A Realistic Look at Starting Out in Real Estate Investing With No Money
Let’s face it: We all need somewhere to live. Unfortunately, though, housing is usually everyone’s biggest expense.
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So, as soon as you can save up a little money, maybe you should try to buy your first place owner-occupied, even if you don’t plan to stay there forever. It could always be a future rental if one plans accordingly.
For me, I remember scrimping and saving as my small family lived in the most affordable apartment I could find. By living off my day job and saving the money from my second job, I was able to save up my money for my first duplex that I purchased owner-occupied. This can be done quite quickly, especially if you utilize the seller assist.
Take What the Bank Allows
Starting out trying to build up my rental portfolio, I took what the bank allowed. Most conventional residential financing will eventually cap out for most buy and hold investors, whether that's at four, ten, or sometimes even more units in a relaxed lending environment. Eventually that party ends. So, my strategy was to take what I could get, and it worked very well.
Work Your Way Up
Once you get started, you can build your portfolio by keeping the momentum going. Whether you have the ability to save up some money for a down payment or closing costs for the next place, or if you have little or no cash, you can still make it happen. It’s all in the deal.
Find a Money Partner
You really don’t need any money, you just need a good deal. If you have a true deal and the numbers work, it becomes pretty easy to find a money partner.
For the numbers to work, in most cases, you have to be able to refinance the ARV (After Repaired Value) for the amount of acquisition (purchase price plus closing costs and cost of capital) plus the amount of fix-up and costs to refinance.
Also, you would want the market rent to be higher than PITI (Principal, Interest, Taxes, and Insurance) of the new mortgage payment after the refinance, hopefully by a few hundred dollars. You need that positive cash flow to be able to cover future maintenance and vacancies.
Once you know that your numbers line up and you have a nice team in place to acquire, renovate, and manage after the refinance, run it by a potential money partner.
Although one or several could be found amongst family and friends, the best way to meet and build a relationship with a potential money partner may be through networking. These days, there are many opportunities, such as local real estate clubs, investing groups, or even online resources like here on BiggerPockets. The biggest thing is to build trust by getting to know each other.
Recently, I had three different investors approach me to do private money deals, and you know what? I’m doing all three. They’re all good properties in good areas. The comps look good, the repairs make sense, and these folks actually sound like they know what they’re doing.
How Do You Know You Have a Good Deal?
If I was new, I would just run my deal past a hard money lender. In most cases, you'll quickly find out whether you really had a true deal or not. You can even run it by a fellow real estate investor first who has received funding from private money partners in the past, as they may have pointers for how to present the deal in the best light.
The last guy that I’m funding for a deal had really done his homework. He was very clearly describing his business plan, the deal, why it makes sense for us to be partners, etc. He pretty much had thought of every detail, and that’s what made me feel very comfortable and confident in funding the deal.
So, who says you need money to get started in real estate investing? What are you doing to make your private money partner feel good about partnering with you?
Leave your comments below!