Borrow Your Down Payment
This is one of those strategies I considered not including in the list because Im not a big fan of borrowing money for down payments. The interest you must pay on these borrowed funds usually creates negative cash flow from the very beginning.
BUT if you do it carefully and pay the funds off quickly, it could be a way to help you get started.
For example, if you have a home equity line of credit , you could borrow money on the equity of your home for a down payment or for the entire purchase of the investment property. You could then work on paying the funds back quickly from savings and/or income from the property.
Or another example, you may be able to borrow up to $50,000 from your own 401k funds. You will have to pay yourself interest AND you will have to pay the money back in a reasonable period of time. But paying yourself interest is better than paying a bank!
I shared an example of a student of mine who used borrowed 401k funds to get started with one of his first multi-unit purchases.
Figuring Out How To Invest In Property With Little Money
If you are looking at taking your first dive into the property market, it can be challenging to know how much you should spend on your first property. This can be even harder if you have low income or limited savings, and hopefully, some of the information above will help you make some headway into what could be a fruitful investment plan for your future. Keep in mind the level of risk in each strategy and ensure that it is worth it.
The main thing to keep in mind is not to overcommit financially purely for the sake of owning property. In some cases it may be better to wait until you have a little more collateral to ensure that you don’t end up in a dangerous situation which can put you in a financial hole, creating a situation that is the opposite of what you were hoping to achieve. Be smart, consult some professionals in regards to your finances, and make sure that the steps you take into the world of property will benefit your situation
Invest In Mobile Home Parks
Alternatively, you could invest in mobile home parks, and make money from renting out pads to mobile home owners.
It costs far more to buy a mobile home park than an individual mobile home, of course. But the business model comes with plenty of perks to begin with, you dont have to maintain any houses!
Check out Mr. 1500s experience owning a mobile home park for a fun and detailed case study.
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Idea #: Use Property As Primary Residence To Jump Start Your Investment
There are many loan options available that require little to no money down on a primary residence.
Because of this, there are many ways you can use a primary residence to jump-start your real estate investment.
You can purchase an owner-occupied multiple-unit property. The rental income generated from the other units can not only pay the mortgage it can be put towards buying another investment property.
You can also purchase a single-family home with a conventional mortgage and, after occupying it for a specified amount of time, you can use it as an investment property.
Another great option for using a primary residence to begin your real estate investment journey is to utilize a FHA 203k loan.
This loan allows you to buy a property that needs updating and use the loan proceeds to do the renovations.
You can then live in the property for the amount of time determined by the loan requirements and later sell the property to make a profit.
Those profits can be used as a way to purchase more investment properties down the line.
While using a primary residence property to generate cash for real estate investing does take time â itâs certainly a longer-term strategy compared to other ways to invest with little money â it can be worthwhile and profitable.
Making Decisions About Your Money
Like all investments, investing in real estate can offer a range of benefits for your portfolio, but there is no guarantee that a real estate investment will earn you any income or profit.
Real estate is just one of many industries or asset class in which you can invest. The more you invest in real estate over other industries the more you become exposed to the risks and uncertainties of the real estate market that can end up reducing your portfolios returns.
There is no guarantee that a real estate investment will earn you any income or profit.
You can mitigate some of the risk to your portfolio by diversifying your investments and choosing a variety of different industries and asset classes. By holding a diversified portfolio with investments in multiple industries and across different asset classes, it is less likely that all of your investments will perform poorly at the same time.
If you are not sure how a real estate investment would fit into your portfolio, it is important to speak with an advisor who can assess your risk tolerance and recommend products that can help you meet your goals.
Anyone selling investments or offering investment advice must be registered with a securities regulator, unless they have an exemption. You can check registration to find out if a person or company is registered and in which category.
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Risks Of Investing In Real Estate
Real estate investing, like all forms of investing, is inherently risky. But there are a few additional risks that real estate investors have to contend with.
A major one that few consider is that the government is more likely to interfere in housing than other sectors of the economy because its such a huge issue for voters. Witness 2016, when the Toronto and Vancouver markets were at their red-hot peak. Ontario and British Columbia both stepped in with measures designed to cool the marketplace. And it worked.
The government could always open up new areas for development or flood the market with supply or raise the tax on capital gains. One way to mitigate this is to invest in REITs that only deal with commercial tenants.
Another issue that may arise is interest rate risk, because when it comes to interest rates: What goes down must go up. And when, not if, interest rates goes up so will landlords carrying costs. Vacancy rates rising and rents falling could pose a serious problem for investors.
Moreover, property is extremely illiquid, although this has been tempered somewhat by the popularity of second mortgages. If you need the money back for some reason, youd have to sell the entire property. You cant merely sell off a wing of the house.
Manage Real Estate Properties
Theres a high demand for property management companies. Many real estate investors dont have the time to manage multiple investment properties, and theyre more than willing to pay someone else to do it for them.
The monthly tasks for a property management company include:
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Advertising vacancies
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Responding to maintenance requests
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Performing any upkeep of the property that a client stipulates
Most property management companies earn 8-10% of each months rental income for a single property .
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Assess Whether To Go Ahead With Investing In Property
Property investment is a big decision. It can drain you of your money as easily as it can give you returns. Make sure you wont be overstretching yourself by doing it and that you wont be struggling if something goes wrong with the property or its finances.
You should also consider other types of investment, such as shares and pooled funds. These can also allow you to invest in property indirectly with a lower initial outlay.
Youll need to be in property for the long term to increase your chances of making money, especially if youre thinking of buying rental property. Dont expect to be able to get your money out of this type of investment in a hurry.
Side Hustle To Generate Cash
Weve been talking about how to invest with no money, but sometimes it might be easier to just go earn more money so you can invest in real estate WITH money! This is part of the path we took when we had no money to invest, it just so happens that a lot of the things we did for extra money were also real estate related.
But if youre good at something other than real estate, then use that skill to generate additional income you can put toward investing in real estate. Here are some ideas to get you started:
- Become a real estate agent This is what my wife did, and she brings in an extra $15-20k per year just in friends and family transactions.
- Make Money eBay Flipping You can make at least a few hundred dollars a month by buying at garage sales and thrift stores and reselling on eBay.
- Become a virtual assistant Its often not glamorous work, but many business owners need help with all the day-to-day tasks of running a business. You can even offer your services to other real estate investors and learn from them in the process.
- Cash Back Appsand Credit Card Rewards Before you dismiss this one, we make an extra $1,000 $2,000 per year just by using a few passive cash back apps and taking advantage of credit card sign up bonuses. One nice thing about investing in real estate is I always have large expenses to hit those minimum spend thresholds to get the reward point bonuses!
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Think About Investing In Rental Properties
Tiffany Alexy didnt intend to become a real estate investor when she bought her first rental property at age 21. Then a college senior in Raleigh, North Carolina, she planned to attend grad school locally and figured buying would be better than renting.
House hacking allows you to live in your investment property while renting out rooms or units.
I went on Craigslist and found a four-bedroom, four-bathroom condo that was set up student-housing style. I bought it, lived in one bedroom and rented out the other three, Alexy says.
The setup covered all of her expenses and brought in an extra $100 per month in cash far from chump change for a grad student, and enough that Alexy caught the real estate bug. Now age 27, she has five rentals and is a broker and owner of Alexy Realty Group in Raleigh.
Alexy entered the market using a strategy sometimes called house hacking, a term coined by BiggerPockets, an online resource for real estate investors. It essentially means youre occupying your investment property, either by renting out rooms, as Alexy did, or by renting out units in a multi-unit building. David Meyer, vice president of growth and marketing at the site, says house hacking lets investors buy a property with up to four units and still qualify for a residential loan.
If you manage it yourself, youll learn a lot about the industry, and if you buy future properties youll go into it with more experience, says Meyer.
Advantages Of Investing In Real Estate
Real estate has two big advantages over stocks: leverage and depreciation.
With a small amount of capital, often 20% or less, you can control a much larger investment. For example, with a $50,000 capital contribution, you can own a $250,000 property.
A 5% annual capital appreciation rate which will be $12,500 on a $250,000 investment will translate into a 25% return on your $50,000 of invested capital.
Such returns are possible because you can leverage 80% or more of a real estate investment. By contrast, real estate leverage on stocks is limited to a 50% margin.
Real estates other advantage is depreciation. Depreciation is whats known in accounting circles as a paper expense. While its deductible for tax purposes, it doesnt result in an out-of-pocket cost. For that reason, your actual income from real estate will be reduced for tax purposes but without a corresponding reduction in your real net income.
With all the advantages of investing in real estate can bring to your portfolio, lets look at the best ways to participate.
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Invest In Real Estate Online
Last but not least, dont forget about all the new companies that have cropped up to help investors get involved in real estate without getting their hands dirty. Websites like Fundrise and Realty Mogul let you invest into commercial or residential real estate investments and receive cash flow distributions in return.
Investing with either company is similar to investing in REITs in that your money is pooled with cash from other investors who take advantage of the platform. The cash you invest may be used to purchase residential property, commercial real estate, apartment buildings, and more. Ultimately, you get the benefit of dividends and distributions and long-term appreciation of the properties you own.
While neither company has been around for too long, they are both performing well so far. Fundrise returned an average of 11.4% on invested dollars in 2017 net of fees and 9.11% in 2018 after all, and you dont have to be an accredited investor to open an account.
You Dont Have To Spend Your Money
If youre just starting your investing journey, money is probably tight.
So, dont spend your money on commercial properties! Use someone elses.
Raising capital from investors isnt quite as hard as its often made out to be.
Its not some ancient mystery.
Many investors dont have the time to go find deal after deal, which is why theyre willing to place capital with operators who do find the deals.
Good Deals + Trustworthy Operators = Investment Opportunity.
So, lets explore other ways to invest in real estate without spending your money.
Here are my 5 favorite strategies for buying real estate with no money out of pocket.
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Invest In Turnkey Properties
A turnkey property is real estate that a company owns. These companies typically manage an inventory of fix-and-flip properties that are sold to buyers.
Unlike traditional fix-and-flips, turnkey properties are less risky, and you dont have to worry about completing renovations under a strict budget and timeframe. The renovations are done for you. Turnkey properties are also easier to finance and can be purchased with a small down payment.
Consider The Risks Of Investing In Property
The housing market is constantly changing. Property prices go up and down, and the demand for rentals can fluctuate.
And as well as market trends, there can be problems with specific homes – especially important if youre investing directly in a single property. The cladding crisis means many homes have fallen in value over the past couple of years even as the market has soared, for example.
All that means if youre investing in property, you have to see it as a long-term investment of at least 10 years. That way, you should be able to ride out any storms, and perhaps sell when the market is good again.
If you overstretch yourself and then the market dips, you might struggle financially.
The best way to protect yourself is to spread the risk by having a mixture of investments including property. Do your research thoroughly before making any decisions and consider getting independent financial advice.
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Invest With As Little As $500
DiversyFund is a private REIT that invests in value-add multifamily real estate. The REIT is open to non-accredited investors, and has a low minimum investment of only $500. You can even make recurring investments into your DiversyFund account to increase your overall investment over time.
The beauty of DiversyFund is in their dividend reinvestment structure, which turns on the magic of compounding interest for investors. In order to maximize the growth of your investment, DiversyFund reinvests your dividends, increasing your equity each month. The more equity you have the higher your dividend payments are, so your equity grows more each month.
Got $1000 The 10 Top Investments Wed Make Right Now
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Online Real Estate Deals
- The taxes incurred by these investments can vary depending on exactly the kind of investment you make.
- Some investments are technically REITs and so will be treated according to that tax setup , while others may be debt or equity investments.
- In general, any income such as a cash distribution from these will be taxable in the year its received, while any tax on capital gains will be deferred until its realized.
Dip Your Toe In The Real Estate Market
Believe it or not, you no longer need a lot of money to invest in real estate. A new category of investment known familiarly as real estate crowdfunding makes it possible to own fractional shares of large commercial properties without the headache of being a landlord.
Crowdfunded real estate investments require larger minimum investments than robo-advisors . Theyre also riskier investments because youll be putting that entire $5,000 into one property rather than a diversified portfolio of hundreds of individual investments.
The upside is owning a piece of a real physical asset thats not necessarily correlated with the stock market.
As with robo-advisors, investing in real estate via a crowdfunding platform carries costs that you wouldnt pay if you bought a building yourself. But here, the advantages are obvious: you share the cost and risk with other investors and you have no responsibility for maintaining the property
I think real estate crowdfunding can be an intriguing way to learn about commercial real estate investing and also diversify your assets. I wouldnt lay all of my money on these platforms, but they do make an intriguing alternative investment especially in these times of unprecedented market volatility and pitiful bond yields.
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