One of the oldest methods of accumulating wealth is in real estate. Many people would like to become a real estate investor, but there is a belief that buying real estate as an investment requires a lot of cash. It does, but not always, and not all at once.
You can invest in real estate with little to no money down
When you are first starting out investing in real estate, you can invest with little to no money down if you do your research, are willing to do some work, or are willing to move occasionally. It is easiest if you have good credit, and harder if you have poor, but it still can be done if you are willing to be flexible and creative in how you approach the investment.
Learn and build credit before you start
There are a lot of benefits to investing in real estate, and even beginning investors can take advantage of a variety of ways to invest little or no money in rental property or a primary residence. First time real estate investors should learn about real estate first. Read articles, blogs, visit websites that teach about real estate investing, watch TED talks and YouTube videos. The internet is a wealth of information about real estate, both real and digital. I know since I make serious money investing in digital real estate, called lead gen properties.
Credit history is a big thing in writing mortgages or even signing a lease now. Things that affect it are late payments. Even one late credit card payment can drop your score by up to 100 points. Check your report free once a year in each of the big three reporting agencies. Punctuality, paying off early, great references, gainful employment, and the income to debt ratio are all things lenders take a hard look at, especially for rental property investments. And so you know, medical bills often are overlooked, but student loans are figured in. Keep that in mind.
Real estate is property, whether real or digital
As for me, I like digital real estate – websites I own and rent out the results to business owners looking to expand their business, gaining more customers who already are looking for their services or goods. Investing in digital real estate does not have the hassles or expenses that real property has, including mortgages to meet, taxes to pay, and toilets to unstop. Check out what I am talking about here https://www.bestrealestatedirectory.com/lead-gen/. It also does not require a big investment up front, which I liked.
If you really want to try your hand at real estate investing and have little money to do it, there are some ways to reach that goal. It can be done running it from home, with little cash or no credit to start out.
A little money can make a lot
Buying a home as your primary residence can be done with little down if your credit is good, and you have gainful employment and not a lot of debt. Medical bills normally are not considered heavily in debt load by a loan officer, but credit card totals close to what you have in available credit, is.
Utilize first time buyer, Rachel programs, VA or USDA loan (0% down) and programs in locations that offer incentives for buyers to take on an abandoned property in their town. VA and USDA require you to live in the residence for one year, then you can move out and rent the property. USDA loans are geared at people with low to moderate income, and towards towns with under 10,000 in population. The goal is to get people to resettle into areas that are loosing residents, or are suburbs. Down payment and credit scores are not as strict for the home you live in, but are more so for rental or investment property. You can do this over and over, building equity and using it to back funding for your next property.
Sometimes sellers will agree to finance the property, or “carry the paper.” This works well for people with little credit history or poor credit, if the seller agrees to the deal. Interest rates often are a higher than regular lenders. There is a legally binding agreement between the seller and buyer, as the seller is literally lending you that amount of money for a set period. It is a good way to get your foot in the door, though, when you have little or no credit history, or are recovering from bad.
Some people or investment groups loan money direct, called hard money loans, for buying real estate. They often require less to qualify and the rate of interest is often higher – sometimes much higher – for these loans. If you have bad credit, they are willing to gladly take the risk, because the property secures the loan. There is often little leeway in being late on a payment, and it is easier to loose your property. Also, these loans often are short-term, which means you might build up some equity, but you have more fees to settle the loan and then apply for a standard mortgage if you still need it. If you decide to use a HML, make sure to have your attorney review the agreement to protect your interests.
Become a landlord
There is a way to buy rental property with no money down. Buy a duplex, and rent the other side out, offsetting or making the mortgage for you. You have been able to buy a duplex on an FHA loan since 2015, and the required down payment with decent credit is only 3.5%. If you have a little more to play with, consider a four plex. Keep in mind you will have much larger insurance and repair bills to consider.
Taking over a mortgage is pretty much a thing of the past
In the old days one of the best ways to buy a property with little down was to take over a mortgage that someone else had written. Most modern mortgages require a re-approval process and are not transferable. When you see those signs, make sure if you are interested to have an attorney and/or title company check for liens and clauses that could cause considerable issue for a clear title in the future.
Lease with option to buy may be great, but not for your credit score
One way to get equity built up in a home is a lease-purchase agreement or lease with option to buy. This is when you rent a property and pay a higher rent amount, with a certain portion going towards making a down payment for purchase of the property. With these, you can usually back out of the agreement and not complete the purchase agreement, but know you probably will not be refunded what you have paid in, as the seller has taken the home off the market for you. This is a good way for starting out investors to get equity built up and be able to utilize that to write a lower interest loan when they do buy, as well as showing a consistent payment pattern. The problem is the information is not reported to credit agencies so you do not get the benefit of paying on time to improve your credit score.
Don’t bite off a fixer upper you don’t have the skills to fix it
If you have a little money to invest, sometimes property can be bought cheap through a tax deed sale, foreclosure, short sales, or one that requires extensive repairs including after a natural disaster. Tax deeds and foreclosures tend to be snapped up by insiders, so the early investor gets the title. Short sales often occur due to property approaching foreclosure, or distress sales due to illness or job moves. Diligence and watching closely for distressed properties in your area can help you win the offer. A word of caution though – most of these kind of sales are as is. If people did not pay taxes or not have insurance, chances are the property has many repairs or issues that need dealt with. If you do not have the skills and enough funds to fix it, don’t buy it unless you really want to live there, as hiring out extensive work rarely if ever results in being able to see a profit.
Home equity is gold in the bank
If you can qualify, establish a line of credit tied to the equity in your house. A home equity line of credit or HELOC as they are referred to, allows you to borrow money against the equity you have built up in your home. It normally requires a substantial amount of equity, and most banks will only lend 70-80% of that amount. One of the big advantages of a HELOC is that you can use the cash to directly pay for the property, instead of having to write a standard mortgage. That helps eliminate closing costs, points (a percentage you pay for the privilege of writing the loan) and higher interest. Most HELOCs are at prime rate plus a percent or two, making them often much cheaper than a conventional mortgage with points. Also, many banks will allow a quick turn around to get a property under contract, with a minimal appraisal. This lets you react quickly to short sales and good buys.
A thing to remember is that a HELOC acts like a second mortgage on your house. It also is most often a variable rate loan, so it is wise to put as much towards paying the loan down as soon as you can in case the economy shifts and the Fed raises the prime.
Look for low, or no, closing costs
Another thing to look for is a lending institution that is offering a rebate on closing fees, or no closing fees. Doing a good internet search for grant programs and companies offering a rebate or no closing costs will yield results that differ according to your area. Usually a fairly high credit score (680 or better) and a fairly low debt ratio to earnings (under 45%) is needed to qualify for these kind of programs.
Programs and rebates can vanish
If you are utilizing one of these kind of programs, or any program to help with a mortgage, a word of advice – act swiftly and verify that the program still is in place when you go to close on the property. You never know when one of them will go away or have funding pulled from it.
Always keep on eye on the real estate market, too. Real estate is like a roller coaster that is run by the economy, politics, natural disasters, and other variables that you have absolutely no control over. This can make a short term investment turn into a very long, expensive one if you can not sell at a profit to recover expenses.
Crowdfunding , real estate investor groups, and REITs – a foot in the door for cheap
Crowdfunding, real estate investor groups, and real estate investment trusts (a corporate investment group over which you have little say, but are closely regulated) are the newer ways to invest in real estate with little money down. A group of people pools their resources to buy or invest in the equity for a property, and share in the profits. It is important to know who you are working with and their experience and track record in picking and then selling the properties. Often you can start investing for as little as $500 – $1000 in these types of groups, but you do not stand to make a lot, either.
Two of the more creative means to start investing in real estate with little or no money is trading values or wholesaling. When you trade values you have a skill, such as carpentry, and you find a property that needs work, say a beach house. The owners, maybe elderly, cannot afford repairs. You do the work on the house for a set amount of use of the property in exchange. While you have the time and labor out, and you do not have your name on the title, you do have an investment in and legal agreement to use of the real estate. This works well if you do not have credit to write a mortgage for rental or vacation property, which often have higher requirements for down payment, credit history, and investment potential.
The second method is wholesaling. This is a way to invest in real estate without really investing at all, and can be done without a license from your home. You basically act as a middleman to find properties to then advertise or turn over for listing to a broker, and make a commission for doing so, usually from the seller. Be aware that there are strict regulations in most states about this and very strict laws regulating payouts and agreements with licensed real estate agents and brokers. This “finder’s fee” or “bird dog fee” needs to be very transparent so both parties stay out of trouble, and you only get paid if and when it sells.
A mortgage, or property, is a big and binding commitment
I don’t know about you, but if I had just a little bit of money to invest, I would be so leery of putting everything I had into a large commitment like a mortgage. Mortgages are not like buying a pair of athletic shoes that you decide you don’t like and return them. You cannot just walk off from property you now own, and have a long legal document that commits tens, maybe hundreds, of thousands of dollars towards. I would rather do what I did, make a lot more money first, so I had a comfortable nest egg and had more than one egg in the nest.
When I graduated from college with a degree in computers, I was living in a big city and thought about buying a place of my own. I quickly realized that not only did I not have credit established, at least enough to get a mortgage easily, I did not make enough. I knew that owning property was not just about making the mortgage payment, it included things like utilities, repairs, insurance, and taxes. I was making $35K a year and working way over 40 hours, like most people who are slaves to the corporate life. I knew there had to be more.
Knowing that owning your own business was the American dream, I started to look for ways out of the drudgery. I took lots of classes and got into some MLMs. They were expensive, I ended up with a lot of stuff I could not easily sell, and my friends and family soon started avoiding me. Then I went into online drop shipping through Amazon and others. I made some ok money, but was working stupid hours at my regular job and posting, packing, shipping, and all the other things that reselling involves. I was 25 and had no life, and really, not a lot put away, either.
There is a better way to fund your real estate investment with little money
Since I worked in the digital world, I knew there had to be more, something that was the future, not how they used to do things. I started reading articles, blogs, anything I could get information about Internet businesses. One night I ran into an article about a guy named Dan who was building lead gen sites. Those are websites you build and own, basically digital real estate. Dan was working the business and offered training, and he was making a lotof money helping businesses get more customers.
The idea of digital, online real estate intrigued me. I knew that the internet was the future of business, I worked in it all day and had for several years. One thing I really liked was it was not cold calling, it was customers already seeking out the service or product the business offered. Warm leads seemed like a no brainer. After checking out the information about Dan, who checked out as upfront, honest, transparent, and the business model solid, I decided I had nothing to loose and clicked on their link https://www.bestrealestatedirectory.com/lead-gen/ to schedule a call to get my questions answered. It was free, and took about 15 minutes. Man, am I glad I did.
After chatting I immediately realized the opportunity in the lead gen model. Not only was there full training on how to build and offer the results of the lead gens, there was a massive support group and tech network I would become part of immediately to get help. I signed up and paid my tuition, and started working. The first week I wrote my first website, which took me about six hours since I really did not know a lot about how to do it. It was not hard, and it looks like this:
I sold the leads right off to a business owner, who was really happy to get them. From day one he pays me $750/mo, and has for 4.5 years. The monthly expenses are super low, and to date, I have cleared over $34,600 on this site. I hardly ever touch the site, and it brings in business every month to my customer.
That was super encouraging. By then I was really over the corporate job and the hours, and working every day on my new lead gen business. I built more sites and got some results rented out. In five months I was able to quit my job and work my business full time, and I was paying all my bills. Pretty good for a 25 year old!
I just turned 30 and I am working my business, while also enjoying life. If I want to fly across the country to go to a friend’s wedding, I no longer have to wonder where the money is coming from or if I dare take the days off. I go. I am my own boss, and I name my hours. I work pretty much part-time now, and I am closing in on a seven figure income this year.
The lead gen model is the real deal. Yes, it is some work, especially at first. Name me something that is not work if it is worth it? And I am making a lot more and a lot happier than punching a clock for someone else profiting of my labor and stress.
Are you ready to do something worthwhile for yourself? Your family? Build a legacy? You are worth it. Click here to set up a free, no obligation call to find out about the training https://www.bestrealestatedirectory.com/lead-gen/
Now if I want to buy a house, I not only have the capital to do it, I do not have to pay high interest rates and points and all the other fees attached to a mortgage. I can diversify my income streams with my own finances. Man that is an awesome feeling at 30.
What are you waiting for? The business world – heck, the whole world – increasingly runs off the Internet. Everyone searches on their phones for what they need now. Why not get a piece of the action, as someone has to supply the service for them to do it.
You are worth it. It’s well worth it. Go for it.