So you've caught the real estate bug, and you're ready to start investing! But then you check your bank account and ... Oh yeahhh ... You're broke. This doesn't mean you can't get in the game—it just means you need to think a little more creatively. Here are a few tips on how to invest in real estate with no money.
Finding a partner with deep pockets to fund your ventures is one of the best ways to get started in real estate investing when your own pockets are too shallow. Of course, to find someone willing to bankroll your real estate mogul aspirations, you better bring something to the table as well.
In addition to moolah, the recipe for a successful real estate investment includes a variety of ingredients, such as:
Take inventory of your talents and resources to figure out what you can bring to a partnership. Then find someone who has the cash for real estate investing but lacks an essential quality that you can offer. Forming a partnership can get you into the game without investing any of your own money.
An alternative to partnerships is forming a Limited Liability Company (LLC). On top of the asset protection benefits of buying an investment property with an LLC, starting a new LLC can also be a source of funding for the property: You can use the capital that equity owners invest in the new LLC to purchase real estate.
If you're interested in flipping a house instead of making a long-term investment, hard money lenders can get you the funds you need to get started. Instead of going to a bank (or if the banks have already rejected you), you can pursue financing from hard money lenders. These lenders are typically corporations established specifically to issue hard money loans or wealthy folks looking to get wealthier.
Hard money loans have:
Sounds great, right? Yes, hard money is pricey. But, if you have found the perfect flip and you can still make a profit after paying their fees, hard money lenders are sometimes the best way to get the money you need to make the deal.
If you're struggling to secure a loan from a traditional lender, seller financing is a great option to explore. With seller financing, the property's current owner sells you the real estate, and you make payments directly to them. You'll sign a promissory note, which is basically a formal IOU, and they'll hold a mortgage on the property.
Some real estate investors and other property owners who don't need all the money for the property upfront use seller financing to make a little extra cash off selling their properties. They benefit from the interest you pay them, and you can cut the third-party lender entirely out of the process. Seller financing can allow you to snag a property you couldn't qualify to buy through a traditional loan.
Many people don't know that real estate investing with your 401(k) or IRA is even an option. While a traditional retirement account is generally limited to common investments such as stocks, bonds, and mutual funds, a self-directed 401(k) or IRA allows you to invest directly in real estate.
With a self-directed retirement account, you can use your savings to purchase real estate. Your account will be listed as the property's owner, and you can start making money off the investment.
Real estate crowdfunding is a relatively recent development. While the idea is just starting to catch on, crowdfunding is already attracting attention from serious investors. The popularity of real estate crowdfunding promises to grow as time goes on.
Crowdfunding can be an exceptional opportunity for people with limited resources to pool their money to invest in real estate. If you can't raise capital through a traditional method, you can crowdfund using social media, real estate crowdfunding platforms, or other online sources to purchase real estate.
No rule says you have to pick just one of these options. If you want, you can create your own tailor-made investment funding strategy using a combination. For example, you could start an LLC to purchase a seller-financed property. Or you could flip a property with a partner but secure some of the financing from a hard money lender. Or you could invent your own strategy that isn't mentioned in this article!
If you think creatively and focus on your goals, the sky is the limit when it comes to your investment options. Knowing how to build a real estate empire means keeping your eyes open and being ready to open the door when the opportunity knocks. That said, as with all investments, make sure you do your due diligence before jumping into anything.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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