If you’ve spent any time watching HGTV, you’ve seen the imposing profits that can come from real-estate investments. A quick Google search yields hundreds more stories about investors who made their fortunes in the housing industry.
It’s an attractive investment market, but difficult to enter without a lot of initial capital. Even people who have invested and made profits in the past can struggle to scrape up enough funds to invest again.
Is there a way to invest successfully in real estate without a lot of money?
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.
Here are a few methods that have worked for investors in the past.
A popular option for affordable investing is buying homes at wholesale prices. By definition, a wholesaler is a person who gets paid for finding great deals.
In real estate, that means you’ll be purchasing homes that have dipped below market value. Sometimes they’ll be affordable because there’s damage to the property; other times, it might be because the seller wants a quick turnaround. Either option is good news for people like you.
The benefit is that comparatively little capital is needed for the down payment. You don’t have to waste money on a real estate agent, and sometimes you don’t need any money down whatsoever. Certain homes may be purchased even if you don’t have a great credit score.
This isn’t an entirely free option, however. You’ll have to pay for such things as operating the investment, minor repairs, marketing, and anything else that comes up in the process. The good news is, you can usually turn a handsome profit after spending only a few thousand on the entire process.
What would have been impossible following the housing crash of 2008 is finally possible again: no-money-down mortgages. This is a direct result of government intervention to stimulate the market.
“The Federal Housing Administration, or FHA, insures loans with small down payments, and private mortgage insurers have relaxed their down-payment requirements,” according to an article from Bankrate. “It’s even possible to get a mortgage today with no money down. The nation’s biggest credit union offers ‘zero-down’ mortgages. The Department of Veterans Affairs, or VA, and the Department of Agriculture, or USDA, guarantee home loans with no down payments.”
Through these agencies, you can get a great deal on real estate without reaching for a single dollar from your pocket. Again, it’s essential to recognize that you’ll likely have to spend a few thousand on closing costs and a few other items, but once you’ve turned a profit, you’ll pay back the mortgage and any other expenses and have some left over.
When you have no credit, bad credit, or no funds, a lease option offers a great bailout. Through this route, you can control property without taking legal ownership.
Instead, you’ll sign a lease with the option to buy at a specific price in the future. The option period will last for a set number of months, and the owners are not allowed to sell the home until that time period is up.
During that period, the investor can do what he or she likes with the property, including make money. “The beauty of the lease option is there are three different ways to make money,” says Jason Hanson, experienced investor and contributor to Bigger Pockets.
“You can make money from the ‘option money’ a tenant/buyer pays you when they move into the place. You can make money from the cash flow on the rent amount …. And of course, the big payday is when you sell the house to the tenant/buyer.”
Typically, investors will turn the property into a rental. They’ll handle the landlord and property management aspects. With the profits, investors will pay the leasing fee to the owner and pocket the rest. In just a few months, you could have enough capital to get a loan and purchase the property.
If you bring a fair amount of knowledge and experience to the real estate game, but little or no capital, a partnership might be in your best interests. Many investors want to make their fortune from real estate investments, but they don’t have the experience or the knowledge necessary to be successful.
This is the perfect opening for you to swoop in and offer the pieces they lack. You can split the profits accordingly. Use your networking skills to find those who could benefit from your experience.
Richard Myers, real estate contributor for NuWire Investor recommends choosing a partner who is most for the opportunity at hand. “The happiest equity partner is one whose needs are met by the investment,” Myers says.
“For example, if the investment is a large, fully occupied shopping center, that would be suitable for an institutional investor. However, smaller properties that will seem like ‘small fish’ to institutional investors might be very interesting to individual investors.”
Through crowdfunding, networking, or friends and family, you can try to raise the capital for a real-estate investment. Often, people who seek private funding will opt for “hard money,” which involves getting a loan from a wealthy individual rather than from a bank. The loans are very short term, sometimes as short as six months and rarely longer than two years.
Taking out a loan for such a short amount of time may seem daunting, but if you’re planning to fix and flip, or buy and refinance a property, it’s a perfect fit. Ideally, you’ll turn a profit in just a few months and pay the money back in full, with plenty left over.
There are many benefits to this form of fundraising. For example, you don’t have a 30-year mortgage over your head while you work on making a profit. Also, you’ll generally pay less in interest over the long term because the time frame is so short.
However, it’s important to note that you shouldn’t take a “hard money” loan unless you’re absolutely certain you can make a profit on the property. If you’re talking about hundreds of thousands of dollars, and the property turns out to be a flop, you’ll lose big time instead of gain.
Mix and match any of the above options until you’ve found the perfect investment strategy for your real-estate career. Any of them are great for launching a career that could make your fortune.
Green Residential can assist at any point in this process. We have more than 30 years of experience in real estate and property management, and can offer professionalism and expertise in every area of the business.
Whether you need property managers to handle your rentals or a good agent to smooth out the home sale process, contact us.
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