If you’ve ever asked how to start a real estate business, you’re bound to get many answers. Unfortunately, if you’ve asked how to start a real estate business with little or no initial capital, the answers become limited. While these options are not as flexible as having money and good credit to invest in real estate, they are still fundamentally solid and can bring in the big bucks when done successfully. So, without further ado, here’s how to start a real estate business with little or no capital.
Wholesaling is one of the most popular forms of real estate investing. One of the reasons this is the case is that not much money is required to take part in it. Essentially, a wholesaling real estate investor buys the contract of an investment property from a seller. Then, the wholesaler sells the contract at a higher price to a buyer. Basically, a wholesaler links a seller and a buyer while receiving profit from selling the contract.
While wholesaling is a solid way on how to start a real estate business, it isn’t the easiest. The process takes a lot of networking, so wholesaling in an unfamiliar area may not be the best idea. Also, it is generally more difficult for up-and-coming investors to get into wholesaling compared with more experienced ones. Still, not much money is required for wholesaling, and it can definitely pay off.
Related: Why do new investors fail at real estate wholesaling?
Why do something alone when you can do it better with a partner? In real estate, working with partners gets you places. Working with partnerships can come in the form of crowdfunding. Crowdfunding is a type of passive investment in which investors agree to collectively invest in a property. What makes crowdfunding special is that websites are dedicated to this practice. Sites like iFunding allow investors to participate in crowdfunding.
Why is crowdfunding great for investors? For starters, each investor can invest with less money. Also, options become more flexible, with many income properties to choose from. Brainstorming is also a huge plus, with different investors bringing in different ideas to the table. While returns are profitable and crowdfunding is a great experience, there are some downsides to it. If the market worsens, all investors participating will take a hit. As a result, risks tend to be higher with crowdfunding. Regardless of these cons, crowdfunding remains a trendy and lucrative way to invest in real estate with little money.
Related: What’s all this real estate crowdfunding?
Private/Hard Money Loans
You don’t necessarily need to get qualified for a mortgage from a bank to invest in real estate. Instead, you can get a loan from a corporation, friend, or private investor. That’s what hard money and private money loans are all about. Generally speaking, these loans do not last for a long time, as opposed to bank mortgages. Also, they are only used for rental properties and not homes. As a downside, interest rates are pretty high with these types of loans.
Private money loans are loans from a private investor or corporation. They will set the interest rate, but this will also depend on the deal. Hard money loans are relatively similar, with the lender focusing on the property’s value as a priority being the main difference. Private and hard money loans are great ways on how to start a real estate business with little capital because qualifications focus on the property and the deal, and not credit and cash.
Become an Owner-Occupant
Another great way on how to start a real estate business with little-to-no money is by renting a part of your house. This house, however, must be purchased with an owner-occupant loan. After a year has passed from the purchase, an investor can decide to rent out part of the house.
This is a great way to invest with little money. Down payments for owner-occupied loans are much lower than non-owner occupied mortgages. For instance, a down payment on an owner-occupied loan can be as low as 3.5%, while the minimum on a standard mortgage is 20%.
Related: Real Estate Investing: Renting Part of Your House
Line of Credit
Sticking with loans that will help you on how to start a real estate business, we reach at line of credit loans. With these loans you are able to withdraw credit that you don’t actually have, similar to a credit card. Luckily though, line of credit loans has low interest rates.
It doesn’t take much money to start a line of credit loan, but it does require decent credit. Be sure to build up your credit before you invest in real estate, it’ll make things much easier. Also, when using a line of credit loan, don’t spend it around carelessly. Plan and spend according to your plans.
The last answer to how to start a real estate business without much money is through turn-key properties. These rental properties are ready to be rented from the get-go, as companies are the ones that own turn-key properties. Their down payments are lower than those of ordinary properties, with some going as low as 5%. Turn-key properties are great answers to the “how to start a real estate business” question, especially if you’re into out-of-state investing.
The main downside to turn-key properties is that they have high interest rates. Vacancies can also be an issue. Be sure to calculate these numbers before planning on buying turn-key properties.
How to start a real estate business with little or no initial capital is no easy task, but it is still doable. Each method has its pros and cons, try creating a situation where the pros are there but the cons are reduced. While you can invest with little money, always consider saving money and establishing credit before you get into real estate investing.
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