How Do I Start Investing With No Money

Can you invest in real estate with no money?

Yes technically you can but, practically it is very very difficult.  Most articles will be encouraging and tell you what you want to hear, but that doesn't really move you towards a goal of investing in real estate if the article is not specific or realistic.  We'll go through the 2 main styles of investing; buy/ hold and flipping and offer some things to look into.

Buy and hold investing or holding rental properties with the intent of collecting a rent check every month is an incredibly popular way to invest, however doing so with little to no money is almost impossible.  First you have to purchase the property, and your options for that include conventional financing, FHA financing, cash, or owner financing.  Conventional financing typically requires 20-25% down and FHA typically requires 3.5% or more down with cash requiring 100% down all of these are not options when purchasing with no money so you are left with owner financing.  

Owner financing can be a good option, but often the owner will want higher interest rates than a bank and may even want money down, because in their mind it is a risky loan to make,  you may have to offer a higher purchase price or interest rate or both to entice an owner to finance 100% of a property.  Owner financing is also quite rare in many areas of the country, in Southern California for example owner financing is incredibly rare unless you are looking at what are primarily vacation homes, this is due in part to being able to sell a home quickly on the open market.  If you are lucky enough to find owner financing then you must make sure that you can afford it, rents minus expenses must be greater than the payment you need to make to the owner, preferably by a wide margin, and hopefully you have at least some savings in the event of a vacancy.  It can be done, but not necessarily in every city and your budget will likely be tight.

Flipping with owner financing is as difficult if not more so, because not only do you have to purchase the property but you must complete the rehab as well.  It is almost a guarantee that you will not be able to find an owner willing to finance a rehab and let you collect the profit, because if they could afford to do so they would likely do so themselves.  Now some hard money lenders may be able to finance a rehab, where you have purchased a property through owner financing but most will want the borrower to have at least a little skin in the game before they offer a loan.  This is dangerous because if the flip were to go poorly the hard money lender would likely foreclose on the property, because that is what they would use to secure the loan, at which point you have basically bought someone's house promised to pay them back and then lost the house with no ability to pay them back.

The best way to "invest" with no money is likely going to be a joint venture where one party puts up the money and the other party (usually the person with no money) does all the work.  These agreements can work but usually have to be formed within your current sphere of influence.  A common myth is that experienced investors will partner with rookies and put up all the money in exchange for the rookie doing all the work and then offering a share of the profit.  While this does happen it is rare, most experienced investors already have a system and team in place that they can trust to do a good job.  Some investors will offer profit shares to people who find properties that they then buy, but most already have systems in place for finding properties too.

This article may come across as being pessimistic (and it is) but it is meant to be more realistic.  Can you invest in real estate with no money? Yes but it is often trickier and more complicated than most people realize; it will take much more time, effort and often risk than it is worth.  For most people; especially buy and hold investors it may be a safer and better strategy to save money for an FHA loan which you can then use to purchase a multifamily property where you live in one unit and rent out the rest.  Depending on prices in your area and the amount you can save this may even be a faster way to get started.