) that separate you from your money for decades and severely limit your investment options.
Today, there are many low capital investments that pay high returns—many of which issue monthly or quarterly cash flow payments to investors and also tend to increase in value over time. This is how you build wealth and pay your monthly expenses at the same time.
With that context, let’s explore what low capital investments are and how investing small amounts of money can help you to become financially free.
9 Low Capital Investments to Explore
When we think about investments, we have to think about two things. First, what is the return on your investments? In other words, how much interest will your investment potentially accrue over time?
Second, we have to think about the power of compound interest. It might not seem helpful to invest your $2,000 right now when you’re short on rent and groceries. That opinion could change when you think about that sum growing into tens of thousands of dollars a few years down the line.
Keep those ideas in mind as you consider the following investment opportunities.
1. Pay off Your Credit Card Debt
Paying off your credit debt is arguably the best way for you to invest your money early on. While you won’t be earning returns that go straight into your bank account, you’ll prevent yourself from having to shovel out huge sums of cash toward your bills.
Credit card interest rates are extremely high. They can climb up to around 25% annual interest in some cases and those rates will have you chasing your bills forever.
If you have the money to pay off your credit card debt, the absolute smartest thing you can do is to take care of it now.
If you don’t have the money to pay off your credit card debt, then I’d highly recommend that you consolidate your credit card payments with a lower interest rate loan from a bank or lender. If you owe $10,000 or more, this will likely save you thousands of dollars.
For example, Fiona offers lending options to refinance or consolidate credit card debt. It easily lets you compare lenders who are willing to consolidate your credit card payments into a single monthly payment.
Another option I like is LendingClub, a peer-to-peer lending company that offers credit card refinance loans, among other loan types.
Obviously, the goal here is to obtain a personal loan at a low interest rate, saving you thousands of dollars that you would otherwise owe to the credit card companies.
2. Invest With Diversy Fund
DiversyFund is a site that allows you to invest your money into a diversified real estate portfolio.
This is an alternate investment option that provides you with a return that’s often higher than stocks or bonds. The fund also owns hard assets in the form of commercial real estate—specifically, apartment complexes in California and Texas.
Best of all, you can start investing with only $500 and earn a 7% preferred return, plus a portion of all upside that that fund earns beyond that.
Diversy Fund is an interesting way to get into the world of real estate investing without having to acquire, own or manage any real estate yourself.
3. Invest With FundRise
FundRise is a crowdsourced real estate fund that has an impressive record of providing annual returns from 8.7 to 12.4 percent. The company will let you invest in real estate online through an electronic Real Estate Investment Trust, called an e-REIT.
I like that FundRise has historically paid out 8-12% return to investors over the past 20 years, has their fund backed by real (“hard”) assets, and lets you invest for as little as $500.
This low threshold to get started makes Fundrise accessible to most beginning investors. Impressively, the company’s trailing 20 year annualized return has been 12.3%.
4. Cardone Capital
Historically, the best real estate investment opportunities were only available to those who had millions of dollars. Cardone Capital is changing this game by giving you access to huge real estate investment opportunities that don’t require you to be rich.
Cardone Capital lets you in invest in massive apartment complexes worth $10M to $100M+, getting access to real estate deals that you could never buy yourself.
You can start investing with them for around $5,000, and historically, the fund has achieved an impressive internal rate of return (IRR) of 15%.
You can either invest with as little as $5,000 in their Regulation A+ Fund (Cardone Equity Fund VI, LLC). Or, you get a slightly better investment return by pushing a minimum of $100,000 in one of their funds for accredited investors—meaning, their funds for high income and/or net worth individuals.
5. The Robinhood App
Robinhood is an incredible investing app, because it offers commission-free investing.
For the first time in history (that I know about), it lets you place as many commission-free trades in stocks, funds, and options as you’d like. Traditionally, most investment platforms, even discount brokerages, have charged trading fees.
While a few of its competitors now offer free trades as well, Robinhood lets you do free cryptocurrency trading too, which is extremely unusual.
It has a $0 minimum deposit and you can invest in thousands of stocks for as little as $1. Also, it’ll pay you 0.30% APY* on your uninvested cash. While this is a low amount, it is more than most banks.
While the investing decisions will rest on you, this is a low cost, commission-free way to start buying or trading a diverse range of investments.
6. Stock Options
Stock options are an excellent way to enter into a potentially lucrative agreement with a low commitment upfront. Options tend to be riskier than investing in normal stocks, but the initial investment is low and the returns can be high.
Essentially a stock option is the right, but not the obligation, to buy a stock in the future at a specific price. For this right, you pay a small amount of money.
Put another way, a stock option gives you the right to buy or sell a stock at an agreed-upon price during an agreed-upon period of time. Depending on the length of time over which you want this right, you might pay a few cents to a few dollars (or more) to purchase it.
That said, you don’t have to sell that share later on if you don’t want to.
Many apps, like the Robinhood app mentioned above, will let you trade stock options. If you want to learn how to do this, it’s easy to learn on YouTube or you can buy this inexpensive Udemy course for only $15.99.
That is not a sponsored link. I just personally used stock option trading to earn money during and shortly after college to earn money when I needed it, so I want you to have the skill too if it’s something you’d like to learn.
7. Mortgage Tax Liens
Mortgage tax liens are another lucrative investment option that many people aren’t aware. With this approach you can earn upwards of 18% returns per year without having to actually own property.
The way that mortgage tax liens work is that when a property owner doesn’t pay their real estate taxes, the county in which the property is located can sell its tax lien.
The person who buys that tax lien then has the right (but not the obligation) to foreclose on the property if the owner fails to pay back the taxes you covered plus interest. In short, investors buy the liens in an auction, paying the real estate taxes owed in exchange for the right to collect back that money plus interest from the property owner.
If the owner of the house doesn’t pay, then you foreclose on the property and get the title in order to receive the back taxes, penalties, and fees that are still owed.
You can invest in mortgage tax liens through the county government. Most counties hold annual tax lien sales and online auctions.
This typically requires that you register in advance and pay a small fee.
8. Micro Venture Capital Investing
Historically, venture capital investing was only possible for rich people who had large sums of money to throw around. Today, this has all changed.
With sites like MicroVentures, you can act like the big venture capitalists, but on a small scale. You can use these platforms to buy into investment opportunities online, investing in startup companies for as little as $100.
You can see the company’s current crowdfunding opportunities and their projected returns here.
If you have an eye for potential, you might be able to swing excellent returns by investing small amounts of money into early-stage and growth-stage companies.
9. Peer-to-Peer Lending
Peer-to-peer lending is the process of lending money to people or businesses with the agreement that they’ll give your money back with the interest. Naturally, it is smart to enter into a legal contract with anyone with whom you do this.
Companies like Lending Club, Prosper, and Upstart can help you navigate the legalities.
Peer-to-peer lending is an excellent way to make a good deal of money over time—often returns of 10% or higher—if you choose the right people to lend to.
When you’re looking to multiply your money, achieving returns above 10 percent is a big mark to hit, because it means your money will double every 7.2 years.
BONUS: Small Business Entrepreneurship
When it comes to low capital investments that provide a large return, there’s one more option that deserves a mention and it is entrepreneurship. With many service and digital businesses requiring little to no money to get started and offering limitless upside potential, this is another option you may want to consider.
For example, you could start a power washing business by buying a used power washer for $300 and going door-to-door to offer your services. Or, you could start a consulting business for the small pricing of buying a domain and making a website. Usually, a URL domain is about $15/year and hosting is around $10/month to maintain a live website.
Starting a small business can also come with some risks, but usually the most you can lose is your start-up capital.
Of course, you’ll also want to make sure you have small business insurance in place, so your other assets aren’t at risk.
More about Low Capital Investment Options
Again, there’s a whole lot that we weren’t taught in school. Whether it’s how to identify a low capital investment, increase your income or understand your taxes, I’m here to help.
Explore the site for more insight on how to live an abundant life.
Do you have questions about low capital investments? Ask them in the comments below.