4 Ways To Make Money In Real Estate Investing

  1. Online Real Estate Investing Sites
  2. Lease With an Option to Buy
  3. Option a Property
  4. Sell Wholesale

Before I get started, let me say I am only going to give an extremely basic explanation of these ideas. 

I could easily write a book on each one alone, but here are the bare bones to investing with no money or credit. Here’s another great read from Jeff on the best short-term investments out there, so check it out as well!

Ask Your Rich Uncle to Loan You Money

If your parents don’t love you (just kidding), then go to your rich uncle. Ask him to cut back on exchanging for a new car every year and instead give you a loan to buy an appreciating asset like real estate.

Hopefully you’ve got a cool uncle who will help you turn little or no money down into a nice profit by funding your investment deal. Make sure to offer a nice interest rate or part of the equity in the deal.

Resource: Real Estate Investing School – Start Lesson 01

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6. Equity Partnerships

One path to real estate investing with little or no money is through equity partnerships. If you lack the funds, you can use your alliances to make up the difference. Find property for a low price that’s not in the best shape, and your equity partner can use their buying power — credit score and capital — to finance it. Each equity partner gets a percentage of ownership over the property.

6. Borrow Your Down Payment, But Be Cautious 

Borrowing 100% of the money you need to buy a home is risky, as anyone who lived through the aftermath of the housing bubble a decade ago may recall. Lenders will say you cannot borrow your down payment.

Still, there are ways to do it. You can tap into your 401(k) and borrow against your own retirement savings. Because you are essentially acting as the creditor when borrowing from yourself, most lenders don’t count the payment against your overall debt burden when qualifying you for a mortgage. Of course, borrowing from your 401(k) reduces your retirement savings and if you leave your employer, you may have to pay off the loan in full and/or face tax penalties.

With advance planning, you may be able to get around the lender’s requirements and borrow your down payment. You could, for example, take out a personal loan for emergency cash and drop it into your checking account. Let it sit in your account for a few months and then apply for your mortgage. The lender is going to consider what’s in your account as “yours” if it’s had time to “season.” Those borrowed funds could become your down payment.

3. House Flipping

House flipping is for people with significant experience in real estate valuation, marketing, and renovation. House flipping requires capital and the ability to do, or oversee, repairs as needed.

This is the proverbial “wild side” of real estate investing. Just as day trading is different from buy-and-hold investors, real estate flippers are distinct from buy-and-rent landlords. Case in point—real estate flippers often look to profitably sell the undervalued properties they buy in less than six months.

Pure property flippers often don’t invest in improving properties. Therefore, the investment must already have the intrinsic value needed to turn a profit without any alterations, or they’ll eliminate the property from contention.

Flippers who are unable to swiftly unload a property may find themselves in trouble because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a property over the long term. This can lead to continued, snowballing losses.

There is another kind of flipper who makes money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment, wherein investors can only afford to take on one or two properties at a time.

Pros Ties up capital for a shorter time period Can offer quick returns Cons Requires a deeper market knowledge Hot markets cooling unexpectedly

8. Partnership

When you don’t have the money yourself for a real estate investment, you can still get started by using money from a partner.

While there are many ways to partner, one of the simplest is something called a credit partnership. It basically works like this:

  1. You find a good real estate investing deal.
  2. Your credit partner puts up the down payment and gets a loan to buy the property.
  3. You lease the property from your credit partner with an option to buy it at a higher price.
  4. You sublease the property to a tenant, handle all the day-to-day management issues, and keep the difference between the rent you collect and the rent you pay.
  5. Before your option to purchase expires, you can get a new loan to purchase the property yourself (hopefully after the property has appreciated in value). Or instead, you could sell your interest in the property to a new buyer at a marked-up price.

By using your brain and your hustle to put a deal together, you can essentially control the income and the appreciation of the property with very little money (perhaps a $100 to $1,000 option fee). I did several of these deals early in my real estate investing career when I had limited funds.

>> Want to learn more about credit partnerships? See my detailed guide and YouTube video <<

14. Wholesaling

Wholesaling is the business of finding deeply discounted deals and quickly reselling them for a profit to other bargain hunters. In many cases, you can use very little money but still make a profit on a wholesale deal.

Wholesaling and being a bird dog are slightly different. With wholesaling you actually get the property under contract or buy it before reselling it for a profit. But as a bird dog, your investor buyer is the one who buys the property. You then earn a fee.

After my first year as a bird dog, I actually evolved into the business of wholesaling. It was a natural progression as I got good at finding deals.

But as much as I liked it, wholesaling is not the perfect beginner business model it’s often promoted to be. I’ve found the results to be mixed for new investors.

The problem is that wholesaling is a sales business. This means you have to be good at making lots of offers and getting rejected a LOT. But if you’re good at sales, I actually think being a real estate agent (strategy #11) is an easier and lower risk way to make money at first. You can then evolve into wholesaling or add it on to your existing agent business later.

But wholesaling can still be a great business model for those who are ready. If it sounds fun or like something you’d be good at, here are a couple of online teachers I’ve found helpful:

How to Invest in Real Estate With Little Money

What if you have a little bit of money and want to get started investing in real estate?

You could certainly follow the strategies above to get started buying physical property with little or no money. Or, if you want a more passive approach to invest in real estate with only a little money, real estate crowdfunding is a great option.

With crowdfunding, you can start investing in real estate deals with as little as $10 with Groundfloor, or only $500 with Fundrise or DiversyFund.

I don’t want to take up too much space with crowdfunding, but if this option intrigues you, here is some further reading:

9. Bird Dog (Sniff Out Deals for Others)

You truly need no money to “bird dog,” and you don’t take on any of the risk associated with buying an investment property yourself.

This term comes from hunting. Hunters use dogs to help them spot and retrieve birds after they’ve shot them. As a bird dog, you look for, or spot, investment opportunities. This is sometimes called “driving for dollars.” You drive around a lot, scouting for properties that look vacant or in need of repair.

You do some preliminary analysis, take a few exterior photos of the property and the neighborhood, and hand off the leads to wholesalers or fix and flip investors in exchange for a finder fee. The fee is negotiable of course and—depending on where you live, how much analysis you do and other factors—you could pocket around $1,000 each time an investor can turn your lead into a deal. While you don’t need money to get started, you do need to cultivate a network of investors to pass your leads to and negotiate your fee with each one.

2. Hard Money Loan

Hard money loans are also called bridge loans, short-term asset-backed bridge loans, also known as STABBL, and asset-based loans. They are used for short-term financing of mortgage loans. You can’t get a hard money loan from a bank or credit union. Only private and individual lenders offer real estate hard money loans.

Building Wealth

Securing a hard money loan is often an easier and quicker way to invest in real estate than going through the traditional institution financing and approval process. Plus, your credit history is not an issue because hard money loans are asset-based.

Investors who use hard money loans to purchase real estate are typically house flippers, people who renovate and sell properties for profit.

Seller Financing

One of the best no money down or very little money down strategies is using the seller as the bank. When searching for deals online, read the property description boxes.

You may see the realtor use words like:

  • Owner financing
  • Seller financing
  • Owner willing to carry

This indicates a motivated seller who will help get a deal done by being the bank and loaning you the purchase price.

In return, you make monthly payments to them until their loan terms come due. Then you may have to refinance and get a bank loan to pay off the seller financing loan.

Avoid Becoming House-Poor

There is a phrase in real estate and finance called “house-poor.” The term describes people who stretch themselves too thin when buying a home and are left without any emergency money. When unexpected events happen, such as a job loss or broken appliance, these homeowners are in such a tight spot financially that it is difficult to recover. Unfortunately, this is all too common when attempting to invest in real estate with no money.

There are a few ways to avoid being backed into a corner financially when purchasing real estate. It is always a good idea to keep your emergency fund separate from other money and not include it in your estimates when buying a house. That way, if anything were to happen, you have funds you can rely on. In some cases reserving your emergency money may force you to make a smaller down payment than you want. Remember that even if you are required to get mortgage insurance initially, you can always refinance down the road when you have more equity in the home.

7. Look for seller financing

Another way to acquire property with no money down is with help from the seller.

Known as “owner financing" or “seller financing,” this type of loan is an agreement where the seller handles the mortgage process instead of a financial institution.

The borrower repays the loan as specified in its repayment terms that are detailed in the formal agreement.

This works especially well with sellers who have no mortgage.

For example, this can happen when someone inherits a property and does not want to keep it.

For sellers that are willing to take on the role of financier, owner financing can help sellers move a home faster with sizable returns on their investment.

Options beyond owning property

Rent-to-own

Rent-to-own is a scheme that allows you to gradually pay for a property while you rent it. Essentially, you will pay a marginally higher rent payment than a standard rental scheme, and the additional money will go towards funding a down payment on the property. This can be a great option to save passively in order to buy real estate and allows you to live in the same home after you have saved your down payment.

You could simply save the extra money on your own, but for some people who have trouble consistently saving, the framework of forced savings can make the process effortless.

However, given the hot real estate market seen in recent years, rent-to-own properties are becoming less popular in hot markets where it offers little benefit for landlords who stand to benefit a lot more from maintaining their property.

REITs 

A real estate investment trust is an investment trust that specializes in holding or developing real estate and then passing the benefits on to its shareholders. Investors can purchase positions in REIT much in the same way they would purchase shares in stocks or mutual funds, allowing you to reap the benefits of the real estate market with much less starting cash.

There are numerous benefits to investing with REITs. Firstly, they are convenient for anyone who is already comfortable investing in products like stocks. 

In addition, though investing in a REIT does not m

In addition, though investing in a REIT does not mean you own property, this can be seen as a good thing. Since you own no property yourself, you do not need to take care of property management and maintenance, making REITs a much more hands-off experience. Finally, REITs offer very competitive returns when compared to other investments like stocks, making them both convenient and effective.

Real Estate Funds are kind of like a REIT, though they usually require a bit more starting cash. With a real estate fund, you get the same benefit of hands-off returns and a portfolio managed by qualified professionals. Real estate funds collect money from interested investors and then put the money towards a real estate portfolio or development. There are many real estate funds, each with their own minimum contribution amounts, allowing you to potentially begin investing with less money than it would take to buy a home.

These options may also allow you to easily free up money by selling your holdings, which is much faster than getting a line of credit or selling a home you own. And, if you grow your wealth through these tools, you may even eventually have enough to sell and put towards your own down payment.

Mortgage-backed securities and mortgage bonds

Mortgage-backed securities (MBS) and Canada mortgage bonds (CMB) are like REITS, as they offer you the ability to benefit from the real estate market without owning any property. MBS and CMBs are essentially securities that are backed by mortgage loans taken out by homeowners, that are bundled by lenders and sold to financial institutions.

Thanks to features of the Canadian mortgage system, such as mortgage insurance and the fact that they are guaranteed by the Canada Mortgage Housing Corporation (CMHC), MBS offers a low-risk place to put your money. This is their main benefit over REITs which may offer higher returns though with more risk.

1. Invest in a new home and make your primary residence a rental

If you already own a home, you’re ahead of the game.

One of the more common ways to become a real estate investor is by turning your current primary residence into a rental property.

There are significant advantages to “backing into your first rental property” this way.

  • Traditional investment property loans require a larger down payment and come with higher interest rates. Often times, you can expect a 20% down payment requirement
  • The interest rate on an investment property is generally higher than the rate on your primary residence by a half percent or more

So the investment strategy is: Rent out your current home, and finance the next home you buy as a primary residence (meaning, you’ll be living there full time).

That way, you pay a lower interest rate on both properties. And if you’re still making mortgage payments on that first home, you can use the income you make from rent to cover part or all of the mortgage.

“Be prepared to provide a letter of explanation,” notes Jon Meyer, The Mortgage Reports loan expert and licensed MLO. “It may be requested depending on how long you have been in the original home.”

Take on a Partner

Finding other cash buyers is another way to purchase a property with no money down. However, this could get messy as other hands get into the deal. To simplify this process, you can organize the deal on a smaller scale by bringing in one or two more people at the most. In return for their financing, you can promise to take on the responsibilities of putting together the deal and managing the real estate investment. You may also try to work out a similar deal with the current seller.

How Much Money Do You Need To Start Investing In Real Estate?

If you are wondering, “how can I invest in real estate with $500” or a similar amount, then using the strategies listed in this article, you can technically invest in real estate with little or no money. However, it is always advisable to have some liquid cash depending on your strategy.

For example:

  • If you pick bird-dogging, you need the cost of gas to find deals.
  • If you decide to be a wholesaler, you need to spend money on bandit signs or driving for dollars.
  • If you decide to house hack with an FHA loan, you need the 3.5% down payment.
  • Investing in REITs can be done for less than $100 using M1Finance. VNQ is one of the largest and most popular REITs from Vanguard. You can read my complete M1 Finance review to get started investing.
  • Investing in real estate crowdfunding via Fundrise can be done for only $10.

The amount of money you need to start investing in real estate depends on your strategy.

Is Real Estate Crowdfunding Risky?

Compared to other forms of real estate investing, crowdfunding can be somewhat riskier. This is often because crowdfunding for real estate is relatively new. Moreover, some of the projects available may appear on crowdfunding sites because they were unable to source financing from more traditional means. Finally, many real estate crowdfunding platforms require investors' money to be locked up for a period of several years, making it somewhat illiquid. Still, the top platforms boast annualized returns of between 2% and 20%, according to Investopedia research.

Can I Invest in Real Estate if I Have Bad Credit?

Another question I see a lot is how can I invest in real estate with no money AND bad credit? If you review some of the strategies to buy real estate with no money down, many of them also don’t require any personal credit either (e.g. find a equity partner, hard money loans, seller financing, and wholesaling).

While this means you can buy a property with bad credit, I highly recommend that you work on improving your credit score if you intend to stay in the real estate investing game long term. If you want to build a portfolio of rental properties, good credit will go a long way to obtaining financing with better interest rates and terms.

One of the best advantages you have as a real estate investor is the ability to leverage low-interest debt to buy cash flowing property. With bad credit, you lose this advantage of real estate investing.

Whats the Best Way to Make Money in Real Estate?

If you can stomach hearing no several times a day and maintain a constant follow-up file with all wholesale offers made, you will make more money in Real Estate than most “house flippers” you see on TV.

Money can be made in Real Estate in several different ways. I will never claim a particular technique is not worthy of your time. They all work, some just better than others. 

The smartest and best investors do not focus their time solely on rentals or rehabs, and they never swing a hammer or do rehab work themselves.

The best and most successful Real Estate investors are the ones who focus on being transaction engineers and becoming masters of negotiation, relationships with other investors and accepting the fact that the real money is made in pushing paper, not hammering nails.

As you grow in your Real Estate investing career, you will always want a constant portfolio of different types of transactions going on at the same time. Some investors focus on one particular strategy and make a lot of money. 

However, I would rather have the knowledge to take any deal that came my way and turn it into cash. I constantly have a steady stream of wholesales, lease options, rehabs, new construction, and anything else I can get my hands on. 

As previously stated; all of these strategies (and many more I have not mentioned in this article) have their place and can make money fast. However, for the new investor, dead set to make the millions of dollars promised by the “Gurus,” focus on Options and Wholesale deals.

Research, Research, Research

There are certain buyers that may be more suitable for accepting no money down offers on a property than others. If a property has been on the market for a long time or is being advertised as a must sell, the seller may be more willing to negotiate. In addition, as with any real estate investment, always research the property before completing a sale.

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