Real estate investment has been proven to be the most effective way to generate passive income over time. Although it is not a popular belief, you can begin earning money quickly after investing without saving up a large amount of money or having a high credit score. You’ll have to learn how to get into real estate using methods that have been proven to work. You don’t need a lot of money to get started in real estate investing. Here are a few options for investing with little money.
You can make money in real estate by investing a little bit of money, borrowing money from a bank or another type of lender, and then selling the property later on for a profit. Other ways to make money in real estate include investing in REITs or mutual funds, or partnering with other investors. This does not sound as complicated as it might be, and it is worth looking into further.
Loans from traditional financial institutions are not always easy to qualify for. There are several ways to finance the purchase of a property if you don’t have the necessary funds. The article explains how to invest in real estate with little money.
How to Invest in Real Estate with Little Money
You do not need a lot of money to invest in real estate.
The property you own can then make money for you.
If you’re smart and good at negotiating, you can make money in real estate without owning a property. You just have to be comfortable with taking risks.
Find out how to invest in real estate with little money by reading on.
1. Buy Property And Sell It Later For A Profit
This is a very common real estate investment strategy.
It’s called the buy-and-hold approach. It involves buying a piece of property at a low price and holding on to it for more than ten years… before selling it for a hefty profit.
The value of real estate generally increases over time, so if you own property, you may make a lot of money if you sell it after a few years. The key to success is finding a property that is cheap and can appreciate in value.
Here are some tips on how to find a property for cheap:
- Pore over MLS listings. Usually, the longer a property has remained unsold, the lower the price the seller is willing to accept. Check the CDOM (continuous days on the market) or PMP (property marketing period) numbers to determine how long the property has been on the market.
- Check out foreclosures. Banks want to offload their inventories of foreclosed houses. Quickly! Check with the banks in your city or district.
- Explore short sales. You can find lucrative deals if you have the time to wait for the bank holding the lien to approve the sale. These houses are usually habitable because the owners still live in them.
- Consider fixer-uppers. A house that needs $10,000 worth of repairs might sell for $30,000 less than a similar property ready for moving in. Buying a fixer-upper entails some DIY repair work on your part. However, if you’re up for the challenge, you can bag a lucrative deal.
- Search for properties in neighboring towns and cities. A house situated just half an hour outside your city might be priced tens of thousands of dollars less than a similar house within city limits. You can find lucrative deals in cities that were hit hard during the economic downturn of 2008.
2. Rent Out Properties You Own
You can make the most money from your property by renting it out to long-term tenants during the holding period. You can make a significant amount of money before selling your house.
You can make extra money by becoming a host on Airbnb and renting your house to tourists and travelers for short periods of time.
If you live in a popular tourist destination, you can make more money from vacation rentals than from traditional rentals. Much more!
Before listing your home on Airbnb, confirm that your locality’s regulations allow for short-term rentals.
3. Seek Financing From the Sellers
If conventional loans from financial institutions are not an option, you could explore a purchase money mortgage or seller financing agreement. Here are the steps on how the deal works:
- The property seller agrees to pay the closing costs to finalize the deal.
- You then sign an agreement with the seller that states an interest rate and a mutually agreed-upon repayment schedule.
- You start repaying in monthly instalments.
The advantage of seller financing agreements is that you can negotiate a lower down payment than what you could’ve when dealing with a bank. This is because the bank is not involved in the transaction, so the seller has more power to name their price. This is especially true if the house needs repairs.
4. Seek Hard Money Loans
Getting a loan from a bank can be a difficult process and a large barrier to investing in real estate. If you want to invest in real estate but have little money, there are especially good options for you.
Enter hard money lenders.
A hard money lender is a person or company that provides money for investing in real estate. The approval criteria for these types of loans are not as strict as the criteria banks use. You will receive the money soon after you are approved.
However, you will be responsible for the costs associated with purchasing the property, including appraisal fees, application fees, and closing costs.
The interest rates for these types of loans are 10% to 18%, and they are typically only for a duration of 12 months or less. Loans like these are perfect for fixing up a run-down property so that you can then either rent it out or sell it for a profit.
5. Apply for a Microloan
Microloans help small businesses and start-ups to grow. These loans can be used to buy a cheap property or repair a fixer-upper for those who have a small real estate business. Once the property is repaired, it can be rented out or sold.
Microloans are smaller loans than those that banks usually offer. This means that it is easier to get approved for a loan from an online lender than from a bank.
6. House Flipping
Flipping houses involves buying a home, repairing it, and then selling it for a profit. It can be challenging to spend money to buy and fix a place when you have little or no money. If you are looking for an alternative to traditional lending, hard money lending may be a good option for you. As long as the property you are flipping is worth a great deal, you can find lenders who will be willing to loan you money using the property as collateral. Most lenders want you to have some money in the deal as “skin in the game” to cover the investment risks, but you can find lenders who are willing to lend at a higher rate.
If you can’t find private lenders within your network, you can advertise your deal on crowdfunded real estate platforms. Please refer to my article which provides a checklist for evaluating a potential real estate crowdfunding deal. When you are looking for money on investment websites, you should structure your deal in a way that meets most of the criteria that make a deal attractive to investors.
7. Buy-Rehab-Rent-Refinance-Repeat (BRRRR)
The BRRRR method is a combination of flipping and holding onto property. The acronym stands for Buy-Rehab-Rent-Refinance-Repeat. In this method of flipping houses, one would buy a house using a hard money loan and then rehab it. The owner would not sell the property after the rehabilitation, but rather would rent it out.
The rent money is used to pay back the loan. Before a bank will give a loan for an investment property, they want to see at least a year’s worth of rental income. You would need to take out a bank mortgage to refinance and repay the hard money lender. The bank loan has a lower interest rate than the hard money loan.
After the refinance is completed, you will have extra money that you can use to buy another house or to renovate a house to sell. You can keep using the profit from the previous houses as long as the market stayssteady.
Airbnb is an advanced version of house hacking. Would you rather have long-term tenants or travelers from around the world staying in your house? Be sure to take the necessary safety precautions.
The income from Airbnb is significantly higher than from long term rentals. But you are now operating as a hotel. Guests will expect more from your property, so be sure to outfit and advertise it accordingly. Check your local laws for Airbnb restrictions. Generally, it is more acceptable to have an Airbnb where the owner lives in the same property than the entire house being vacant and hosted as Airbnb.
9. Master Lease
With a master lease, you can rent out a property on Airbnb without owning the house. Many landlords prefer longer term rentals as it can be more difficult to deal with issues that may come up with Airbnb guests. You can sign a long term rental agreement with the landlord and then sublet various rooms or rent the entire space out on Airbnb. Airbnb usually has a higher profit margin than subletting each room.
Make sure to be honest with your landlord when you are renting their property. As long as you’re timely with rent payments and meet all other requirements, most landlords wouldn’t have a problem with you signing a master lease.
10. Home Equity Line Of Credit (HELOC)
A HELOC is a line of credit backed by your home equity. You can use the HELOC funds for home improvement. You can invest in real estate with little or no money by tapping into your HELOC and using it to add additional living space to your house.
The money from the HELOC can be used to build an addition onto the house, like a master bedroom, or even a separate small living space that could be used as a rental unit. The extra living space can bring in some extra income if you decide to rent it out or list it on Airbnb. A HELOC typically has a lower interest rate than other types loans, and the interest may be tax-deductible. Refer to IRS publication for tax guidance.
11. Equity Partnership
Instead of investing in a rental property by yourself, you could team up with a partner. This would allow you to pool your resources and knowledge to make a more successful investment. In an equity partnership, each person brings something to the table which can be beneficial. Your partner puts up the money for the property or takes out a loan in their name if you want to invest in real estate with little to no money. Finding and maintaining a deal with a landlord is your responsibility.
The profits will be split between the two of us at the end of the deal or every month. You and your partner are splitting the work by financing and time investment. It is important for equity partnerships to be successful to have a record of each partner’s roles and responsibilities. How will you and your business partner(s) agree to split the profits from the business? This should be outlined in a formal contract. The contract should state what will happen in the event of any disputes between the partners in the equity partnership.
Wholesale real estate investing consists of buying a property with the goal of flipping it for a higher price. Unlike a flipper, a wholesaler doesn’t invest any money in the property or do any renovations. The wholesaler finds someone to buy the property and assigns the contract to them for a fee.
Wholesaling real estate means selling the right to buy the property, not the property itself. Some of the ways to close on a wholesale property are as follows: -The wholesaler finds a buyer and assigns the contract to them. -The wholesaler sells the property to a rehabber or another investor who will fix it up and sell it. -The wholesaler finds a tenant and leases the property to them. Make sure to double-check the information in my post about wholesale real estate investing for beginners before moving forward.
13. Bird Dogging
Bird dogging is half of the wholesale investing process. Wholesaling is different from bird-dogging in that you don’t actually close the deal as a “bird dog.” You only find and bring the deal to a real estate investor for closing.
If you help an investor find a good business deal, the investor will pay you a finder’s fee. In some states, you must be a licensed real estate agent to receive a finder’s fee. As always, research your local laws. If you’re interested in making a career out of real estate, it might be worth considering relocating to one of the states that’s most favorable for real estate investors.
14. Turnkey Real Estate
As we’ve covered in other places on this website, our favorite way to buy real estate is through Turnkey Real Estate investing. You can get in on a single family home usually for as little as a 20% down payment.
That’s a substantial savings on the full purchase amount and you can always look at other parts of the country in order to invest in more cost advantages places. This is how we are and continue to move our own financial freedom plan forward.
If you’re looking to invest in real estate but don’t have much money to spend, there are still plenty of options available to you.
Other than traditional financial institutions, many lenders are willing to loan you money without fulfilling stringent qualifying criteria.
There are many ways you can make your house generate income for you.
However, you don’t even need to own property to get into real estate investing. Other people’s money can be used to finance investments in the real estate market. Sounds good to me!
To begin your real estate investment journey, all you need to do is get started!
Kurt has gone from the financial lows of the ’08 financial crisis to personal financial success. He is a professional real estate investor, media buyer, faithful Red Sox Fan.
One of his passions is financial education and the pursuit of financial freedom.
You can learn more about Kurt here, or get a hold of him on Facebook or Twitter.