In typical fashion, I couldn’t get to sleep.
I had consumed enough caffeine to wake a sleeping bear and was stuck staring at the ceiling, waiting for my dreams to start – to no avail. As was the tradition most of those nights during college, I flipped on the television in an effort to numb my mind enough to try again later.
Passing quickly through a few “made for tv movies” (which I’m sure were stellar…) and growing tired of the depressing nature of the cable news networks, I settled upon a reality television show where the star turned an ugly, dilapidated home into a beautiful work of art, complete with furniture and wine.
I knew nothing about construction, real estate, investing, or money – but something about watching that transformation amazed me. Even more – at the end of the show the home was sold for a $20,000 profit! I was hooked. The more I watched, the more interested I got and I realized two things:
- I knew I needed to get into real estate investing
- I knew I had ZERO cash.
Thus began my journey into real estate investing and my quest to do as much as I could with as little as possible. Maybe this sounds familiar to you, and you know that real estate is the vehicle you want to drive to reach financial independence, but you don’t have the cash either. Hopefully this post can help shed some light on the subject. Over the past seven years, I’ve learned numerous different ways on how to invest in real estate with no money – and this post highlights my favorite!
*** Special Note from the Editor: Due to the mass popularity of this blog post, we’ve turned this into an entire book! Click here to order your own copy of The Book on Investing in Real Estate with No (and Low) Money Down!****
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
1.) Forget Investing: Try Working First
The first, and easiest way to get into the real estate investing field is by … not investing?
That’s right. When you are just getting started, and you don’t have any money – one of the best ways to build up your income, increase your knowledge, and make connections is by working in the field of real estate without actually investing. There are dozens of different jobs you can use to get in the field – such as:
- Real Estate Agent
- Title Company Rep/Escrow Officer
- Construction Worker
- Project Manager for an Investor
- Assistant to an Investor
- and many, many more
The obvious benefit of this kind of work is that you are able to learn about the business while earning an income. For many, who simply jump into real estate investing, they actually lose a lot of money in the beginning. Additionally, you can earn money while meeting influential people who can help you out later on your journey.
Wholesaling is one of the most popular ways to jump into real estate investing, and for good reason: a wholesaler is someone who gets paid for finding great deals. In an ideal wholesale deal, the wholesaler will find a property and sign a legal contract with the seller for a certain purchase price. The wholesaler will then find a buyer and simply “sell the contract” to the buyer for a set fee, ranging from $500 to $10,000 or more depending on the strength of the deal.
The benefit of wholesaling is that very little money is needed, because the wholesaler is not actually purchasing the property. The wholesaler is simply pushing paper and becoming the “middle man” – bringing together a buyer and a seller and working their fee into the deal. A good wholesaler can make a great income while making connections in the business and learning valuable lessons on finding great deals.
While wholesalers do not need the actual purchase money to buy the property, they do need to consistently keep their pipeline full of deals which can require either a cash for marketing or a lot of time for door knocking and networking to consistently find those deals.
If you are interested in wholesaling, be sure to check out these three articles on wholesaling:
- 9 Reasons You Couldn’t Find A Buyer For Your Wholesale Deal
- Don’t Start Wholesaling Until You Read This: Wholesale Advice from a Fix and Flipper
- How to Start Wholesaling: Getting Past The Education and Into the Field
Have you ever put together a puzzle and found one piece missing at the end? Frustrating, isn’t it? Money is just one puzzle piece for a great real estate investment – so if you can be sure to round out the rest of the puzzle, often times you can partner with someone who has that piece but might be lacking in another area.
Partnerships are very common in real estate investing for one major reason: everyone has something that they lack. If you can fill the void in someone’s investing plan, perhaps they can fill the void (money) in yours. The key, however, is having something you can bring to the table. Do you have the deal-making ability? How about the time/skills to remodel a property? Experience? Contacts?
Take an inventory of what “puzzle pieces” you do have, and work hard at strengthening those.
For more info on partnerships, check out:
4.) The Lease Option Sandwich
The Lease Option Sandwich is a method used by many investors to build wealth without dealing with loans or money. Before diving into the details on how to make a lease-option “sandwich,” first let me explain what a “lease option” is. A lease option, aka lease-purchase, is actually 2 separate legal agreements combined in one transaction:
- A lease and
- An option.
There is a good chance you’ve heard of this strategy before from it’s more “street name:” Rent to Own.”
The lease is like any other rental agreement, whereby a tenant rents a home. An Option is a legal document that gives an individual the sole right to purchase that property for a pre-determined price within a pre-determined time frame. I know, that’s confusing – let me give you an example:
Investor Ike offers his tenant, Tenant Tom, a lease-option on a property Investor Ike owns. In the lease paperwork and the option paperwork, Investor Ike specifies that Tenant Tom has three years to buy the property for $100,000. During this time, Tenant Tom pays rent to Ike and attempts to obtain a mortgage from a bank, to pay Ike the full amount needed. Also during this time, Investor Ike cannot sell the property to anyone else, because Tenant Tom has a legal “option” to buy it.
A lease option sandwich uses the same concept but adds a twist – the property is never actually owned by Investor Ike. Instead, Investor Ike finds a property from a seller – Suzy Seller- and signs a “lease option” with Suzy, for lets say “5 years.” During this 5 years, Ike has the legal option to buy the property for $80,000 and will pay $500 per month. Investor Ike then goes out and offers this property to Tenant Tom for 3 years, and charges a slightly higher rent rate and purchase price ($100,000 and $800 per month) than he has agreed to pay pay Suzy Seller. Essentially, Investor Ike is the middleman, collecting an extra $300 per month in income each month and $20,000 when/if Tenant Tom comes up with the money to buy it.
A lease option sandwich can be a great strategy to get into real estate with minimal risk and cash, but be sure to research all the ins and outs of the business before jumping in, as it is one of the more complicated methods of investing.
For more info on Lease Options, check out Rent to Own Homes: How to Profit from a Lease Purchase
5.) Hard/Private Money
Finally, perhaps the most well known method of investing in real estate without a lot of cash is through the use of “hard money” or “private money.” These loans are not given from banks, but from wealthy individuals or corporations established for such a purpose. These loans are not for home-owners, and are very short term (less than 2 years, sometimes as short as 6 months) and carry high fees and interest rates. However, for a short term fix-and-flip or buy-and-refinance – these loans can be exactly what’s needed.
The major benefits of hard money is that it is quick, easy, and the qualification standards are focused much more heavily on the deal rather than the borrower. This means if you don’t have a lot of cash or great credit BUT you’ve found a killer deal, you can probably get the deal funded. Some hard money lenders, if the deal is good enough, will lend the entire purchase price and repairs needed – allowing you to invest with no money. This is generally the exception, however, and not the rule; most hard money lenders or private lenders like to see some “skin in the game” (something for the borrower to lose, to incentivize the borrower to succeed.)
If you are looking for a hard money lender – BiggerPockets has the most comprehensive database ever assembled of hard money lenders, and the list is growing every day! Check it out here. Also, for an incredible hour-long discussion with a real hard money lender about how to profit using hard money, be sure to listen to Show Nine of the BiggerPockets Podcast!
Bonus Methods for Investing in Real Estate Without Money
The previous five methods are used every day by investors to maximize the amount of investing they can do without using all their cash. Each method has it’s benefits and drawbacks, and as you get more and more involved in real estate investing you will learn to decide which method works best for which scenario. However, before I leave you, I want to share one more “bonus” way to invest with no money:
Combining these methods.
That’s right – real estate investing is about being creative and these methods are open to some interpretation and experimentation. Perhaps you can use both a partner AND hard money? Or perhaps you can use your career in the real estate business to help find deals to wholesale? Maybe even your wholesale deal can be your missing puzzle piece in a great partnership?
The point is – you can invest in real estate without any money – but you need to be creative, do your homework, and have a clear understanding of how the game of real estate is played. The best way to do this – you are actually already doing: Studying. Reading blogs and books, listening to podcasts and radio shows, watching flipping shows and HGTV, and interacting with real seasoned investors on a daily basis will help you get going.
Learning how to invest in real estate with no money isn’t impossible, but it does take some work and education. Don’t let your lack of income be an excuse to not invest. Get out there and start using your head in the place of cash – and you’ll do wonders.
What do you think? Are there any other methods of “no money down” real estate investing you can add or any questions you need clarification on? Leave a comment below!