How to Invest in Real Estate With Only $1,000
Usually, if something seems too good to be true, it is. But what about investing in real estate with low or no money down? Is it just a myth or can it really be done?
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I’m here to tell you there are paths you can take to start investing with only $1,000—or less.
Low on Cash but Ready to Invest? Here’s Where to Start
You're probably not going to find a loan where the bank says, "Sure, we'll take a $1,000 down payment. We won't even charge you any extra fees."
That’s not gonna happen. But there are paths that you can take to start investing without a lot of cash. Let’s call it creative financing, because you’re going to replace all of that cash you normally would need with a creative method instead. Let me give you a few good places to start.
1. Partner Up
Find a great deal, and use the deal to attract a partner who can fund it.
Let's say there's a new real estate investor named Bob. Bob only has a thousand bucks—but he's motivated, he's excited. He's dedicated to getting started making passive income. So Bob finds a great real estate deal from someone who responds to his marketing (maybe a Craigslist ad or a letter he's sent out using this thousand bucks).
Then, because $1,000 is not going to be enough to get the deal through a traditional bank on his own, he finds a partner who can bring the down payment needed.
Bob brings the deal. The partner brings a down payment—and maybe even the partner brings the ability to get a bank loan if Bob can’t get the loan. And now they split the profits. We’ll call it 50/50.
Now, why would someone agree to put down the whole down payment and then split the deal with Bob? Because Bob has the deal. And in today’s economy, he who has a deal, has the gold. And he who has the gold, gets partners.
It’s as simple as that.
2. Find a Hard Money Lender
Here's how they typically work: A hard money lender is going to fund up to, let's say, 65 to 70% of the after repair value. In other words, they'll lend around 70% of whatever the property is going to be worth when it's all fixed up.
For instance, say a property could be worth $200K when it’s fixed up, but it is N.A.S.T.Y.—nasty—and needs like 50 grand of work. They’ll lend 70% of that $200,000 (around $140K).
Alright, so it’s their friend Bob who happens to find this nasty property, and he gets it under contract for $80K. Now he could potentially get the hard money lender to fund the entire purchase and the rehab, because they’ve got the $140K.
It might sound crazy, but it’s not. House flippers buy nasty properties at those margins all the time.
So Bob fixes it up, sells it for $200K, and clears a nice profit.
Of course, not all hard money lenders are going to fund 100% of everything—even if it’s a great deal—because they like to see that you have some money invested. It’s what we call “skin in the game.”
But there are companies that will do 100%. Or you know, maybe Bob combines the last technique with this one—he brings in a partner to help supply that skin in the game.
See, it’s all about thinking creatively. And hey, check out BiggerPockets.com hard money lender free directory to find lenders in your state.
Put simply, wholesaling involves finding a great deal, signing a purchase and sale agreement with the seller, finding someone else looking for a deal, and agreeing to sell your deal to them for a wholesaling fee.
Here’s an example with Bob. Bob finds a great real estate deal from someone who responds to his marketing (like we talked about earlier). Bob and the seller sign a purchase and sale agreement for, let’s say, $80,000.
Now, Bob only has $1,000. So instead of buying it, he finds another house flipper—someone looking for a deal—and he agrees to sell the deal to them.
To be sure, there are some state-specific legal rules that need to be followed when doing wholesaling. But the gist is this: The house flipper pays $90K for the deal. The seller (the original seller), they get their $80K. And Bob keeps the $10,000 difference as his wholesale fee.
Does that make sense? So, he’s buying it for the 80. But he’s selling it right away basically for $90K. He keeps the difference, and now he’s got 10 grand more to go put into more marketing to get more good deals that he can wholesale.
The Bottom Line
What do all three techniques have in common? They all require finding a great deal. That’s why I often say knowing how to find a great deal is the most important skill an investor can have. So, learn up!
It’s also why I teach a class every week—a free webinar on BiggerPockets—where we walk through how to find deals and run the numbers. We do live together! We’ve even got an investment calculator on BiggerPockets so you can analyze deals in under five minutes.
All right. So those are three ways somebody can get started investing in real estate with a thousand bucks. Is it easy? No. Is it worth it? Definitely.
Watch my video above for additional details about each technique and to learn more about the one thing they share in common—finding great deals! It’s the single most important skill an investor can have, and I can help you master it.
Questions? Comments? Concerns?
Let’s chat below in the comments.