Investing in real estate means joining a huge industry that has a never-ending demand, getting extra income, and gaining a property. Why wouldn’t someone want to invest?
Oh, yeah . . . they don’t have money.
The good news is there are ways to invest with little to no money at all. The catch? Well, investing with little or no money is doable but doesn’t mean there’s lots of flexibility. Use the gained funds wisely and try to look for good deals, you can’t go for the million-dollar mansion with these options. Also, treat your investment as any other investor would – calculate all costs before even accepting the loan and have emergency cash on the side.
Remember, positive cash flow is the most important thing. Most of the options below involve borrowing money, so calculate your loan payments in your monthly cash flow.
1. The Old Fashion Way – Save Money, Invest Later
If you have little or no money to buy an income property, a great way to make money and learn more about real estate is to hold off on investing and work first. Some good positions for this are being a real estate agent, investor assistant, intern, or shadow a landlord to learn about becoming a landlord. You can save up money while learning and then invest while being better prepared financially and knowledgeably.
Keep in mind: Eventually, you want to start somewhere. Gain as much as information as possible but make sure you’re working somewhere that will not delay investing but, rather, put you on the path to investing. Remember, “don’t wait to buy real estate, buy real estate and wait.”
Related: Young Investors
2. Live in the House First
Apply for an owner-occupant loan, in which most require you to live in the home for a year. After the one year, rent out the house. If you choose to go this route, make sure the rental income will provide enough cash flow to manage the rental and to live in your personal residence. Based on the observations of your first property, see if you can expand your portfolio by repeating this process.
Keep in mind: These types of loans can require 0 to over 20% down – it varies a great deal. Find the details of different loans here.
Wholesaling is a way to get involved in investing without actually having to buy or sell properties. As a wholesaler, you find someone who wants to sell their house before it goes on the market, find a buyer, and get a cut of the selling price.
Keep in mind: With wholesaling, actual work and persistence are required. If you’re not willing to take the time to network and look for buyers and sellers, this might end up as a one-time thing and not as a stable income (which should be the goal).
4. Make it Personal
Using private money means borrowing money from a private investor, family member, or friend. They determine the interest rate, so there is more flexibility.
Keep in mind: The interest can be very low or very high depending on your relationship with the lender, the type of investment, and the terms of agreement.
5. Hard Money Loan
Hard money should be called easy or simple money (in my opinion) because the process is quite basic. You obtain a loan without dealing with a bank, the term is short, and the lender is more concerned with the value of the property rather than your credit score. Should you not be able to pay back your loan, the lender will ensure the value of the property is worth more than the loan amount.
Keep in mind: These loans have high fees and interest rates. Unless you find a deal that will give you big returns quickly, this may not be the best option.
Partnering up with another investor is not only a way to get money but a great way to complement your investing. They give you money in exchange for you making the investment happen. You can find someone that has experience in an area in which you lack understanding and create a long-term partnership that will benefit both of your portfolios.
Keep in mind: Partnerships can be effective but keep everything in writing to avoid misunderstandings and financial annoyances.
7. Turnkey Providers
Turnkey properties are properties that require no renovation and are ready to be rented out. These may or may not have tenants and property management in place. Some turnkey providers offer these homes to investors for as much as 5% down. This requires little money and effort as most or all work is complete. This is also a good option for people who can’t afford to invest in their area and are looking for opportunities outside of their area.
Keep in mind: These providers have high interest rates. Make sure you can maintain occupancy rates to avoid falling behind. Calculate vacancies into the picture and see how that plays into your loan payments.
8. Line of Credit
A line of credit is a type of loan in which you withdraw credit (money) as you need funding that you currently don’t have. It sounds like a credit card, right? Well, it’s similar but the best differences are the low interest rates and high limits. Establishing a line of credit depends on your credit score and debt.
Keep in mind: Be careful not to lose control when drawing and spending money. Plan your investing costs ahead of time and plan how much you need to borrow and stick to the budget. Although there is a limit to how much you can withdraw, you’re responsible for how it’s spent.
9. Refinancing Your Mortgage
This is replacing your current mortgage of your personal home (or another property) with a new mortgage. You can customize the loan – determining the mortgage rate, loan length, and loan amount. If you can have money leftover after paying off the initial mortgage and closing costs, you may have money leftover to purchase an investment property.
Keep in mind: It is difficult to get lenders to agree to refinancing. It is easy to end up with two mortgages that you are unable to pay, only take this route if there is enough equity.
No matter which route taken, make sure you are acting according to the law.Get financial advice or confirmation from an expert to make sure you’re helping yourself more than hurting yourself. Everyone’s personal and financial situation is different, so see which of these ideas work for you.
With these options, think creatively and take extra precautions (like minimizing spending). Mashvisor is a helpful tool for your property search because it provides the projected expenses and income for all listings and plans your finances.
Finally, stay patient and think outside the box! Your first investment might be the toughest but forcing yourself to get started will pay off!