Real Estate Investing Without Cash: Leasing Your Credit

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Rather than re-hash the same “getting started in real estate without cash” article, I thought I would take my post in a different direction.

Let me explain. . .

A few weeks ago, Todd, a former co-worker, and I went out to dinner.  During our meal, the topic of real estate investing came up.  Todd shared that he had wanted to invest in real estate, but just never had enough capital to get started.  I asked him why he let money stand in the way of his goals.  Of course, he had no idea what I was alluding to, so I spent the next thirty minutes sharing the various ways he could get involved with real estate investing without using his own cash.

The outcome of our conversation was an equity partnership which allowed Todd to consequently get started in real estate without using his own cash.

Highlights from our conversation

The first point I shared with Todd is that a deal is comprised of many variables: time, capital, relationships, knowledge, etc.  I told him the key to becoming integrated into any deal is figuring out the value he brings into the equation.  I asked him what value he thought he could offer to another investor.

The question worked somewhat against me because he grew discouraged considering what value he could bring.  He shared that he didn’t know much about finding deals or raising capital and didn’t have a lot of time to allocate to overseeing contractors.  I was quick to point out that there was one potential asset he overlooked: credit worthiness.

I shared how, with the right partner, his credit worthiness might be enough to get him into his first deal.  This immediately perked his interest and we spent the rest of our time outlining the details of how we could make an equity partnership work.

Here is how we worked out our first deal:

Acquisition:  Since I can no longer qualify for conventional financing, I have been purchasing homes in cash, fixing them up and refinancing them via a home equity line of credit.  In my agreement with Todd, I would continue to front all the capital for the acquisition and the rehab costs.

Financing:  After the property is rehabbed, he would be put on the title as well as take out a line of credit on the property.  Todd agreed to be the sole individual responsible on the debt service.

Loan-to-value:  The local bank we are working with will allow him to pull 70% of the market value.  The goal for each purchase is to buy below market value, rehab the property, and have it appraise for significantly more than I purchased it for.  The property we are currently working on has a purchase price of $80K and needs about $7K in repairs.  The after-repair value is approximately $115-120K (depending on the appraiser).  If all goes according to plan, the equity line will be about $80K.  My cash in the deal should be about $7k.

Equity:  In exchange for borrowing his credit, I have agreed to provide Todd with a 20% equity stake in the property as well as a percentage of the net cash flow.

Timeline:  We have agreed to structure the deal for a period of 8 years with the option to extend an additional 5 years (side note: the HELOC is for a period of 15 years).   At the end of our agreement, we will liquidate the property and Todd will collect 20% of the net appreciation.

Fail-safe:  In the event that he needs to get out of our agreement, I have 15 months to obtain favorable financing or to liquidate the property.  We also have several other details drawn up in our partnership agreement in the case of divorce, death, etc. (email me if you want more info).


Before we put anything in writing, I had both Todd and his wife over for dinner to discuss the details of our agreement and the responsibilities of each party.  After our conversation, they both agreed that they were very excited to move forward with this opportunity.  If all goes according to plan, they stand to generate about $100 a month in passive income and have a 20% equity stake in their first rental.

I know that $1,200/year may not seem like a significant sum of money, but considering his options, this is a great opportunity for him to grow his passive income, learn the ropes of the rental business and capture potential upside on the sale of the property – all with no money in the deal.  Also, with talks about doing a second deal already in the works, Todd can begin building his own real estate portfolio.

If you are just getting started or are looking at new ways to continue to expand your rental business, this type of partnership might be a valid option to consider.

Readers, what types of strategic partnerships have you used to continue to grow your business in this market?

Photo: Casey Serin

About Author

Arthur Garcia (Google+) Arthur is a buy and hold investor in Southern California who is buying up dozens of homes while working a full time job. Arthur acquires properties using a combination of hard money, HELOCs, partnerships and private investors.


  1. In my first few deals in real estate back in 2006 I was dead broke. The way I got my feet wet was to engage a friend that knew a lot of potential investors. Since he did not know anything about real estate, he agreed to a 50/50 split of my commissions in exchange for me to engage with his buyers. I then found investors looking to sell rental properties and my investment broker business was born.

  2. I have given similar partnerships a lot of thought. There’s a few people I work with that are interested but all have the same “no money” issue. Once I max out my wife and I’s lending abilities, I think I’ll approach them with similar propositions. Giving up cash flow and equity hurts some, but locking in 30 years fixed, especially at today’s rates… that definitely boosts returns and lowers risk versus going with a portfolio lender at higher rates and balloons looming…

    First things first, 19 conventional mortgages…. only have 8 properties right now so have a ways to go 🙂

    • Hey Nathan,

      If I could, I would definitely stick to your plan. My wife works part-time, so we can’t quite implement your strategy. I like the idea of keeping the business simple – my wife and I.

      My hope is to lock in as many of these little properties as we can in this down turn and liquidate the weak preforming units around year 10.



  3. I think this can definitely be a good strategy. The person supplying their credit should understand the risks and maintain some control (aka: make sure the payments are being made, if the property cannot pay the payment for x months they get 100% ownership, etc).

    I know many people in 2004 to 2006 that supplied their credit for a lease option and got royally screwed.

    • Hey Steve,

      Thanks for the comment.

      The biggest problem with this strategy is finding someone motivated enough to jump in. I’ve had a lot of meetings with potential “partners”, but the difficulty lies in their limited understanding of the business. In short, they don’t realize what a great deal this is, IMO. I have to remind them that I am the one putting up all the capital.

      This is a viable strategy, but I just wish it was more scale-able.



  4. I am in a similar position as Todd. My husband and I have excellent credit, a home that we lived in for 10 years that we are now renting out, and a home we just purchased. I have been working a part-time job for over a year to accumulate enough cash for a down payment on an investment property, which is slow going. Although I’ve saved close to $20,000, I am still a long way off from 20% + closing costs, for an investment property in my vicinity. In addition, I still have a lot to learn on how to find the right deals that will give me immediate equity and cash flow to leverage for the next purchase.

    I diligently read your posts, Arthur, along with many books. I’m learning some lessons the hard way with the rental property I have, and desperately need a mentor to guide my next steps. This week I joined an REIA organization in my area, but have yet to attend any of the functions.

    I am extremely interested in generating passive income! Any help would be appreciated!

    • Hi Reina,

      I’m glad to see you’re getting active in the community. There is a lot to learn, but don’t let that intimidate you.

      Based on what you’ve shared above, I believe there may be a more optimal way to get your next rental acquisition. I’d be happy to run through a few scenarios with you if you would like – just email me and we’ll setup a time to chat.

      Thanks again for staying in touch with me!


      • Hi Arthur Garcia,
        I’m planning a very similar situation as Reina. My husband and I currently have a home that we have lived in for 18 years. We are in the process of finding a new home with the intentions of keeping our current property and turning it into a rental. We’ve just refinanced our mortgage from a 15 year fixed to a 30 year fixed saving us about $750 a month. We want to get as many rental properties as we can trying to replace my husband’s income. This is our ultimate goal for retirement. Problem is we just don’t know which way to turn after we’ve purchased our 2nd home.

        We thought about a fix and flip but just don’t know what route to take. I would appreciate any advice you have to offer.

        • Lakeisha,

          I would recommend you give Jeff Brown a call. He has written several posts on BiggerPockets as well as his own site. It’s non-confrontational. The man enjoys chatting with any real estate investor, new or experience in a fun, low key way.

  5. Arthur – I am so impressed by your post! It is well-written and insightful, and offers a different way to look at using someone else’s credit.

    I read many things about investing, and here on BiggerPockets there is truly good content – thanks to all of you who post! I also have friends that would like to be investors, and when I talk to them I have forgotten to lead them through the scenario you outline above – this is an excellent way to forge more partnerships and create win-win scenarios. Thanks for sharing and giving us all wonderful ideas!

  6. Arthur,

    Excellent post! I find myself in a similar situation where eagerness and willingness to learn & succeed don’t amount to much when you lay it on the table. Excellent credit, now that I do have! Something to discuss at my next REIA meeting!

    Thanks again for the insight.


  7. Arthur,

    Interesting partnership with the right partner. I maxed out my conventional loans and moved to portfolio loans with a local bank. Everyday I pencil out in my mind how I can partner with someone with capital and continue to grow. It’s a good distraction.


  8. Hi Arthur,

    Thank you for sharing. I just want to make sure I understand you correctly. You said, “After the property is rehabbed, he would be put on the title as well as take out a line of credit on the property. Todd agreed to be the sole individual responsible on the debt service.”. Is he only him be put on the title or both of you?

    I would love to hear the details of how you structure this deal if you would be open to share.



  9. Arthur,
    I’ve been wondering how to use a JV partner that has not cash. Great article. I’d like more information on how to structure the ownership of the property since it’s in the partners name.
    Do you have any more articles you can share on this subject?

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