Have you ever heard the adage, “To make money, you have to have money?” Although in many areas this is true, when it comes to real estate investing, there are legitimate ways to invest without having any money down. Just make sure you are prepared before you begin leveraging these strategies.
Before You Start
Before you start investing with no money, you should always work on increasing your knowledge of investing. This can be done in many ways:
- Networking
- Reading
- Getting a coach
- Working a job in the field of real estate
During this time, you may be able to save a little money to get started, but even if you don’t, there are some ways you can invest without any money in your pocket.
Wholesaling
Wholesaling is significantly different from buying a property to flip or rent. When wholesaling, you will never take ownership of the property. Instead, you’ll get a property under contract and then assign the contract to an investor. This means you will need no money to participate in the process.
The property you find will typically be a distressed property. The investor will use cash, credit lines, or hard money loans to provide funds, which allows the closing to be quick. Most investors will look at the property to rehab and flip.
As a wholesaler, you are simply the middle man and make your money by setting a finder’s fee that can range from $500 to $10,000, depending on the deal. To make money wholesaling, you have to be good at creating connections and formulating deals in which everyone wins.
Find a Partner
Although many people see real estate investing as simply a “money deal,” the truth is that there are many pieces to the puzzle. If you lack money but have something else to offer, you can find a partner who needs your particular skills. Some skills you might have include:
- Deal making
- Time and/or skills needed for rehab
- Property management skills
- Connections
If you don’t have money, be sure to strengthen the pieces you do have to make yourself valuable to a partner with cash.
The Lease Option with a Twist
Sometimes known as the lease option sandwich, this investment technique can be a bit complicated. It is based on the “Rent to Own” idea but adds a twist. Here is how it works:
You find a property from a seller named Jane. Jane allows you to sign a lease option for five years. During this time, you have the legal option to buy the property for a set amount and must pay a set amount per month. In this example, you can buy the property for $80,000 and will pay $500 a month. Then, you turn around and offer the property to a tenant name John. John is given the option to buy the property at $100,000 and will pay $800 a month.
During this time, you have the option on the home, you are earning $300 a month. If John comes up with the money to buy the house, you will make $20,000. At the end of the lease option period, if John has not bought the house, you still have the option to do so for $80,000.
Keep in mind, this can be quite complicated. You’ll need to be sure you understand all the rules for sandwiching an option before you get started.
Hard Money Lenders
If you are looking to fix and flip, hard money lenders may be your answer. These loans are short term loans from individuals that carry high fees and interest rates. With these types of loans, the lender looks more at the deal than at your own credit worthiness.
When flipping homes, you won’t have to worry about the high payments and interest because the loan will be short term. The point is to repay the lender as soon as you flip the home. However, if you plan to hold onto the home or fear it will take a long time to sell, then a hard money loan may be too costly.
Combine Methods
One of the benefits of real estate investing is that you have many options. Think creatively and find ways to combine these methods to get the best deal.
- Partnership and hard money
- Career in real estate to help find wholesale deals
- Wholesale deal to find a great partnership
- And more
To invest in real estate without money takes some creativity, as well as knowledge about the process. As you think outside the box, you’ll be able to find ways to make money without having it in the first place.
About the Author
John Trautman is founder and CEO of the Real Estate Knowledge Institute (REKI). An author, entrepreneur and longtime real estate investor, he is committed to inspiring and helping other aspiring real estate investors who have an interest in everything from home flipping to buying and selling rental properties to earning passive income through various real estate investments. REKI is the fulfillment of Trautman’s ambition to act as a credible and responsive expert who is available to mentor and counsel individuals about the fundamental rules of real estate investing in an intelligent and straight-forward manner.
In many states, wholesaling is illegal without a state real estate license. Why is John Trautman teaching an illegal practice???
Name that state, and please back it up with actual reference to the law that forbids wholesaling real estate without a license.
The only way it’s illegal of the person gets a commission off the sale, if say I hired someone to do this and their pay was commission based. I and the employee would be breaking the law. Commissions are the only way that makes retail wholesaling illegal. Making a flat profit and paying a worker a salary is legal in all 50 states. I agree with the initial comment, zero down stuff is only good if you have the capital to back it up. It’s how we got into the mess during bush. I saw between June and July 2006 the start of the crash and luckily recognized it. That’s why not getting support to goto college I got my license in March 2006 and got to work making a load in Las Vegas in 3 yrs.
There are two types of “no money down” investors:
1. Those who have gone to a seminar pitching this as a system, and have to use “no money down” because… They don’t have any money. 99% of these people fail and end up giving real estate investors a bad name because they can’t back up their commitments to home sellers, contractors, lenders, and others.
If you can’t AFFORD to purchase a home, you SHOULD NOT BUY IT. I know you don’t want to hear it, but start saving and you’ll have enough for the downpayment in no time. Some quick “low hanging fruit” tips to save some quick cash include – switch to Metro pcs or Boost for cellphone (I only pay $20/month), switch auto insurance to Insurance Panda ($25/month), and start using GasBuddy (saves me like $100/month at least. I drive a lot).
You do not want to go into this broke.
2. Experienced investors who simply use the good financing and leverage options to create the best outcome for their transactions. One of those options might include not putting money down up front.
We run into this every day – novice real estate investors think that “no money down” means “no commitment or obligation”. This is absolutely not the case of course, and is the reason so many of these transactions fall apart and tarnish the ethical investors out there.