Content of the material
- 1. Real Estate Investment Trust
- 9. Option-to-Purchase Agreement
- 2. Leverage home equity with a HELOC or cash-out refinance
- Cash-out refinance
- 11. Borrow Your Down Payment (CAREFULLY!)
- 1. Online Real Estate Investing Sites
- How It Works
- What You Gain
- What You Risk
- Want to create passive income?
- to help you start earning income from rentals.
- 3. House Flipping
- 7. Look for seller financing
- 15. Find Tenants For Rental Owners (aka Leasing Agent)
- Be Aware of The Tax Implications
- How to build wealth if you own property
- Consider a live-in flip
- Trade up: A rags-to-riches story
- Leverage your home equity to further invest
- Why Should I Add Real Estate to My Portfolio?
- 1. Get Educated
- Best Ways to Start a Property Business with No Capital
- 1. Facilitate Lead Generation
- 2. Partner with an Investor
- 3. Use Investment Leverage
- 4. Sign-Up for Rent-to-Own Investments
- 5. Sell Property on Behalf of Developers
- 6. Help to Close Deals and Get Your Cut
- Bottom Line
1. Real Estate Investment Trust
REIT companies own or finance income-producing real estate across various property sectors. REITs are similar to mutual funds, offering everyday real estate investors the opportunity to realize dividend-based income and returns. You can invest in a real estate portfolio by purchasing individual company stock through an exchange-traded fund or mutual fund.
As a REIT stockholder, you earn a share of the produced income without directly buying, financing or managing the property. If you choose to invest in real estate with a REIT, you are in good company, as nearly 145 million Americans who own homes invested in REITs through their retirement plans, such as IRAs and 401(k)s, and other investment funds.
9. Option-to-Purchase Agreement
If you’re currently a tenant, you can enter into an option-to-purchase agreement with the property owner. This contract gives you the right to purchase the property in the future. The tenant and landlord agree that a portion of the monthly rent payment is applied toward the principle of the property over the specified time according to the rent-to-own agreement.
2. Leverage home equity with a HELOC or cash-out refinance
Using a home equity line of credit (HELOC) or cash-out refinance to buy property is another financing option for existing homeowners.
If you own a home, you may be able to use your home’s equity for a down payment on your next place.
One way to do that is by borrowing cash secured against your home equity. Homeowners may be able to obtain a standard home equity loan, or a HELOC, to fund a down payment.
Using a HELOC, you secure a line of credit against your home, and then draw on it whenever you need cash flow. And you can begin paying the loan back with rental income.
The other type of loan that leverages your home equity is cash-out refinancing.
A cash-out refinance lets you refinance your mortgage for a higher amount than you actually owe. Then, you take that extra loan amount out as a lump sum of cash.
In this scenario, the money advanced to you by a cash-out refinance can be used to make the down payment on an investment property.
In other words: If you have enough equity in your current home, you may be able to start investing with no money out-of-pocket.
11. Borrow Your Down Payment (CAREFULLY!)
This is one of those strategies I considered not including in the list because I’m not a big fan of borrowing money for down payments. The interest you must pay on these borrowed funds usually creates negative cash flow from the very beginning.
BUT if you do it carefully and pay the funds off quickly, it could be a way to help you get started.
For example, if you have a home equity line of credit (aka HELOC), you could borrow money on the equity of your home for a down payment or for the entire purchase of the investment property. You could then work on paying the funds back quickly from savings and/or income from the property.
Or another example, you may be able to borrow up to $50,000 from your own 401k funds. You will have to pay yourself interest AND you will have to pay the money back in a reasonable period of time. But paying yourself interest is better than paying a bank!
I shared an example of a student of mine who used borrowed 401k funds to get started with one of his first multi-unit purchases.
1. Online Real Estate Investing Sites
Online investing sites have changed the game in recent years. With these sites, you can own fractional shares of real estate projects. What this means is that you can get exposure to real estate, but you don’t need to come up with huge sums of capital or deal with tenants. This is a strictly passive income strategy.
For other sites, you must certify that you have a net worth over a certain amount or make a certain amount of money per year.
How It Works
With Fundrise, you can start with as little as $500. You open an account and select from a number of portfolio options. Fundrise charges a management fee of around 1% per year, which is fairly low compared with other options, and its 2021 annualized return was 22.99%! You can see how my Fundrise account has performed here.
What You Gain
Investing this way, you gain a ton of freedom and you gain exposure to the real estate asset class with very little money or effort.
What You Risk
You don’t get to really use any local expertise you may have, and you don’t necessarily get the pride that comes from visiting a real estate project that you wholly own, improve, and can see easily. For some people, that’s a big draw to investing the old-fashioned way!
Get Started With Fundrise
Want to create passive income?
to help you start earning income from rentals.
3. House Flipping
House flipping is for people with significant experience in real estate valuation, marketing, and renovation. House flipping requires capital and the ability to do, or oversee, repairs as needed.
This is the proverbial “wild side” of real estate investing. Just as day trading is different from buy-and-hold investors, real estate flippers are distinct from buy-and-rent landlords. Case in point—real estate flippers often look to profitably sell the undervalued properties they buy in less than six months.
Pure property flippers often don’t invest in improving properties. Therefore, the investment must already have the intrinsic value needed to turn a profit without any alterations, or they’ll eliminate the property from contention.
Flippers who are unable to swiftly unload a property may find themselves in trouble because they typically don’t keep enough uncommitted cash on hand to pay the mortgage on a property over the long term. This can lead to continued, snowballing losses.
There is another kind of flipper who makes money by buying reasonably priced properties and adding value by renovating them. This can be a longer-term investment, wherein investors can only afford to take on one or two properties at a time.
Pros Ties up capital for a shorter time period Can offer quick returns Cons Requires a deeper market knowledge Hot markets cooling unexpectedly
7. Look for seller financing
Another way to acquire property with no money down is with help from the seller.
The borrower repays the loan as specified in its repayment terms that are detailed in the formal agreement.
This works especially well with sellers who have no mortgage.
For example, this can happen when someone inherits a property and does not want to keep it.
For sellers that are willing to take on the role of financier, owner financing can help sellers move a home faster with sizable returns on their investment.
15. Find Tenants For Rental Owners (aka Leasing Agent)
If you want to eventually become a rental owner but don’t have the cash yet, consider becoming a leasing agent to earn money while learning the business.
As a leasing agent, you help to match a tenant with a particular rental unit. And you earn a fee – often 50% to 100% of a month’s rent – in exchange for your time.
I love this business model for future rental owners because you learn how to find and screen tenants, which is one of the essential skills of being a landlord. And you do it while earning money and taking very little risk yourself.
In most cases, you would work for a property management company in order to become a leasing agent. But you could also get your real estate license and just contact individual landlords to do their tenant placement for them.
As a rental owner who enjoys landlording from a distance while traveling, I promise you that this is a valuable service!
Be Aware of The Tax Implications
From the onset, you will want to be aware of tax implications of the real estate investment properties. One of the key determining factors is how the property is classified, and how it is used.
You do not want to part with a major chunk of the returns you earn from an investment as taxes. The one and the only way to ensure this is by understanding the tax implications of any property investment well in advance. An important part of how the property is classified is how the property is treated under rental real estate activities.
Go through the existing tax schedules and also get a clear picture about the varying rates that apply. Always speak to a tax professional if you have questions or concerns.
How to build wealth if you own property
If you are already a homeowner, there are ways to leverage the value you already have in your home to substantially build your equity more quickly.
Consider a live-in flip
Elliot says buying a fixer-upper that you intend to live in for a while is particularly advantageous for homebuyers in Colorado because there is a lot of competition for move-in ready homes from all-cash buyers coming in from other areas of the country.
“In Denver, there are still plenty of opportunities for a fixer-upper,” Elliot notes. “We always suggest that first-time homebuyers go into the properties that need some work because those are the ones where we can get them under contract with little money down. Then they can invest some sweat equity to improve the property.”
One caveat to that, according to Elliot, is that since many first-time homebuyers use FHA loans, the properties that they’re getting into have stricter FHA requirements.
“That means that the house can’t need a ton of work, like a new roof or a furnace,” she explains. “To get FHA approved, it can only need cosmetic repairs. Most young homebuyers can do the cosmetic work themselves or hire, for instance, a carpet installer to do new carpet. So, it’s going to be work that they can do or hire out for very little money to fix up the property and grow the equity in the home.”
There are also loans that will allow you to package the home’s estimated repairs into the mortgage, such as a 203(k) loan.
Trade up: A rags-to-riches story
One of the most profitable ways of building wealth in a healthy real estate market is by trading up to a more expensive home.
“About three years ago, I got one of my clients into a house for $285,000,” Elliot recalls. “Just recently, I sold that first house for $445,000, took the equity, and got them into their second home for $550,000. With just a three-year investment in the market, they were able to take enough equity out of their first house to put it into their dream home.”
This is the approach Hardiman decided to take when she purchased her first home.
“I watched my parents buy fixer-uppers when I was growing up,” Hardiman says. “I always intended to buy a house that needed a lot of work.”
She got into the market in 2009 when real estate had bottomed out in Charlotte due to the Great Recession. She found a modest home that needed some work in a moderately priced neighborhood.
Hardiman acknowledges that it is helpful to have some skills if you are going to buy a house that needs work, as well as patience and a willingness to do the work. Her fiancé, it turns out, had painted houses while putting himself through college.
“We did all the painting,” she recalls. “We also built a deck with help from my family. We were unwilling to pay people to do things we could do.”
Five years later with nearly $70,000 in equity from the sale of that first house, Hardiman was able to buy a house in an older neighborhood near downtown Charlotte that was undergoing a major revitalization.
“We saw an opportunity to live in a great neighborhood close to our jobs,” she says.
“We knew we could use this house to build our net worth. But you have to be willing to invest in the upgrades to improve the property.”
In five short years, due to the investments they made plus a dramatic increase in home prices, her second home nearly doubled in value. With equity that had now more than quadrupled, they made the leap again, this time targeting the least-expensive fixer-upper in a neighborhood boasting larger properties and substantial green space.
If buying and selling feel a bit challenging, there are programs that facilitate trade-ins, making it extremely easy for homebuyers to make the leap. You can unlock the equity in your home to purchase a new one by simply trading in your current house through an online platform, such as HomeLight Trade-In.
The chief advantage of a trade-in program is that it allows you to make an offer on your next home with no lending or home sale contingencies, an important advantage in a competitive market.
Leverage your home equity to further invest
Another great growth opportunity is to tap your home equity to invest in other real estate.
“We often get our first-time homebuyers into condos or townhomes,” Chapman explains. “After a year or two, they can use the equity in the condo to upscale to a home. They keep the condo and use it as an investment property. We show them how to do that.”
Buying a multi-unit property is another solid strategy, Chapman says. His clients start by living in one unit and renting the others out. Over time as they build up equity in the property, Chapman encourages them to use the equity to buy a home, keeping the original property as an income-producing asset.
You can also take the equity out of your home by refinancing and taking a portion of the equity to invest in a REIT or a rental property.
Another strategy is to “borrow” against your equity by opening a home equity line of credit (HELOC) and using those funds to invest.
Why Should I Add Real Estate to My Portfolio?
Real estate is a distinct asset class that many experts agree should be a part of a well-diversified portfolio. This is because real estate does not usually closely correlate with stocks, bonds, or commodities. Real estate investments can also produce income from rents or mortgage payments in addition to the potential for capital gains.
1. Get Educated
The best approach is to learn all that you can with the free resources available for your immediate consumption. You need to learn the basics, but you also have to ask the right questions when presented with information.
While you may be bombarded with images of expensive real estate investment seminars, that is not a requirement to be successful in real estate investing. You can learn the basics from useful free guides online to get a jump start on the basics. There are plenty of real estate books, podcasts, and free information online as a good place to start. You can also speak with other real estate investors.
Here are the main types of properties and investments available for real estate investment. Each type of investment has its own nuances that you should understand before you invest.
- Vacant Land
- Single Family Homes
- Small Multifamily Properties
- Large Multifamily Properties
- Commercial Real Estate
- Mobile Homes
Once you learn about the different types of options for the real estate listed above, you will want to think about the one that fits your budget, time, and requirements.
You will also want to learn how to properly evaluate a neighborhood in order to make the best investment. You may not be familiar with the city or locality where you are investing, so you will definitely want to check out how to evaluate the locality or neighborhood you are investing in to make an informed decision.
Best Ways to Start a Property Business with No Capital
Once you have developed a positive attitude and mindset where you believe, are passionate that you can become a successful real estate entrepreneur, and you have also learned the basics of real estate investing, you are ready to launch into the real estate world even with zero capital.
Here’re some effective ways to start a property dealing business with zero money in your pocket—strategies you can learn and transfer in other industries as well:
1. Facilitate Lead Generation
Lead generation is important for all businesses, and real estate business is no exception.
Irrespective of role in a real estate business, you need to have a constant flow of leads to get more business. Having a lead pool is vital for all kinds of real estate businesses, be it a mortgage lender, realtor, or even house flipper.
With the number of leads that get converted into real business deals typically low in the property sector, every real estate businessperson looks forward to getting more and more leads. Therein lies an opportunity to get your foot into the real estate door.
If you don't have any initial capital to invest but still want to enter the real estate property market, then becoming a facilitator of leads for existing real estate businesses can be a good option. You can become a link between the buyer and enthusiastic real estate agents and realtors.
To become successful in this line of work in the real estate sector, you can always start generating leads at a local level. You may also use your contacts to find if anyone in your network or locality is looking forward to either buy, rent, or sell a property.
Steps you can follow in a real estate lead generation business include:
- First find clients or agents who are looking for a property and create your database of the interested parties.
- Then search for sellers. (This can be done on the internet).
- Once clients are identified, sell your leads. Price per lead will depend on the locality and the quality of the lead.
Be honest with your leads always to generate high-quality leads.
2. Partner with an Investor
Securing an investor as your partner can open flood gates of new opportunities for budding real estate entreprenurs. So, if you find an excellent property for investment but you don't have resources to close that deal, you can always look for someone with the finances and convince them to invest money and help you in closing that deal.
Many investors already want to invest money in real estate, but they either don't have time or don't want to handle all the administrative or managerial tasks related to property investment. You can become a partner with such an investor and fulfil your dream of running a successful real estate business, while the investors gets a hassle-free opportunity to invest in real estate.
Such partnerships are especially ideal in rental or fix and flip property dealings. Be sure to carefully work on partnership terms with the investor.
If you have good managerial and administrative skills, you can start your own real estate business without money and worrying about finances. You just need to be proactive and find the right partner who can take care of the financial requirements of your business.
3. Use Investment Leverage
Using leverage in an optimized manner is an art. In this case, the investor can use borrowed funds put in property dealings as their leverage. However, one has to be very sure when making such investments. The aim is to get a higher return on investment in comparison to the rate of interest levied on the borrowed money.
If you don't have money to start your real estate business, then using leverage can similarly be a very good option. You can borrow money against the equity of your existing property. You can then invest this borrowed money to buy a new property. This way, you can start your property business by using the borrower's money.
4. Sign-Up for Rent-to-Own Investments
Another way to start a property dealing business with no capital is through rent-to-own-investment. Many people use their lease agreements as an entry path for property estate industry.
In this case, the investor signs the buy option while renting the property. This means that the renter can purchase the property at a particular time, as per the terms mentioned in the rental agreement. By following this method, the investor can lock the promising property and still keep on looking for other new options.
5. Sell Property on Behalf of Developers
If you have no money and still looking for opportunities to start your own property estate business, why not start a business selling property on behalf of developers?
New housing and residential projects keep coming up in the market. You can contact developers and sign a contract to sell their properties for a cut of the sale price.
Using this strategy, you may opt to advertise and sell the developer’s properties and earn a commission on each closed deal. The commission or cut may vary from project to project and also depending on the type of property sold.
Obviously, commissions earned for selling luxury properties is much higher compared to the budget segment properties, so you might want to target the high-end properties.
You can easily search and find new property developers online or within your local area.
6. Help to Close Deals and Get Your Cut
If you have no money out of your pocket for real estate, you can also offer a service guiding clients through home searches with an unbiased eye so that they can meet their buying objectives while staying within their budget. In this role, you essentially become a real estate agent or realtor.
Many realtors don't want to get into the complication of registration of the property. They act as a middleman between the buyer and the seller. Some also provide clients with answers about local utilities, ammenties, contractors, and more. Once the deal is closed, they take their cut and move forward. They leave registration as the concern of the developer.
You can also give your clients expanded propery search power, close deals, and get your cut.
Having cash is not necessary to make money in Real Estate investing, but it does make the process easier.
As you advance in your career, you will want to find a way to acquire some cash, whether it be from private money lenders or banks.
The transactions are cleaner and with experience, your confidence to properly manage a deal and the money at risk will increase. But for now, make a mess with as little risk as possible and keep the faith that there is a check at the end of the tunnel.
For me, the first check I earned was small, but it gave me the confidence to keep going. It was nice to see the bigger checks follow suit. I promise, they were not easy to come by, but with the proper training, hard work, and a little luck, it can easily be your name on these checks.
Let me show you how to get there.