How To Invest In Real Estate With Little or No Money?

How To Invest In Real Estate With Little or No Money?

1. Real Estate Investment Trust

REIT companies own or finance income-producing real estate across various property sectors. REITs are similar to mutual funds, offering everyday real estate investors the opportunity to realize dividend-based income and returns. You can invest in a real estate portfolio by purchasing individual company stock through an exchange-traded fund or mutual fund.

As a REIT stockholder, you earn a share of the produced income without directly buying, financing or managing the property. If you choose to invest in real estate with a REIT, you are in good company, as nearly 145 million Americans who own homes invested in REITs through their retirement plans, such as IRAs and 401(k)s, and other investment funds.

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7. Airbnb

The living room/kitchen of my new AirBnB experimen
The living room/kitchen of my new AirBnB experiment

Airbnb is the mega-online marketplace that lets you rent out your home (or part of your home) for short periods of time. And you can use it as a low-cost way to get into real estate investing.

My wife and I regularly stay in Airbnb apartments when we travel because we love having our own kitchen and space. And we also recently decided to become a host by turning our basement apartment into a short-term rental that generates extra income.

For most of you, this strategy could be a specialized form of house hacking where you generate income from your home or part of your home. But you could also grow it into a real business that generates a part-time or full-time income.

>> Want to become an AirBnb real estate investor? Listen to this BiggerPockets Podcast episode with Zeona McIntyre, who uses short-term rentals to retire early. <<

9. Option-to-Purchase Agreement

If you’re currently a tenant, you can enter into an option-to-purchase agreement with the property owner. This contract gives you the right to purchase the property in the future. The tenant and landlord agree that a portion of the monthly rent payment is applied toward the principle of the property over the specified time according to the rent-to-own agreement.

4. Lack credit or funding? Partner up with a co-borrower

Maybe you don’t have enough money for a down payment or closing costs, but you want to start investing in rental properties. What’s more, you’re willing to do the research it’ll take to buy and manage these investments responsibly.

Your friend, on the other hand, has money for a down payment. But they don’t have time to learn the ropes of buying rental properties.

This scenario could be a win-win for both you and your friend.

You can go in on the investment together by acting as co-borrowers.

You share responsibility for monthly payments on the house, and you can also share profits that come from rent payments or equity buildup.

A co-borrower doesn’t have to be a friend, either. It could be a family member, or even a stranger that would purely act as a business partner.

10. BRRRR Strategy

BRRRR stands for Buy, Remodel, Rent, Refinance, Repeat.

Like flipping houses, it’s all about finding fixer-upper properties, remodeling them, and increasing their value. But instead of selling, you keep the property as a rental and refinance to pull out some or all of your cash.

This plan is most useful when you’re trying to grow your rental portfolio rather quickly. Instead of running out of cash for upfront costs on multiple properties, you can carefully refinance to pull out your cash and recycle the funds to buy several properties in a row.

Here’s how the process works:

  • B – Buy a property that has potential to increase its value with repairs. Typically you’ll use short-term purchase financing, like cash, a line of credit, private money, or hard money.
  • R – Remodel the property to increase its value and make it rentable
  • R – Rent the property to a quality tenant (or tenants)
  • R – Refinance using a long-term mortgage
  • R – Repeat (if desired)

This is a technique that many investors have used for a long time (myself included), but my friend and fellow BiggerPockets author Brandon Turner was kind of enough to name it several years ago so that we could all remember it!

And David Greene, co-host of the BiggerPockets podcast, wrote a book about BRRRR investing that you should check out if you find this strategy interesting.

Take on the Seller’s Debts

If you find a seller who needs cash to pay off other debts, you can offer to assume those debts instead of making a down payment.

3. House Flipping

House flipping is for people with significant experience in real estate valuation, marketing, and renovation. House flipping requires capital and the ability to do, or oversee, repairs as needed.

This is the proverbial “wild side” of real estate investing. Just as day trading is different from buy-and-hold investors, real estate flippers are distinct from buy-and-rent landlords. Case in point—real estate flippers often look to profitably sell the undervalued properties they buy in less than six months.

Pure property flippers often don’t invest in improving properties. Therefore, the investment must already have the intrinsic value needed to turn a profit without any alterations, or they’ll eliminate the property from contention.

Flippers who are unable to swiftly unload a property may find themselves in trouble because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a property over the long term. This can lead to continued, snowballing losses.

There is another kind of flipper who makes money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment, wherein investors can only afford to take on one or two properties at a time.

Pros Ties up capital for a shorter time period Can offer quick returns Cons Requires a deeper market knowledge Hot markets cooling unexpectedly

Is Real Estate Crowdfunding Risky?

Compared to other forms of real estate investing, crowdfunding can be somewhat riskier. This is often because crowdfunding for real estate is relatively new. Moreover, some of the projects available may appear on crowdfunding sites because they were unable to source financing from more traditional means. Finally, many real estate crowdfunding platforms require investors' money to be locked up for a period of several years, making it somewhat illiquid. Still, the top platforms boast annualized returns of between 2% and 20%, according to Investopedia research.

Negotiate the Down Payment

Along with everything else in a real estate contract, the amount of the down payment and who pays it is almost always negotiable. A buyer may elect that the seller pay the down payment, or give credit at closing for the buyer’s down payment. A buyer could also request to pay the down payment in installments, whether in monthly installments or as a balloon payment at the end of the year.

Avoid Becoming House-Poor

There is a phrase in real estate and finance called “house-poor.” The term describes people who stretch themselves too thin when buying a home and are left without any emergency money. When unexpected events happen, such as a job loss or broken appliance, these homeowners are in such a tight spot financially that it is difficult to recover. Unfortunately, this is all too common when attempting to invest in real estate with no money.

There are a few ways to avoid being backed into a corner financially when purchasing real estate. It is always a good idea to keep your emergency fund separate from other money and not include it in your estimates when buying a house. That way, if anything were to happen, you have funds you can rely on. In some cases reserving your emergency money may force you to make a smaller down payment than you want. Remember that even if you are required to get mortgage insurance initially, you can always refinance down the road when you have more equity in the home.

Seller Loan Takeovers / Assumption

If you find a seller who is getting behind on their payments, you may be able to help each other out.

On the seller’s side of things, they could lose the house to the bank in foreclosure if they don’t catch up on payments. This is where you step in and offer to buy the property from the seller.

You take over or “assume” their loan, making the payments to the bank for them as well as catching up any payments they were behind.

Again, it’s a tricky strategy you’ll need to research further because the banks have clauses in their loans that force the loan due in full if the seller sells the property.

Make sure you determine the legal way of taking over the seller’s loan so that the bank doesn’t call the loan due and ruin the deal for you and the seller.

Your To Do List:

Action #1: Subscribe to the Under 30 Wealth YouTube Channel and get ready for daily uploads, one new video lesson per day!

Action #2: Subscribe to our exclusive email community and get helpful tips and blog articles sent to your inbox each month to grow your knowledge of investing! Plus receive our free strategy guide to find more real estate deals.

Action #3: Enroll in our real estate investing course and complete all video modules, worksheets, and resources in addition to reading our detailed eBook PDF guides and lessons.

Complete those 3 action items and you’re going to be on the right track to becoming successful as an investor. You’ll learn many different personal finance topics and resources that will be instrumental to helping you quit your job earlier in life than you imagined.

8. Hard money loan

House flippers are known for using hard money lenders to help them house hack into a real estate deal.

Hard money loans are non-conforming loans that are generally provided by private lenders, individual investors, or groups who offer money upfront for short-term borrowing.

It’s private money lent with high interest rates and short terms, and this loan option allows investors to secure financing based on the property’s current or even future value.

Hard money lenders may pull your credit score, but the underwriting process is typically less strict than with a traditional mortgage loan.

If you find a deal on a fixer upper, and you qualify for a hard money lender’s loan-to-value guidelines, you may be able purchase with little or no money down.

“If you are buying an investment property, you will need collateral, such as a separate property, going this route,” says Meyer.

Get Help Qualifying for a Loan

A big set back for many beginner real estate investors is they can’t qualify for a real estate loan.

Or they can’t qualify for a loan that is big enough to buy the apartment building they want to go after as their first investment deal ever (yikes).

So what you do is you ask around for help getting a loan. Start with your parents and see if they’ll be on the loan with you, using their credit and income history to help the deal go through.

Or find that rich uncle who has great credit and enough money to qualify for any loan you want to go after. In this case, yes go after that multi million dollar apartment building.

Resource: Real Estate Investing School – Start Lesson 01

How to get started in real estate

If you choose to invest in real estate, follow these five steps to get started:

  1. Save money: Real estate has some of the most expensive barriers to entry of any of the asset classes. Before you get started, you’ll want to pay off your high-interest debt and have significant savings.
  2. Choose a strategy: Each of the strategies listed above can be successful. If you choose to buy REITs or funds, you can do online research about your options to help you get started. If you want to buy physical property, you’ll need to decide on a market.
  3. Assemble a team: You may want to work with an agent when you get started. Great agents will send you off-book opportunities that haven’t been listed yet. Eventually, you could need someone to manage your properties and an accountant to handle the financials. If you become successful, you may eventually need investors, too.
  4. Do deal analysis: Whether you’re investing in residential or commercial real estate, you should do plenty of research on any investment. For example, with rental properties, you’ll need to analyze what future rent payments could be, what expenses you may be liable for, and forecast what you could sell the property for.
  5. Close the deal: The final step is pulling the trigger. Close on your property, or make the buy in your brokerage account.

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Bottom Line

Having cash is not necessary to make money in Real Estate investing, but it does make the process easier. 

As you advance in your career, you will want to find a way to acquire some cash, whether it be from private money lenders or banks. 

The transactions are cleaner and with experience, your confidence to properly manage a deal and the money at risk will increase. But for now, make a mess with as little risk as possible and keep the faith that there is a check at the end of the tunnel. 

For me, the first check I earned was small, but it gave me the confidence to keep going. It was nice to see the bigger checks follow suit. I promise, they were not easy to come by, but with the proper training, hard work, and a little luck, it can easily be your name on these checks. 

Let me show you how to get there.

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