Real estate investing can be a lucrative, satisfying venture. For many, the biggest challenge is finding out how to get started — without having a Rockefeller bank account.
Investing in real estate means that you are purchasing property for the sole purpose of profitability — either through collecting rent or through appreciation of the market value of the property.
For many, getting started in real estate can be a struggle because the truth is, you need money. Now, that money doesn’t have to be yours — in fact, many savvy investors are recognized by their ability to facilitate a real estate deal without plopping down their own cash.
Many investors make initial purchases with other peoples’ money, saving their own cash to rehab the project. Many a house-flipper use this exact scenario.
If you’re wondering how to invest in real estate with little or no money of your own, this article will give you some fantastic strategies — a real estate collective is the quickest and easiest but understand it’s a hands off solution.
If you’re unable to qualify for a loan, one option is to look for properties offering seller-financing.
With a conventional loan, the buyer (that’s you) will work with a lender who will process the loan application, qualify the buyer, approve or reject the loan, and upon approval, will furnish the seller with the requested funds.
With a purchase money mortgage, the seller is directly extending financing to the buyer. The buyer then pays the seller directly, based upon the terms set forth and agreed to by both parties.
Another possible solution is to obtain a lease option. In this case, the buyer pays a higher rental rate, either monthly or yearly, that is applied to the purchase of the property.
Hard Money Lenders
Another options for those that can’t (or don’t want to) qualify for a conventional loan, is to find a hard money lender.
In this arrangement, an individual or group will provide the cash for your purchase — and you’ll pay them back directly. These loans typically eliminate the red-tape of banks and other lenders and in many cases, you can get approved even with less than perfect credit — but you’ll pay a premium in the form of higher interest.
You’ll often be responsible for application fees, closing costs and other expenses associated with property acquisition. Of course, those fees can come from the hard money loan but be advised, you’ll likely have to start paying some of them before the property is closed so unless you have some cash set aside, you’ll need the hard money funds early on.
Real Estate Partnerships
In some cases, you can partner with other investors to acquire properties that would normally be out of your price range. Understand though, that when you bring in an equity partner (someone who helps with the financing), they’ll likely want some control over how funds are distributed.
Often, this means dual signatures on checks, or frequent updates on purchases and timelines.
While this can work well with the right partners, it’s often the source of frustration by many house-flippers new to the business — and fortunately there are other options for real estate investing that are much less hassle (remember the collective I mentioned).
Home Equity Loans
So maybe you’re strapped for cash but you’ve got a primary residence that is either paid off, or has appreciated. You may be able to use that equity to obtain a second mortgage, and use that extra cash to fund the investment property.
Of course, with this route you are putting both properties at risk. For example, if you intend to buy a quick-flip, and an unknown issue arises with the investment property (like mold or water damage) you may find yourself without enough financing to complete the rehab — and struggling to repay the loan.
Real Estate Collective
For both new and seasoned investors, the simplest solution is to use a real estate investment collective. These are exciting ventures that eliminate many of the risks and necessary knowledge of the real estate industry.
The collective simply pools investor resources and a lead project manager oversees the acquisition of properties that are prime for rehab development.
As an investor, this frees you from the burden of finding suitable properties, inspecting and evaluating potential problems, performing the rehab work, and selling the finished property. It’s like house-flipping on autopilot!
Here’s how it works…
Let’s say there’s a property available that has great rehab potential. Purchasing the property for $100,000 and investing $30,000 to repair, update and remodel — would leave you with a house worth $180,000.
As a collective investor, your only responsibility is to fund your share (split between all members of the collective). One great benefit of this strategy is that your only risk is the small, individual investment. The collective is and LLC and is solely responsible.
Once the property is sold, the $50,000 in profit is divided between the collective members — in many cases that means a 20-50% ROI.
Many would-be rehabbers start out with a collective and continue to reinvest their profits, investing in larger stakes (and higher returns) until they’re able to fund their own projects — some investors even stick with the collective because of the simplicity of having the project managed for them.
Click here to find out how you could get started investing with a real estate collective.
Anyone can get started in real estate investing and you don’t need a lot of experience or cash to do it — you just need the desire! If you’re new to real estate investing, you can gain valuable insight into the industry by subscribing to the OPM Secrets webinar here.