I bought my first condo when I was 26. I had to borrow money from my mom for the down payment and it took many years to pay it back. Thanks, Mom!
If lack of money is holding you back from investing in real estate and you don’t have a family willing to loan you money, you still have options available.
There are many alternatives to work a real estate deal beyond the normal “bring money to the table” method.
“You never suffer from a money problem, you always suffer from an idea problem” – Robert H. Schuller
Below are three ways to invest in real estate with no money:
Wholesaling real estate is an investing strategy whereby an investor enters into a contract on a distressed property then transfers the contract to another buyer for a higher price.
This is a short-term strategy which can be complicated and often requires a significant amount of networking usually through real estate groups. The upside is you can literally churn a property with no capital investment.
If the wholesaling business model interests you, you’ll want to make sure to do a fair amount of research. The legal contracts must be set up to include specific clauses such as the purchase is contingent on selling to another buyer, along with other legalese to protect you.
According to its website, “DiversyFund is breaking down barriers and changing how everyday people build wealth.”
At it’s simplest, DiversyFund is a REIT (Real Estate Investment Trust) that purchases rental properties, improves the properties, then sells the properties for a profit.
A minimum amount of $500 is required to invest in DiversyFund. While not $0, the amount is minimal when compared to a 20 percent downpayment needed for an investment property. As a member of the fund, you get the benefit of owning a portion of multiple real estate properties without the hassle of managing the property.
REITs are also a great way to diversify your investment portfolio.
3. Use other people’s money
If you’re handy, this might be the ideal situation for you. Find a partner willing to provide the financing on a fixer-upper, while you provide the sweat equity. Once the property is renovated, you sell it and split the profits based on your pre-agreed split.
There are a variety of agreements that can be set up between the two (or more) of you. Depending on the level of comfort the financing partner has in you, there is a mix of duties you could be responsible for. These include finding the property, working with the realtors, doing all the labor, and selling the property.
Market conditions, neighborhood location, and how long you hold the property will play a big role in how profitable flipping a property can be. You’ll want to ensure you evaluate the purchase so you don’t spend too much on holding costs. Additionally, drafting up lawyer approved contracts prior to purchasing the property is critical to protect your financial position.
All three strategies above involve an element of risk. But so does putting a downpayment on a primary home that may lose its value in a short period of time. If you’re drawn to real estate investment, but don’t have the cash flow, consider one of these strategies, or get creative and come up with your own.
Are you interested in investing in real estate but haven’t? What’s stopping you? Let us know in the comments below.