Last Updated on January 3, 2020 by Mark Ferguson
A lot of people have the same problem with they decide to invest in real estate: they have no money or no way to finance an investment property. Having no money makes it tough to buy a house, but not impossible. You feel stuck, but there is always action you can take to make your situation better. Often, people with little money could actually invest in real estate if they knew what to do. Even if you cannot invest in a property right now, there are many things you can do to prepare yourself to buy a property in the future.
How to make money
I will not lie and tell you everyone can buy houses without any money. It is possible to invest in real estate without money, but it is hard and it will take a lot of work. It will also take getting out of your comfort zone and making changes in your life. There are a lot of people who want to invest in real estate but never do it. To be one of the few who invests you have to take action and a lot of it. I wrote this article to help people who feel stuck because they have no money, but want to make a huge change in their lives. Not only will this article give you some ideas on how to invest in real estate without much money, but I will also give you the first step to make it happen.
First, here are some ways that you can invest with little money (almost anything you do will require some money):
Wholesaling is the most common thing taught to investors who want to make money in the business without any money. Wholesaling is when you find a great deal on a house and then sell it or assign it to another investor without making any repairs. You can make money wholesaling, but you still need some money. The very cheapest way to wholesale is driving for dollars, which means you need a car and a phone. You can probably get started wholesaling with a couple of hundred dollars. To me wholesaling is not really investing, it is a job.
House flipping is when you buy a house, make repairs to the home, and then sell it. Flipping houses takes a lot of money! But you do not have to buy the house for cash. There are many ways to finance a flip. It will not be easy finding ways to finance the entire purchase though.
Buying rentals involves buying single-family homes, multifamily homes, or even commercial properties and renting them out. Rentals can be an amazing investment, but most banks will require at least a 20% down payment when buying rentals.
The video below goes over how to invest with no money as well:
Ways to buy with no money
You can also buy a rental property as an owner-occupant, live in the home a year and then rent out the property. This technique definitely saves upfront cash, but your payments will be higher due to higher loan amounts and mortgage insurance. This makes it harder to cash flow, because of the higher payments.
House hacking is another owner-occupant strategy is to buy a multifamily property and live in one of the units. If you buy a 1-4 unit property, you can get an owner occupant loan if you live in one of the units. You could move out and rent the unit after one year or continue to live there.
Seller financing can also be used to reduce the amount of cash needed to buy a rental. The problem with seller financing is finding a seller willing to loan money back to you. If you can find seller financing in my experience, the sellers willing to do this are looking for top dollar on their properties and I want a great deal when I buy.
Partnering with another investor may allow you to put less money down, but you will have to share the profits and decision-making. If you partner with someone, make sure everything is in writing and crystal clear.
Hard money refinance
A very risky strategy is to buy a rental property with a hard money loan and then refinance that property into a conventional mortgage. This strategy requires a lot of experience and is very risky because hard money loans have to be refinanced within a year or less
Start as an owner-occupant
One of the best ways to start investing is to buy as an owner occupant. When you buy as an owner-occupant, you can put nothing down in some cases using VA loans or down-payment assistance programs. Yes, you must qualify for the loan, but many people with sketchy finances can still qualify for an owner occupant loan. One of the great benefits of investing in real estate is being able to buy below market value and the tax advantages. If you can buy a house 20 percent below market value, and live there for two years, your profit when you sell is almost always tax-free. Not tax-deferred, but tax-free. You can take very little money and turn it into $20,000, $40,000, or $60,000 profit in two years without paying any taxes.
Why don’t more people use this strategy?
- It is hard to find good deals and many times they need work. With a 203k FHA loan, you can finance the repairs.
- It is not fun moving into a house that is not perfect for your family. Once again, I never said this would be fun or easy. If you want to get ahead in life with no money, you have to make sacrifices.
- Cannot qualify for a loan. I will get into this more soon, but I have seen some people with shaky finances get loans.
- Cannot afford houses in your area. Once again you may have to move to an area where houses are cheaper if you have no money.
- It takes two years to see any profit. Yes, it takes time to use this strategy, but you also need a place to live, and this strategy kills two birds with one stone. You stop throwing money away on rent, and you are investing. Too many people give up too soon and want instant results. Instant results do not happen.
What is your first step?
You can spend years educating yourself and planning. Planning and education are good, but you also have to take action. Complaining about not having money is not an action. Doing something physical that will get you closer to your goal is an action. What is the one thing you can do right now?
Talk to a lender!
When I get emails from people who tell me they have no money or can’t get financing, I ask them what they have done to fix the problem. Most people never respond, but a few tell me they haven’t done anything. Once in a while, someone gives me a great answer about how they are trying to change their lives by saving, working harder, etc. Those are the people I love to help and I talk to more. I ask many people if they have talked to a lender to see if they can qualify for a loan, and almost all of them say no. They claim they know what a lender would say, and they do not want to waste their time.
How can a lender help?
As I said earlier you can buy a house as an owner occupant with very little money. Even if you cannot qualify for a VA loan, you can couple FHA loans with down payment assistance programs. Even if you think there is no way you can qualify for a loan, a lender can tell you how bad it is. The lender can tell you exactly how long it will be before you can qualify and what you need to do to make the process move quicker. If you have bad credit a lender can tell you how to fix it. If you have a high debt to income ratio, the lender can tell you how to fix it. The lender can tell you exactly when you should be able to get a loan, which will make all your planning and education much more real and achievable.
Even if you do not want to get a loan in your name now, a lender can help you plan for the future. You never know what will change your life in one or two years. The better the financial position you are in, the easier everything will get. You can get better car loans, private money lenders will take you more serious, and you can start investing in real estate yourself!
Another thing to consider is that people who cannot get a loan themselves may be able to get a co-signer to help them. If you get someone to co-sign on a loan with you, that person becomes responsible for the loan. That is a lot of responsibility, but it is usually easier to find a co-signer than to find private money. If you can show the co-signer you are getting a great deal on the house, and you may even split some of the profit with them, you have an even better chance.
What if you literally have no money?
No matter what type of investing you do, you will need some money. You will have to drive places, do some marketing, buy some books to learn. If you have absolutely no money, you should not be trying to fix everything with real estate. Often, real estate will make things worse! Focus on fixing your credit and getting some type of financial stability in your life. Learn how to budget, how to save money, and build smart financial habits. When your financial position becomes more stable you can look into investing in real estate again.
It is not easy to invest in real estate with no money. There are many ways to do it, but they all take work and sacrifice. If you are too busy or scared to talk to a lender about your finances, you will not be a successful real estate investor. The lender will help you get your finances in order, even if you never get a loan in your name. They can help you improve your credit, and make you more attractive to partners or other lenders. If you want one step to take right now, go talk to a lender. If you don’t like that lender, talk to as many as you need to until you find the right one.