Real Estate

How to Invest in Real Estate With Little OR No Money

It is a misconception that you need deep pockets to invest in real estate. On the contrary, if you are a savvy investor, you can identify and buy real estate that will generate returns for you in the long run with limited resources. Although you will still need a consistent income for your investments, investing in the right property can help you pay off your loans with rental income. 

Even if you have a low credit score or do not have the means to purchase a home, here are some options you can consider to buy a property for self-use or generating rental income. Talk to your real estate consulting firm about these so they can give you an option based on your resources.

Private money lenders

These loans are provided by individuals or companies with a rate of interest somewhere between 6 to 12 percent. They do not check your credit score before lending to you, instead, they borrow based on the valuation of the property. These loans come with their own set of rules, including fees and higher interest rates to deal with. The biggest benefit these lenders provide is that you get the loan in days, as against months taken by banks.

Hard money lenders

These lenders set their fees in the form of points. This is above the interest charged on the loan, with these points representing an upfront percentage fee. The interest rate and points paid are not the same everywhere, you have to do your due diligence before applying.

Wholesale real estate investing

‘Wholesaling’ a property includes finding a property at a discounted rate and selling the rights to buy the property to a potential investor. As an intermediary, you get paid to do so. This, in essence, does not require a high credit score or large sums of money. This is a great way to start your investments in real estate.

Equity partnerships

If you know where to invest but do not have the means to do so, you can partner with someone who does. This benefits both partners. Just make sure that both of you bring something to the table, and that the partnership type is discussed well before signing the dotted line.

Buying option

This allows investors to buy the property without taking legal ownership. Also known as a ‘lease option’, here an agreement is signed by the investor and homeowner. The investor rents out the property to the homeowner. He will keep paying the rent with an interest rate till the date the decided-upon amount is paid to the investor.

House hacking

This is a common method used by people to take advantage of a situation. For instance, a person living in a multi-unit home could rent one unit while staying in one unit. Some people also give up one of their bedrooms on rent. This helps to generate an additional source of income while helping the homeowner pay off the mortgage through his rental income. 

Government loans

The United States government offers a lot of loan options you can choose from-

  • VA loan
  • USDA loan
  • FHA loan
  • Freddie Mac or Fannie Mae
  • Energy-Efficient Mortgage (EEM)
  • Various state grants and programs and much more

Though there are various options available, not all can be used to invest in property. For example, VA loans can only be applied to one home at a time. However, these loans do give you some flexibility when it comes to investments. For example, you could purchase a duplex with a mere 3.5% down payment using an FHA home. When you rent out the other unit, in essence, your rental income pays off the loan.

Another option available is to buy a home using a VA or USDA loan. You’ll have to stay in it for a year or so and then move out, turning the property into a rental home. These loans do not put much emphasis on credit scores or down payment requirements. One thing to note though, you will have to wait for months for your loans to get approved.

Investing in REITs

If you do not want the hassle of hiring a broker or getting the paperwork done, investing in a Real Estate Investment Trust (REITs) is an ideal option. Here, you buy shares in a company that identifies, invests, and manages properties on your behalf. In a way, REITs are similar to stocks. They are a great way to generate passive income. However, you will have to vet the company well – see which types of properties they invest in and understand their investment style.

Wrap Up

There are many options available for reaping rich dividends from real estate investments. Choose one based on your requirements, but do not forget to do the due diligence for it. After all, your hard-earned money is at stake.

Investment in real estate is vital for long term run. In this article, I will highlight few points on how to invest in real estate with little or no money.


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