We see it everywhere these days: “Invest in real estate with none of your own money!” But is this really possible?
Absolutely, and this article will discuss three real options for doing so.
There are a few ways you can invest in real estate with none of your own money, but the way to do it depends entirely on your exit strategy.
The most common way to get a taste of real estate investing with none of your own money is through wholesaling.
Wholesaling is common among investment circles. It consists of finding a property that has enough of what I call, “meat on the bones” — a property that will earn you a margin of profit between the acquisition price and the after-repair value of the property.
After finding the property and putting in under contract, you must then find a cash investor who is willing to pay more for the property than what you have it under contract for. You will then assign the contract to this person before the closing. A serious cash buyer will be more than happy to pay more for the property than you have it under contact for if, after all fees and costs, their numbers still make sense for their investment goals.
Wholesaling is highly favored because you never hold title to the property, and you usually get paid in a short amount of time without putting much of your own time into the transaction. The point of wholesaling is to get in and get out without ever holding title to the property.
That being said, there are also ways to gain interest in a property with none of your own money!
Fix and Flipping
If you are fix and flipping, it is possible to do a full project without any money from your pocket. Find someone with the money who is willing to joint venture with you on the flip. Their value in the transaction will be to put in all of the money for the acquisition and the flip. Your value in return will be to find the deal, negotiate deal, get the deal to close, and you most likely will be in charge of managing the renovation.
At the start of the joint venture, you and your money partner must agree on a split of profit and losses. A 50/50 split of profits at the end of the deal is usually the way to go.
When it comes to finding the people to fund your flips, I would start by talking to your sphere of influence and letting everyone know you are in the business. Other ways to find money are through building relationships with local investors and then bringing them the deal. The best way to find local investors is through a quick Google search and then cold-calling them. I do this with at least three new investors every week by inviting them to have coffee and letting them know what I am all about.
When it comes to fix and flipping with none of your own money, the goal is to get into the project with no initial out-of-pocket expenses, rehabilitate the property, sell it, and split profits with your partners.
Buy and Hold Options
If you are looking to do buy and hold, it is possible to also do that with none of your own money. The most common ways are lease options and owner (or seller) financing.
The goal with buy and hold options is to control properties with virtually none of your own money tied up and collect passive income through renting these properties.
A lease option is a financial instrument that allows you to tie the property up and control it with virtually no money. It’s basically a rental agreement, but at the end of the agreed rental period, you have the option to purchase the property from the seller or to simply walk away from the contract.
With a lease option, you take control of the property for the period of the option. You then assign that option to a tenant buyer, and collect the down payment. You could also simply keep control of the property, sublease to a tenant buyer, and collect monthly payments every month.
When it comes to owner financing, you could do this short-term or long-term. If you do short-term, let’s say three to six months, you could negotiate with the seller to cover all of the acquisition costs in return for a secure return on their money in the form of monthly interest. In some cases, you could also offer them points, which would be percentages of the selling price given back to them at the end of the transaction. For example, 15% interest and 2 points for the loan means that you will be paying the seller 15% on their money, and when you sell the property, you will give them 2% of the total sales price.
If you get a seller to agree to owner financing, you can then cover the repair costs with a joint venture partner.
If you are looking to do long-term owner financing, you could take control of the property and have the home deeded to you. The seller acts as a bank, and you would pay them monthly payments as a mortgage. This allows you to rent the property out and become a landlord with none of your own money.
These are just a few ways in which you can invest in real estate with none of your own money. The goals of this article are to get you thinking of creative ways to finance your real estate deals and to get you to act on them!
What are some creative ways in which you have financed some of your deals in the past? Please share in the comments below.