Investing in real estate is a solid way through which a person can diversify his or her portfolio. Some people balk at investing in real estate because they fear that they simply cannot come up with the money necessary to make this type of investment. There are strategies you can employ in order to invest in real estate with little money up front.
Hard Money/ Private Money Loans
The term “hard” in hard money simply means the loan is using a “hard” asset as collateral. Not requiring heavy scrutiny from the borrower’s financial condition. Hard money lenders provide a niche product but a very important solution in the real estate lending space. Offering real estate investors asset-based loans allowing them to flip properties with no money down regardless of bad credit or low income, when most traditional banks will not.
Hard money lenders such as Tidal Loans, can fund up to 100% of the borrowers property, purchase and rehab cost, if the property’s purchase and rehab cost is under 70% of the ARV (after repair value). This is huge for real estate investors looking to scale, because they can leverage the hard money loan to purchase more properties, keeping more money in their pocket. The key to receiving a “no money down” hard money loan from a private lender is to buy at a discount. The old saying “you win on the buy” is especially true when trying to secure a hard money loan or private loan from a investor. Feel free to see if you can qualify for a no money down private loan by filling out a loan application.
One strategy to consider when it comes to investing in real estate with little money is to consider seeking out a situation involving seller financing. Through a seller financing agreement you may have more latitude when it comes to monthly payments.
On a related note, there is a strategy in which the seller takes on some of the obligation associated with obtaining a traditional home mortgage loan. In this scenario, the seller makes the down payment required of the traditional lender on behalf of the buyer. Over time, the buyer pays the seller back for the down payment made. This tactic permits you to buy a piece of real estate without having to come up with a down payment, a down payment oftentimes being something that prevents a person from making a purchase of real estate in the first instance.
Real Estate Crowdsourcing
Another way in which you can get a foothold in real estate investing is to embark in real estate crowdsourcing. Real estate crowdsourcing is a process through which multiple individuals make small investments in real estate. They obtain a return on the real estate based on the percentage of ownership the small investment gives to that person.
Real estate crowdsourcing permits a person to begin real estate investing by tendering as little as $3,000 to $5,000. This truly is little money when it comes to investing in real estate.
Lease with Option to Buy
If you want to invest in real estate but have little money, consider a lease to buy option. For example, you can enter into a lease to purchase agreement for residential real estate. This helps you avoid the down payment dilemma. Many people taking this course will reside in the property during the lease period and then ultimately purchase the property. Once the purchase is completed, you might then convert the property into purely investment real estate by renting it out.
Assume a Mortgage
Yet another strategy to consider when you desire to invest in real estate but have little money available to do so is to assume an existing mortgage. There are legal and credit qualification hurdles to deal with by taking this route. However, by assuming a mortgage, you avoid the need for a down payment. You really do step into the shoes of the person who has been making payments on the property for at least some period of time.
Invest with a Partner
A tactic that may work for you when it comes to investing in real estate with little money of your own is to take on a partner. Through this course of action you can split the initial costs associated with investing in real estate. The ongoing mortgage loan obligation is also shared.
If you are able to find a partner who has access to more funds that you do at this time, you might be able to work out another type of arrangement. For example, you might take on the role of managing the investment on a day-to-day basis as part of your contribution. You partner takes on a larger role when it comes to the financial side of the investment.
Finally, a way in which you might be able to begin investing in real estate with little money is to seek out microlending as opposed to a traditional home mortgage loan. You might better qualify for a microloan as opposed to a traditional home mortgage loan. Microloans typically are for amounts that can range for as little as $1,000, or even less, to upwards to $35,000.
You can take out a smaller microloan as a means of getting into the door to real estate investing initially. You might consider a microloan to deal with some of the initial costs associated with a real estate investment and negotiate a lease-purchase agreement with the current property owner.
In the final analysis, and as was noted, real estate can be a solid investment. Through creative thinking and thoughtful strategizing you place yourself into a position of being able to invest in real estate with only a little money in your financial arsenal.
Jessica Kane is a professional blogger who focuses on personal finance and other money matters. She currently writes for Checkworks.com, where you can get personal checks and business checks.