Entrepreneurs and investors all know this fundamental rule by heart: You have to spend money to make money. That doesn’t mean you can’t start a business if you’re short on cash, even if you’re going after a major investment like real estate.
“Is there a way to invest successfully in real estate without a lot of money?” asks a blog post from the Houston property management firm Green Residential. “There is, but it takes some expertise and solid strategy to pull it off. Even people who are not that well off can make a fortune in real estate if they select the right avenues and use their money wisely.”
This is possible because the government and other investors have poured a lot of time and money into the housing market. There are grants, programs, and business ventures that can help you make your dreams of real estate investing true, even if you don’t have a lot of money.
That being said, don’t assume that taking advantage of these low-capital investments is free. Most investors end up paying some money in the long run. Additionally, what they lack in money, they’ll make up for in time and effort. Successful investors know how to compensate for their lack of money with time and talent.
With that in mind, consider a few real estate investment tips for the cash-strapped investor.
- Find a Super Good Deal
Real estate investors are always looking for great deals with which to maximize their income, and this is even more important for realtors without a lot of capital to back up their investments.
A normal investor would save and offer a 30 percent down payment. After putting a little equity into it and selling it, you’d have real profit for your efforts. But if you’re going into it with less than five percent down, you’ll have high mortgage payments with hefty interest. You’ll have very little equity in the house, limiting profitability.
You want to look for properties that are high value but underpriced. For example, a house might be located in a nice neighborhood, but poor design choices and improper maintenance naturally bring the price down. Once you have the keys, you can make adjustments and sell the property for more.
Foreclosures or wholesale properties can also be the great deal you’re looking for. You have to be careful with these properties, since there may be more problems than meet the eye. But if you go in with eyes wide open and a good inspection, you can often find a great deal.
- Look for Private Investors
Investment partnerships are one of the best ways to finance your real estate investment. Other people put up most of the money, you put in all the time and effort to make improvements or rent the property, and all invested parties split the profits. You might also find private money lenders who will put up a huge percentage of the money at a low interest rate.
Both of these are ideal circumstances—if you can find a credible partner. “Private money is great,” says Mark Ferguson of Invest Four More. “But there is no secret website or guy on Facebook who will lend new investors 100% of a deal at 3% interest (I see these scams on my Facebook group all the time). You need to find the private money through your own contacts.”
Investors can be just as difficult to find, especially if you’re brand new to real estate. It’s hard to build your credibility in the market and appeal to investors if you’re just starting out. You need experience in real estate and a positive track record for finding good deals and helping other investors make profits.
- Have a Financial Cushion
There are always changes in real estate, and if you’re not financially prepared, things could go south quickly. You might score an excellent deal and get your financing in place, but if you’re not financially ready for some extras, you’ll struggle to make your payments.
“Maintaining a financial cushion to deal with problems is imperative,” explains Brandon Turner of Bigger Pockets. “You probably don’t need $50,000 in the bank to buy a small rental house, but you do need to be able to weather the storms that will come, relative to the size of the property you are buying and that property’s risk for loss.”
It’s hard to go into real estate investing without a decent amount of savings to help you out in case of an emergency. If you don’t have the money in cash, look into loan options for beefing up your security blanket.
Investing in real estate without a ready down payment is possible as long as you have a few measures in place to protect yourself and get a great deal.