Are you considering to invest in real estate but you do not have enough capital and keep asking yourself is real estate a good investment for people with little capital? Well, wonder no more.
The basic answer is yes, it is absolutely a good investment for people with little capital because it is possible. However, before risking to invest in real estate with little capital, you should holistically educate yourself about how the real estate market works and what it takes to be a successful real estate investor. Building education about real estate investment and the housing market is crucial to unleash your potential and succeed in this domain.
Is real estate a good investment for those with little money? Well, the flexibility, diversity, and safety that characterize real estate investment makes it extremely possible for beginner investors with little capital to inter this domain. To clearly answer the question of “Is real estate a good investment for people with tight budget?” and the way it works, this blog takes a closer look on strategies of low-money-down that investors with little capital can utilize in order to invest in real estate and start making money.
1- Is real estate a good investment when you have little capital? Rent to own
Rent to own strategy, also known as lease option, is basically a specific lease between the tenant and the landlord that allows the tenant to own the property he/she is renting after a specific period of time. The rent to own strategy allows real estate investors with little money to purchase a property without having to pay a down payment, while the property seller makes sure that the property is occupied and will be sold out to the tenant. This strategy is considered to be a relatively low-risk investment for both the property seller and the property buyer; however, it needs commitment by both the tenant and the landlord in order to be effective.
Related: Real Estate Investing 101: Rent to Own Homes
2- Is real estate a good investment when you have little capital? Get a loan
Every investment, regardless of how small or big, needs money. However, it does not really have to be totally your money since investing in real estate gives you the possibility of leverage, meaning that you can borrow other people’s money to fund your own investment with relatively low interest rates and/or increase return on investment. There are different strategies, other than the overwhelming traditional bank loans, you can utilize to get a loan and help financing your real estate investment.
- Private money loan
Getting a private money loan is basically granting a loan from a personal lender that you have a personal relationship with like friends or relatives, with a mutual agreement on the interest rate and terms. Private money lender will lend you money, provided that you pay the money back after a specific period of time passes. If you could not pay it back in a timely manner, the lender has the right to take the property. Therefore, it is better to use this financial strategy when you are sure that you will be able to pay off your debt as agreed on or have alternative plans for paying off your loan. This method can actually be your answer to “Is real estate a good investment for people with little capital?”
- Hard money loan
Another type of loans to help you finance your real estate investment when you have little capital is hard money loan. Unlike private loans that are given by lenders based on a personal relationship, hard money loan lenders are usually private investors or companies that lend money based on the value of the property you are buying or investing in, not based on your credit scores, and it is mostly used for short-term investing. Hard money loans are usually less of a hassle comparing to the traditional bank loans, and they are easily accessed. However, they are a bit harder to get compared to private money loans because they usually come with a certain set of conditions and requirements that you have to abide by and follow.
3- Is real estate a good investment when you have little capital? Get a partner
Establishing a real estate partnership with another real estate investor is a common and effective way to fund your investment in which partners share skills, funds, profits, and losses. It is like completing a puzzle game where real estate partners share knowledge and funding to complete the investment. Getting a partner reduces the pressure and increases the effectiveness since you will get the chance to have someone to share costs with and manage the property investment. It is actually a great answer to “i\Is real estate a good investment for those with little capital?”
Related: What You Need to Know about Real Estate Partnerships
4- Is real estate a good investment when you have little capital? Try wholesaling strategy
Real estate wholesaling is a common strategy that gravitates investors who are tight on budget because it does not call for ownership of an investment property and requires little capital. The wholesaler basically works as a mediator, meaning that he/she will either buy properties or get them under contract below market value and then sell the houses to another investor. Proper marketing and getting really good deals are crucial factors for real estate wholesalers to succeed; therefore, they need to be familiar with the housing market very well and act fast.
Related: Real Estate Wholesaling: Step by Step
Bottom Line
Your financial situation is not a limitation in real estate investment, and obtaining finance when you have little capital is extremely attainable as there are many strategies that can be used. There is not an ultimate financial strategy every beginner real estate investor can utilize to get funds as it depends on the investment niche, the strategy used, and the budget needed. More than one of the above-mentioned strategies can be used simultaneously to get funds in some cases, and always remember that the key to be a successful real estate investor is not only to get good deals but also to know how to creatively finance your real estate investing business. After you read this blog, you do not only know the answer of “Is real estate a good investment for those with little capital?” but also how to invest with little capital. The time has come to put your financial concerns aside and kick-off the journey, but first visit Mashvisor for more in-depth knowledge about the realm of real estate investment.
