How to Invest in Real Estate With No Money (The Truth)

How to Invest in Real Estate With No Money (The Truth)

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.

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.

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9. Bird Dog (Sniff Out Deals for Others)

You truly need no money to “bird dog,” and you don’t take on any of the risk associated with buying an investment property yourself.

This term comes from hunting. Hunters use dogs to help them spot and retrieve birds after they’ve shot them. As a bird dog, you look for, or spot, investment opportunities. This is sometimes called “driving for dollars.” You drive around a lot, scouting for properties that look vacant or in need of repair.

You do some preliminary analysis, take a few exterior photos of the property and the neighborhood, and hand off the leads to wholesalers or fix and flip investors in exchange for a finder fee. The fee is negotiable of course and—depending on where you live, how much analysis you do and other factors—you could pocket around $1,000 each time an investor can turn your lead into a deal. While you don’t need money to get started, you do need to cultivate a network of investors to pass your leads to and negotiate your fee with each one.

12. Become a Real Estate Agent

To begin learning and earning money, you could start a side business or full-time career as a real estate agent. While technically not investing, it’s a great way to learn about real estate transactions and the overall real estate market.

Every state is a little different, but you typically have to take a certain number of classes up front (I took 30 hours in South Carolina). Then you take a comprehensive test and pay your licensing dues with the state.

Additionally, you’ll typically need to find a broker’s office to “hang your license” with. There are many different types of firms and different business models, so you’ll have to find one you’re comfortable with.

And finally, most agents also join their local Association of Realtors and pay for access to the Multiple Listing Service.

The initial investment could cost between $1,000 – $2,000. But you’ll need to invest additional time and energy into lead generation marketing in order to start making some money.

If you want to pursue this career, I recommend starting with the book Millionaire Real Estate Agent by Keller Williams founder Gary Keller.

You can also check out this YouTube playlist from Graham Stephan, who is a successful agent and investor in Los Angeles, California.

Should I Invest in Real Estate With No Money?

We’ve established that you CAN invest in real estate with no money, but there is one final question that I think needs to be asked. SHOULD you invest in real estate with no money?

Ironically, it gets much easier to invest in real estate with no money the more experienced you are and the more real estate you own. This is because you’ve got an established track record, and hopefully developed relationships with other investors, lenders, and contractors.

Five years in, I hardly ever use my own money to invest in a real estate deal because I have multiple sources to tap for funding. But that doesn’t mean that I literally have no money.

As a real estate investor, and especially as a rental property owner, you need to have a sizable emergency fund available for capital expenditures. What if you need to replace a roof? Or the HVAC goes out in the middle of summer? I don’t necessarily have a pile of cash sitting around, but I do have pre-existing lines of credit I can tap in an emergency. It is always good to be prepared.

Low-cost real estate investment options that involve owning property

Taking advantage of existing home equity

If you already own a home, you may already have money available to you to begin investing in real estate. Options such as a home equity line of credit are popular to allow homeowners to free up funds for investing. Once you have paid a significant amount of your mortgage off and your home has increased in value over time, lenders may let you borrow money leveraged from your existing property. You will need to pay back any money you borrow on top of interest, but these options allow you to access larger amounts of money without having to sell your home.

Refinancing and HELOCs have become a popular option for homeowners to acquire funds for the down payment and closing costs on a second property or rental property, which then becomes an investment to build further equity or collect income through rentals.

Though you will need to pay interest on the money you borrow, the potential gains from a second property mean that the financial benefits of using this strategy can easily outweigh the money you put in through interest.

Buying a multi-unit property

You don't need to own a dedicated investment property to collect money through rentals. In fact, many investors use a strategy of owning a multiplex that they both rent out and use as a primary residence. This is also known as 'house hacking'.

If you are able to put together a down payment (which is a barrier in itself, though there are strategies to make this easier) you can purchase a multi-unit property and, through rental income, essentially live there for cheap or free by renting out the additional units that you do not live in.

The beauty is that you will still be growing equity in your property, and as you pay off the mortgage, the money you collect through rent will then become passive income.

Partner on a home purchase

Partner on a home purchase

By partnering with someone you know who has money, you may be able to make buying a home much easier for yourself. Though you won't need the money yourself, you will need a friend or family member who has enough money they are willing to put in.

The most common example is when a parent helps with a child's down payment, in part or in full, though they cannot legally make the repayment on this gift

You may also work with a partner who may be able to offer you a loan to help with the purchase of a home, who then gets something in return for their initial investment such as monthly payments or a portion of the home's equity.

The only thing to consider is that this loan will affect your debt ratios, so a large enough loan may cause your lender to reject your mortgage. Alternately, You may also be able to use a cosigner on a mortgage that allows the bank to qualify you based on the collective funds and credit history of both borrowers, making the purchase easier for you.

This option will depend a lot on your circumstances and whether or not you can find a willing second party to help you with the purchase, but if you are lucky enough to make it work, it can be an easy way to start off in real estate.

Hard money loans

A hard money loan can help you come up with funds to buy a property if you don't have the money now. These loans are handled through private hard money lenders and do not have the same rules as a regular mortgage from a regulated lender, so you could get a loan with little to no money down.

The downside is that these loans tend to cost you more due to higher interest rates and usually have shorter terms. However, they may be ideal for someone looking to purchase a property with private money for a flip, an area where a traditional mortgage loan is not as easy to come by.

Seller financing

Seller financing is a home buying option where the owner of the property finances the sale themselves. Essentially, rather than getting money for their home upfront from a mortgage lender, they will allow you to pay them directly for the home over time. Because they are not a mortgage lender, they do not have to follow the same regulations such as minimum down payments, meaning you may be able to get a nice deal.

Since this is a less used strategy for sellers, your options for buying a home using seller financing may be much smaller than when buying with a traditional mortgage.

10. Private Money Loan

When you have no money and want to invest in real estate, a private money loan can speed up the process. The catch is that the interest on private money loans can run between 6% and 12%. Like hard money loans, funds come from individuals instead of traditional financial institutions. A good practice with private money loans is to find property that can be purchased for 50 cents on the dollar.

Assume the Existing Mortgage

Some purchasers can use a “subject to” contract, where the buyer uses the seller’s existing financing for part of the purchase price. Using the seller’s existing financing is especially successful if the current loan has a low interest rate. The buyer receives the title to a property in return for making payments on the seller’s mortgage. Research of the existing loan is imperative, however, in that some loans have a due-on-sale clause, which prohibits the new buyer from assuming the mortgage.

What Is Direct vs. Indirect Real Estate Investing?

Direct real estate investments involve actually owning and managing properties. Indirect real estate involves investing in pooled vehicles that own and manage properties, such as REITs or real estate crowdfunding.

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50/50 Investment Partnership

Don’t have money? Find a partner who can buy the deal for you and let you operate it as “sweat equity”

In other words, your value is all the work and his/her value is the financing. Map out a list of all the tasks you’ll be doing to support your case for gaining 50/50 share.

  • Finding the deals & analyzing them
  • Driving the neighborhoods to vet the deals
  • Contacting contractors to get quotes
  • Communicating with the realtor
  • Managing the rehab
  • Managing the tenants
  • Collecting rents

5. Real Estate Crowdfunding

Real estate crowdfunding is a relatively new entry into the real estate investing world. It allows you to invest a smaller amount of money (like $1,000 to $5,000) alongside a group of other investors (i.e. the crowd).

These crowdfunded investments can be rental properties (usually larger multi-unit properties) or loans to other real estate investors (i.e. hard money loans).

I have been experimenting with this strategy on my own for a couple of years. But because the legal structure and companies are so new, I’m still a little cautious.

For example, my business partner had some money with a company called RealtyShares, and they basically shut down their business last year. No money has been lost (yet!), but it shows the risk of investing with start-up companies that are strapped for cash.

So this means that while I like the overall concept, I’m keeping my investment to a relatively small percentage of my net worth, and I’m spreading it around to different companies for now.

A few of the companies I have my eye on or have invested with so far include:

    • Peer Street – residential loans to other investors that typically earn 7-8% interest
    • Equity Multiple and Crowdstreet – pre-vetted commercial projects or diversified portfolios of commercial projects

*These may be affiliate links, which means my site earns a small commission (at no cost to you) if you use their service. Thank you!*

In these particular cases, you must be an accredited investor in order to invest. This means you must have a net worth exceeding $1 million (without your home) and/or an annual income of over $200,000 for the last two years (or $300,000 for a couple).

There are other crowdfunding platforms like Fundrise.com that do not require you to be accredited. But the investment style is slightly different, and it’s more similar to a REIT – which I’ll talk about next.

5. Look for a lease purchase option

If a traditional mortgage is not suited to your financial situation, another proven way to invest in real estate with no money is through what’s known as a lease option or a rent-to-own home.

Under lease options, the property owner charges the buyer a monthly or yearly premium, in the form of higher rental payments. The excess rental fee will then be channeled towards the purchase price of the home.

With this type of agreement, you may be able to invest in real estate via a slightly higher rental fee.

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.

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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.

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2. Real Estate Investment Groups (REIGs)

Real estate investment groups (REIGs) are ideal for people who want to own rental real estate without the hassles of running it. Investing in REIGs requires a capital cushion and access to financing.

REIGs are like small mutual funds that invest in rental properties. In a typical real estate investment group, a company buys or builds a set of apartment blocks or condos, then allows investors to purchase them through the company, thereby joining the group.

A single investor can own one or multiple units of self-contained living space, but the company operating the investment group collectively manages all of the units, handling maintenance, advertising vacancies, and interviewing tenants. In exchange for conducting these management tasks, the company takes a percentage of the monthly rent.

A standard real estate investment group lease is in the investor’s name, and all of the units pool a portion of the rent to guard against occasional vacancies. To this end, you’ll receive some income even if your unit is empty. As long as the vacancy rate for the pooled units doesn’t spike too high, there should be enough to cover costs.

Pros More hands-off than owning rentals Provides income and appreciation Cons Vacancy risks Fees similar to those associated with mutual funds Susceptible to unscrupulous managers

Drawbacks of Poor Credit

A poor credit score won’t keep you from loan approval, but the interest rates are higher than traditional bank loans. Most interest rates range from 10% to 15%, depending on the lender. Hard money borrowers also have to pay “points,” which are a percentage of the loan. Points can range from 2% to 4% of the total loan amount.

So, you’ll pay heftier fees in exchange for convenience, but that’s okay given the potential profit you’ll walk away with.

Another obstacle is that they may not cover the full cost of buying the property. These lenders usually lend 65%-75% of the current value of the property. Some will lend based on the value of the property after it’s been improved, also known as the "after repair value" (ARV).

That leaves you to fund the difference or find another source of funding to bridge the gap.

3. Live-in House Flips

If you’re the handy type and don’t mind living in a construction zone, you can purchase a fixer-upper. You move in, make repairs and improvements, and sell the home for top dollar.

This strategy does require money: you’ll need a down payment and renovation funds. But since you’re living in the home, you’re “investing” what you would spend on rent to build equity in the property. Your hard work can build up a lot of sweat equity.

Of course, you also need skills to do some of the renovation yourself (or you’ll pay too much). You should also educate yourself about the market to ensure that the updates and improvements you make will pay off. The idea is to improve the house to sell, not put in top-of-the-line upgrades that appeal to you personally. With this in mind, you set yourself up to pull the maximum amount of equity out when you sell your property.

Wrapping Up My Story of Investing With No Money

When I was just getting started in real estate, we had enough cash to buy one rental property and then we were “broke” (house rich and cash poor as they say). I wanted to keep buying more properties but didn’t know how.

I ended up doing a lot of research on how to invest in real estate with no money, and used several of the methods above to jump start me on my investing journey.

  • I got into wholesaling to generate additional income I could put toward rental property down payments.
  • I took on equity partners or private lenders to buy and flip houses (again generating more profits to put toward down payments).

In reality, our “investing” became more of a real estate side hustle than a passive activity. But I learned a ton along the way, and found that I really enjoyed the whole business of real estate. We still do a lot of active real estate side hustling even though we don’t have to.

You can see our Extra Income Report that documents our progress in making extra money (mostly through real estate) with the ultimate goal of investing it for passive cash flow.

If you want to get started in real estate investing but haven’t yet, what’s holding you back? Let me know in the comments!

How Much Money Do You Need To Start Investing In Real Estate?

If you are wondering, “how can I invest in real estate with $500” or a similar amount, then using the strategies listed in this article, you can technically invest in real estate with little or no money. However, it is always advisable to have some liquid cash depending on your strategy.

For example:

  • If you pick bird-dogging, you need the cost of gas to find deals.
  • If you decide to be a wholesaler, you need to spend money on bandit signs or driving for dollars.
  • If you decide to house hack with an FHA loan, you need the 3.5% down payment.
  • Investing in REITs can be done for less than $100 using M1Finance. VNQ is one of the largest and most popular REITs from Vanguard. You can read my complete M1 Finance review to get started investing.
  • Investing in real estate crowdfunding via Fundrise can be done for only $10.

The amount of money you need to start investing in real estate depends on your strategy.

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.

Start investing in real estate now

Fortunately, you don’t need to be a seasoned real estate entrepreneur to get started in real estate investing.

With interest rates still near historic lows, as well as homes continuing to appreciate, now could be a favorable time to start investing in real estate.

You have financing options. Stop paying rent, living with your parents, or living with a roommate and get out on your own.

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