Real estate investing has its fair share of obstacles. To that end, almost every investor faces challenges at one point or another. There may be times when you feel more like a problem solver than an investor.
One of the most common hurdles many investors face is closing deals without having access to capital. In a perfect world, you will have a surplus of cash to make your offers with. As you are building up to this point, you need to find ways to generate income without having funds available. Fortunately, this is not as difficult as you may have initially anticipated. There are many different ways to invest in real estate without having cash. Here are a few of your no money down options:
1. Wholesale: Wholesaling deals is a popular starting point for investors without access to capital. There are a few different variations of wholesaling, but the principles are same throughout. As a wholesaler, you find deals that you can get at a discount and either assign the contract or close with an investing partner. You don’t need a large budget to find these deals. You could find a distressed property on the street you drive past every morning. You can call a foreclosing notice that you saw in your local newspaper. There are dozens of ways to find potential deals without having to pay for leads. These deals may need to be worked longer and harder than others, but they won’t break the bank. You will also gain access to deals through local networking opportunities. Every investment club meeting and networking group increases your chances of finding someone to work with. You don’t need money to show up at meetings once a week. If you find good deals that people want, you will always have an outlet for them.
2. Hard money lenders: There are more lending alternatives today than ever before. Perhaps no area has grown more in the past few years than hard money lending. Previously, there was only a handful of hard money lenders at most in every market. Today, you can most likely find multiple options. Hard money lenders are not bound to the same strict financing guidelines as traditional banks. They can offer financing without a down payment, typically based on loan to value. Using hard money lenders gives you the option of offering cash, which in turn will help you close more deals. The perception of hard money lenders has changed dramatically over the years. In the past, hard money lenders were seen as a last resort for desperate borrowers looking to save their homes. Today, there are many more groups and corporations that are lending money. The terms and rates will be much higher than traditional banks, but they are worth the costs. Hard money gives you the opportunity to make money on deals you would normally not have had the means to do so. Closing a handful of hard money deals a year can put you in a position to eventually use your own cash when making offers.
3. Private money: Right now there are numerous people who are looking for a way to get started in real estate. They either aren’t quite comfortable with the business, or don’t have the time to find deals. Here is where you can step in and benefit from it. A private money lender can be any friend, family, relative or coworker that you know who has money and is interested in real estate. You basically enter an agreement where you handle the real estate side of the transaction and they supply the financing. How you split up the profit is up to you, but this option can get you started. This is often a win-win for all parties involved. You get to earn on a deal where you have little to no exposure. For your partner, they often earn much more than they would have if there money was in a low performing IRA or CD. Finding people to work with is often as easy as sending out a blast email or sending a message on social media. If you look, you will find people to work with.
4. Existing properties: If you are looking for money for deals, you may be sitting on it and not even know it. One of the first places you should look is inside your existing portfolio. Take a look to see if there are any properties that have equity. Property values have gone up in recent months, and you may have more equity than you think. Most lenders require anywhere from 20-30 percent equity to do any type of loan. Depending on your current loan, you will most likely have two options. The first is to rewrite the first mortgage and do a cash out refinance. The second option is to keep the first loan in place and add a home equity line of credit. This will give you access to cash when you want it, with an interest only payment for the first ten years. If you have a few properties in your portfolio, call your local real estate agent and get an idea where values are. If high enough, you can reach out to a mortgage broker or lender and find out what your options are. You may have more options than you think.
These are the four most popular options you have available. There are many more if you are willing to put in the time and work. Don’t let a lack of funds stop you from investing in real estate.