Created on Thursday, August 24, 2017
Updated on Monday, July 02, 2018
by Land Century
So you want to get started in real estate investing, but you don't have a lot of money. Most people wrongly assume that you need a pile of cash to invest in real estate, but you can get started with less than $1,000.
Negotiate Seller Financing
Negotiating seller financing is a fine art. While it takes some extra work, it's worth the effort in the end. The nice thing about this option is that you can usually secure 100% financing.
But here's the catch: You have to find the right seller. Nolo estimates that only about 10% of sellers are willing to take on the role of financier. Motivated sellers are more likely to agree to this type of arrangement. If you can provide some sort of reassurance that the seller will receive their payments, they will feel more comfortable moving forward.
With seller financing, you have more control over the structure of the loan terms. Some investors have successfully negotiated seller financing so that no payments were made for the first few months.
A few months gives you plenty of time to renovate and start renting before your loan payments kick in.
If you can manage to secure seller financing, you can start investing in property with virtually no money down.
Take out a Private Loan
Private loans are a great way to secure the financing you need without having to empty your own pockets.
A private loan is a loan between you and the lender directly. Like with seller financing, you can negotiate the terms of the loan. In many cases, you can secure financing with no payments and no money down for one year on a short-term loan.
With this option, you can get the financing you need with little or no money of your own.
Consider a Joint Venture
A joint venture is a great option if you can find other investors who are willing to go in on a project together. This type of arrangement works best with one partner. It's possible to have multiple partners, but things can get sticky quickly when more investors are involved.
With a joint venture arrangement, partners contribute to a down payment, and use a bank loan to secure the rest of the financing.
- You contribute $1,000
- Your partner contributes $1,000
- Your partner takes out a private, short-term loan for $7,000
- The bank finances the remainder
Keep in mind with this type of arrangement, your partner would own a larger stake in the deal. With that said, you still own a large percentage and all you had to do was put down $1,000 of your own money.
Joint ventures are a popular way to get started with real estate investments, and they can provide you with a nice return if you choose the right deal.
Wholesaling is a popular investment method, and you dont need a whole lot of money to go this route. In fact, you can usually get in on a property with no money down this way.
But it's important to note that wholesaling is a fast investment strategy and wholesalers make no repairs.
Here's how it works: The wholesaler secures a contract with a seller, and advertises the property to potential buyers. When a buyer bites, the wholesaler gets a cut from the contract and what the buyer pays.
Most experienced investors agree that the pay-off is low with this method compared to the amount of work involved. But most of the work can be done online or over the phone.
Open a Line of Credit
A secured line of credit can be used to finance a deal if you have a substantial amount of equity in a property. A home equity line of credit (or HELOC) will have a low interest rate, and payments are low because they are interest-only.
If you're interested in real estate investment but don't necessarily care about renting or flipping the property, REITs and real estate funds may be an option to consider.
REIT stands for real estate investment trust, and this is one of the easiest ways to get started with real estate investing. An REIT is a type of security that invests in a swath of real estate assets.
There are a multitude of REITs to choose from, including ones that specialize in certain sectors of real estate. You'll find REITs that focus on commercial real estate, shopping malls, retail and even theme parks.
Real estate funds are another option. These funds are more diversified, and offer more exposure geographically speaking. Some offer exposure across the U.S., while others are international. Investments may also be spread across different types of properties, including industry, residential and commercial.
Alternative real estate investment options allow you to get started with relatively little money out of your own pocket.
Crowdfunding is another alternative way to invest in real estate without "getting your hands dirty." In other words, you invest your cash and other people take care of the rest.
With crowdfunding, you invest as much money as you want (usually at least $1,000), and wait for your return. This method is similar to a joint venture in that a group of investors contribute their money to the project.
The primary difference between crowdfunding and REITs is that you have to choose the properties to invest in. But you'll likely see a higher return with crowdfunding. Investors usually see a return of 6%-18% monthly or quarterly.
Of course, this type of investing is not without risks. The sponsor may default, the investment may lose value or something else may contribute to the downfall of the project. But there's risk with any type of investment.
Getting started with real estate investing doesn't necessarily require a huge upfront investment. Creative financing is the key to getting your foot in the door. And if you're not interested in renting or flipping properties, then there are real estate funds, REITs and crowdfunding options that will help you reach your goals.