The Real Estate Investor’s Guide to Investing with Limited Resources

by | BiggerPockets.com

Every real estate investor has to start somewhere. And at the very beginning, we all have different levels of resources available to us. One of the best (and worst) things about the BiggerPockets community is the diversity of experience across the board with its users. There are so many investors of all levels that it can sometimes seem very daunting for new investors. A new investor can find great advice and plenty of tips, but what about when an investor is starting out with little-to-no resources?

Investing in real estate with limited resources can be a challenge—but it’s certainly not impossible!

For those dreaming of success in real estate investing, know that financial freedom is not out of your reach simply because of your current financial circumstances.

There are not only options available for you right now to start investing in real estate (even with limited finances), but there are steps you can take to prepare your finances so that you have the best foundation possible for your investment future.

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3 Ways to Invest in Real Estate with Limited Finances

1. Private Money Lenders & Partnerships

Naturally, if you don’t have enough of your own money, there’s always the chance to leverage someone else’s! Convincing other people to take a chance on you isn’t always easy, particularly when you’re just starting out. But friends, family, and even a good sales pitch may be able to help you land the capital you need to get going, even if it’s just enough for an initial down payment.

You may also consider going in with a partner—maybe someone with more finances, more experience, or just someone on equal footing who you can pool everything with. Working together can be enormously beneficial!

Both of these options have their downsides. Hard money can be expensive and come with huge consequences if something goes wrong. You may not lose your credit, but you could end up losing your investment and whatever capital you had at the beginning.

Partnerships are tricky too. I know a lot of investors who partner with family and friends. Some of those partnerships are excellent and others are a bit more tricky. If you have to partner, make sure you have set clear terms for how the partnership will end before you begin. This will make it much easier if you find you want to go your separate ways after a deal or two.

Related: How to Get Started in Real Estate with Less Than $1,000

2. Crowdfunding

Though a new concept to real estate investment, crowdfunding has opened up a whole new world of access for real estate investors. Not only do investors have access to markets that were once far out of reach, but now they can often get involved in projects for as little as $5,000! That’s a low barrier to entry compared with traditional real estate investments. Though crowdfunding is very new and not foolproof, it may be an option for investors with limited resources.

The downsides to crowdfunding should be obvious. Besides the fact that it is so new, if you use this method you’ll most likely be be passively investing and therefore will be pooled. You’ll have no title claim, and while this may be a great way to build your capital over time, it is no way to build assets or wealth. It’s a passive investment, but it could be a great step to build toward bigger things!

3. FHA Purchases

These days, pretty much everyone who doesn’t already have the finances to make a down payment on a house may struggle to come up with that traditional 20 percent figure. But never fear—there are alternatives out there. An FHA loan is a government-backed mortgage that allows for your down payment to be as low as 3.5 percent. There are rules governing this type of loan, naturally, but it’s certainly an option to look into to see if you qualify.

2 Ways NOT to Invest in Real Estate with Limited Finances

1. Buying Cheap Properties

When finances are limited, our first instinct is to look for cheaper properties. That seems like a good idea, but I’m telling you: It’ll just hurt your investment future in the long run! Cheap properties are rarely worth it when it comes to ROI, the headaches, and the rent they bring in. As attractive as they may initially seem, the numbers rarely work out.

Don’t fall for the trap of snapping up bottom-of-the-barrel properties just because you can’t afford something better. Wait until you can buy something you can be proud of—something that will give you good returns.

In my opinion, it is always better to invest passively—even if it means putting your money in the stock market before buying cheap properties.

Unless you want to get your hands dirty every week with your investments. If you’re willing to put the time in and deal with the aggravation of managing your investments, then low-price, cheap properties may be a great way to build your resources in order to do something bigger later. There’s an abundance of cheap, run-down properties in every major city. In the midwest, cheap means $10,000 to $50,000, and these properties are everywhere.

If you don’t mind putting in the hard work, these investments may pay off. If you are looking at a passive investment, save the time and the headache and most of all, save your money!

Related: 5 Ways to Start Investing in Real Estate With Just $5,000

2. Cutting Corners

By the same token, even if you do have the resources to buy a great property, if you don’t have the resources to properly care for that property (maintain, renovate, manage, etc.) it may be tempting to start cutting corners. After all, you’ll have to make sacrifices if your finances demand it.

Be careful! There are some things that seem like maybe you could do without them—or go with something cheaper—but don’t be fooled. Quality services are always going to outweigh the costs saved. They’re worth the investment.

Extra Money Strategies for Real Estate Investing

When you actually look at your numbers, investing in real estate very well may not be realistic right now—especially if you’re young. That doesn’t mean there aren’t things you can’t do to prepare for a future of successful investing! While these two points are obvious, they’re crucial and too often ignored. Don’t make this mistake.

Protect Your Credit Score & Pay Off Your Debts

Your credit score is your reputation. Guard it well! Build up good credit, make payments early, and keep track of your spending. Take all of the little steps you can to build your credit score and protect yourself from the blemishes that can set you back for years.

Dealing with outstanding debts? Mortgages, car payments, or lingering student loans? Paying off your debts quickly and focusing on them sooner rather than later is going to keep you from paying extra interest while keeping you on the track toward financial freedom. Work out a payment plan that prioritizes eliminating debt from your life so that you can fully enjoy the benefits of your investments.

Practice Patience

Investing in real estate is often a numbers game: working out logistics, risks and rewards, and ultimately, deciding what makes the most sense for your goals. When you’re just starting out, it’s easy to make poor choices because your options feel limited. Practice patience. If you really want to succeed in real estate and your only real hurdle is the funds, then there will eventually be a solution. It often takes exercising patience and maybe making a few alternative investments until you are ready for the big play.

Lastly, cheap never works and quality always wins. Always! Make sure you don’t compromise on quality: if you need to shift gears and change your strategy in order to have the quality properties and services you investment career needs, do that instead. You’ll be glad you did.

What are the best tips you’ve given or you’ve received on investing when money is tight? Share in the comments below!

About Author

Chris Clothier

In 2005, Chris Clothier (G+) began working with passive real estate investors and has since helped more than 1,100 investors purchase over 3,400 investment properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.

20 Comments

  1. The thing I hate about real estate investing is that there’s never a right way to do it — every way is wrong, if you read most people’s opinions. You’re supposed to buy expensive places, just because — even though there are crappy tenants at every rentable price point. Oh, and don’t go too deep into debt because you may end up losing it all due to not making your mortgage payments, but then paying cash for the property is too cash-intensive to bring a viable return. Manage it yourself to get more money, but use a property manager to get back your time, but manage it yourself to learn what to do, but use a property manager so you can focus on growing your asset base. Invest in a pool to build your cash, but don’t do that because you’ll be passive and will have no control over the project’s success or failure. Go for appreciation, but go for cash flow, but go for experience, but go for just jumping in to finally do something, but don’t just jump in because you’ll make terrible mistakes, but do something because you need to make mistakes in order to learn. Find a mentor, ie pay some guru a bunch of money to talk at you in the most generic terms possible, but learn from your own sweat, and learn from your existing real estate friends, so volunteer to work on someone else’s property, but don’t just give away your time. Listening to all this advice can drive a person insane — it’s endless contradictions. And yes, you have to find your own way — but isn’t the point of advice to get some kind of guidance without having to re-invent the wheel? It obviously isn’t, because I knew a lot more before I started listening to all this advice, and I had more success before I began reading about all these great ideas. It’s almost enough to make a person want to give up on human relationships, give up on the concept of money, and just live in a log cabin somewhere to endure no further advice and suffer no further gains or losses. To listen to these people talk, there’s no right way, there’s no success, there’s no victory, which begs the question of why anyone was even born in the first place.

    • Chris Clothier

      Hi Moo,

      I appreciate your taking the time to read and leave a comment. I’m not sure I follow all of the logic in your comments, especially the parts of questioning why anyone is born in the first place. Hopefully, everything is ok on your end and your frustration is simply limited to real estate investing. If not, then my best advice is the same for life as it is investing, find someone to talk to that can help you navigate your frustrations.
      As for real estate specifically, I know it can be hard to figure out which advice is the best advice for you. I often feel the same way about reading advice on forums. You have no way to know if the person giving the advice has any real world experience or is simply writing comments and advice without knowing what in the heck they are talking about.
      In my case, I have lost a lot of money in my time as a real estate investor and made plenty of bad deals. It took me a long time to learn the lessons I needed to learn in order to stop losing money. I have lost money buying cheap deal passively. I have lost money by deciding I needed a partner rather than having the guts to do it alone. I have lost money by over-leveraging and getting caught with too much money borrowed and not enough income to cover the costs. I have lost money by trusting the wrong mentors. I have even lost money by not trusting the right mentors.
      It can be a never ending loop if you fail to recognize when advice is leading you in the right direction and when it is not. That is not a mistake on the side of the advice giver. That is a mistake on us as investors.
      So when you read an article like this one that I wrote, I’m not com[paring my advice to that of another article or another poster. And I have written plenty of simple, ‘how-to’ articles here for BiggerPockets on exact steps to take. There may be other writers who give the exact opposite advice. The key point is that my advice is written from my personal experiences as an investor and will be perfect for some readers. The other article’s advice will be written from that authors’ experiences and will be perfect for another reader.
      You have to figure out what works best for you.

      Thanks again for reading and leaving your thoughts/comments.
      Best to you,
      Chris

    • Dante M.

      I know exactly how you feel Moo. Do this, no, do that. It’s better to do a cash-out refi, no a HELOC will work better for you. Cash flow is king but stay out of war zones. But on the other hand, don’t speculate and count on appreciation, it’s just icing on the cake. I love all the info that’s out there but sometimes it can be overwhelming.

    • I know, right? It’d sure be nice if someone would write one of these articles comparing the pros and cons of a few potential strategies to getting started, so it could be a small choice instead of a HUGE one. It seems like half the articles I read are just excerpts from someone’s book that I may or may not ever have enough time to read and properly understand.

  2. Susan Maneck

    I started out with cheap properties and keep buying them. I think it depends on where you live and how much energy you are prepared to devote to real estate investing. IMO turn-key properties in another state are a bad idea. Chances are you are buying into bad neighborhoods you know nothing about. If I want to invest real estate elsewhere I buy a REI mutual fund. But I can understand why they would be attractive to people who live in California. In Mississippi a 30K house will yield about $850 a month rent. I don’t know any place else that does that. But don’t expect tenants to have good credit scores or even checking accounts. Mine all pay in cash. Are they decent tenants? Some are, some aren’t. But if they had money they’d go out and buy their own 30K house.

    • Chris Clothier

      Susan – thanks for reading the article and for sharing your own personal success! That is awesome. I’m sure you will agree that managing these properties and being personally involved is what makes them good investments and makes you successful. I love to read comments from investors who know their stuff and make it happen.

      Thanks again for reading and commenting.

      Best – Chris

  3. Joseph Moore Jr

    I am a investor in Central PA where it is easy to find cheap house usually with lots of problems. I have 3 I am sitting on trying get one of them done. Just keep running into more issues and lazy contractors. So I am a self taught person who is doing most of the renovations in my spare time. Rents where I am run $500 to $700 a month for a basic 3 bed 1 bath row or sf home. First house I bought here was $600 7 years ago now average prices are around $10k for a fixer upper in poor condition. I still buy tax sale and foreclosure properties under $5 K but they are a super risky gamble. How I started is I had no credit history so I saved a few thousand and started looking and landed in Central PA. Not from the area but moved here and the slow process of saving and buying / fixing started. 3 years ago I started building credit so I can build this a bit faster. Since scared of debt it is difficult for me so looking at foreign investors. Have lots of contacts in SE Asia so putting together a business plan to present to them in December. The first comment on this post is the best.

    • Chris Clothier

      Joseph –

      Thanks for taking the time to leave your comments. I love that you shared your story and you are a great example of just making it happen. Again, on the lower price points, it may be risky – even a super risky gamble – like you stated. But if you are an active investor and putting in your time, that risk may be very worth it. It sounds like you are doing a great job of figuring out how to make it happen. Best of luck with your contacts for raising capital.

      Best – Chris

  4. Marshall Easlick

    @MOO Excellent comment. I feel like a lot of people will read that and think of it negatively but I like it because until now, I haven’t really nailed down why it feels overwhelming. But that’s it: there is so much conflicting advice in this community that none of it makes sense after a while. Most of what I have read shares a common goal of leveraging the bajeezus out of yourself so that your ROI is somewhere near infinity since you never actually have any money in the game. I am actually considering the opposite: focusing on paying off a $165,000 loan on my rental property so that I have an income of $1,700 per month from it. Then I can use that income to help my mom in her retirement or as a springboard for my future investments.

    After reading and listening to so much advice, I am finally just trying to avoid it altogether and think for myself– what’s best for me and mine.

    • One problem I’ve had is that everyone in real estate seems to just own another job — like we aren’t working ourselves into the ground with family obligations, friends, maintaining our own homes and, well, working our regular jobs.

    • Chris Clothier

      Marshall,

      Thanks for taking the time to read and comment on the article. I think your last line illustrates what advice is meant for. I have read and listened to all sorts of conflicting advice and it has helped me to shape my own thoughts. Reading both sides of an issue or two differing opinions is often a great way to come to our own conclusions. The best part of that line though is the result that you are doing what is best for you!

      You may think my entire article is full of hot air and you would like to go in an opposite direction. That is perfectly fine by me. I would applaud you for moving whether it was in my direction or the opposite.

      Best to you and best of luck in whichever way you move as an investor.

      Chris

  5. John Glaze

    Chris,

    All good stuff whether one decides to follow or steer clear of what your doing. I really like the personal responses you give to each comment.
    I haven’t got started yet because I can’t find a deal that meets my criteria yet. I want to get a multi family property within an hour of where I live. There are zero on the MLS so I’m driving around and checking tax records to get phone numbers to call owners directly to try and find one interested in selling.
    There is no complete one size fits all way to do this.
    I appreciate all those who are doing it taking the time to write these articles for me and everyone else to read and learn either agreeing or not with the advice.

  6. Eliseo Magallon

    Chris!

    SUCH A GREAT ARTICLE! This totally resonated with me because I’m in this exact situation right now. Just gonna do my best to cut expenses, pay my student loans off, and hustle some side gigs, learn as much as I can until i’m in that position to buy real estate! Thanks for the post!

    • Chris Clothier

      Eliseo,

      I love the drive! Hustle until those that tell you can’t are asking how you did. Be disciplined and you will do great. Right our what your perfect day in real estate looks like and read it as often as possible. Commit to taking all the steps you need to take to get there and live that day. Then, without even realizing it, you will look up with no debt and a world of options in front of you in real estate investing. Best of luck to you –

      Chris

  7. Chris Mylan

    I believe Moo brings up a few good points that people can get overwhelmed over – HOWEVER, how can you look at the abundance of information as all negative? Turn it around and think, “Hey, there’s a lot of strategies that have worked for a lot of people and it’s nice to get these different viewpoints/options.” Everyone is in a different point on this journey and individuals with 10 or 100 properties are in a much different position than individuals that are just starting out.

    Take the applicable info and use it to your advantage – DON’T complain about having too many viewpoints because you’ll probably need them later in your journey. Take the guidance and run with the information that applies to you and dump the information that does not.

    There’s plenty of ways to cook a steak and they all taste good to somebody.

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