When you invest in residential real estate, you are getting more than a home or a piece of land upon which to build a home. Real estate investment has become a popular way for people to make money, and it is not uncommon to buy a house or land without any intention of living there. Some people simply buy and hold property, waiting for it to appreciate in value before re-selling it.
Having cash for a down payment is the quick and easy way to enter the real estate market, but it’s not your only option. Many people have found ways to start investing in real estate with little or no money of their own. Options include borrowing money as well as a number of more unusual and creative paths to ownership.
The followings are listed below on how you can invest in real estate with little or no money.
1. Look into seller financing. If the seller is motivated enough, he/she may be willing to make it easy for you to purchase by giving you a loan. You could offer to make higher monthly payments instead of a down payment.
You could also negotiate a deal where the seller pays your down payment to a traditional lender in order to sell the property faster.
The seller might expect you to pay him/her back or he/she may throw the down payment in for free, essentially lowering the selling price.
For each of these scenarios, make sure you have a real estate attorney put down the agreement so that both parties are protected.
2. Lease the property with the option to buy. You can invest in real estate slowly by making payments on a lease agreement until you have the money to buy. Your payments would (at least in part) be credited toward the purchase price.
Ensure the agreement specifically states a final price for the property. Define the exact portion of the rental payments that will be put toward the final purchase price.
Work out a trade. You can pay for real estate by bartering another piece of property or a specialized skill you have. For example, a contractor could offer a real estate developer labor in exchange for a down payment.
3. Take over mortgage payments. If you are interested in investing in a piece of real estate but you can’t afford the down payment, offer to take over the mortgage payments in exchange for the deed. However, you will need to investigate the existing loan before you make such an offer. Some mortgage loans have specific language preventing this type of transaction.
4. Bring in a partner. If you are big on ideas but short on cash, bringing in a partner who will provide the funding and allow you to do the managing might be an attractive option. You will need to write a contract that establishes who is responsible for what, and how the profits will be divided.
If your partner is in place strictly for financial support, make sure you retain all control over the day-to-day management of your investment.
5. Invest with a building contractor. If you lack carpentry, plumbing and electrical skills to fix up and resell a property, partner with someone who does have these skills and could help with the down payment. Once you make a profit on the sale, you will have the down payment for your next real estate investment.
6. Borrow money from family or friends. If you have little or no money on hand and you want to make a real estate investment, borrowing money from family and friends is another option. Be sure to write up an official promissory note with payment due dates, a specific interest rate, and what ownership, if any, the lender will have in the property. If you pay back the loan on time and with interest, these lenders might be willing to lend to you again for future projects.
Consider whether the relationship you have with your lender could be harmed if you were unable to repay the loan. Ask yourself if securing real estate is worth endangering your relationship with someone close to you.
7. Take out a home equity loan. Find a bank who will allow you to take out a loan for a down payment on top of the mortgage loan you have on your own house. This could be a line of credit or a second mortgage using your home as collateral. Look for a low interest rate that will allow you to purchase the property economically enough that you can still make a profit later on your investment.
Make sure you can pay back this loan or you risk losing your own home.
8. Work with an experienced real estate broker. It will cost you nothing to work with a real estate broker experienced in finding properties that have the potential of not requiring a down payment. Ask people experienced in real estate investing for names of brokers they have worked with. Look for details about a particular agent’s background on the real estate company’s website.
9. Look out for motivated sellers. These people are desperate to sell for reasons such as bankruptcy, divorce, death of a relative, an out-of-town new job, poor condition of the property, behind on payments, etc. They will be more open to providing funding to close the deal quickly. Your local real estate broker can help provide information on who might be in this situation.