Are you interested in investing your money in real estate but have little or no money to get started? Here are a couple ways to get started in earning money while using other people’s money. Typically, when you guy an investment property, you have to tell the bank that it is an investment property and they will tell you that you need 25% of the loan amount down beforehand. This can be daunting and discourage new investors away. Don’t let it! There are several ways around finding your own 20-25% down, here are the top three easiest options.
1.Open a HELOC (Home Equity Line Of Credit)
This is probably one of the easiest, and most used ways to start out buying an investment property. If you don’t know what a Home Equity Line of Credit or HELOC is, see the word bank below. If you pull money out of your first home, you can secure a rental property with the bank’s money. The upside is that you can make monthly profit from your rental property, the downside is that you will have to be putting some of that profit in to your HELOC (or you should so that you can pay it off). It is pretty typical to get a HELOC for a pretty good percentage rate, so you are really borrowing money for little interest. This is one strategy that we have used to purchase investment properties, and we end up making a good profit even after putting money toward the HELOC. Once you have enough money in your investment home, you can use a HELOC on that mortgage as well. Beware with this strategy not to get too leveraged.
2. Passive investors, or a private loan
This is a strategy that entails you asking someone you know for a private loan. It may seem like a lot to ask of someone, but it really is a win-win situation. You can offer specific terms for the money you are borrowing, and the lender will make a profit from you borrowing their money, while you make money from the profit that the renters give you. An example of this: let’s say that you know someone that is afraid of investing their money in the stock market, or he/she has a savings account that is just sitting in the bank and making 0% interest; find them and offer them an opportunity to make money. Networking is huge in the investment industry, if you don’t know where to start, attend a Meetup group. Check out our Meetup group (we meet once a month)! There are more people out there than you know, they are sitting on a lump of money and don’t know what to do with it. People are scared of the stock market, and they are afraid of the bank, have them invest in your deal!
3. Seller Financing
Seller financing sort of speaks for itself, but it may seem a little overwhelming at first glance, when it really isn’t. Seller financing is also a win-win scenario because the seller is going to benefit from financing your loan. Basically you, the buyer, and the seller, come up with terms as if the seller were the bank, and you were lending from them. This can be a really great strategy for zero money down because you can offer to buy the property for an agreed upon purchase, but you will just take over the payments, and hopefully generate income along the way. If you don’t have the money for a down payment, simply make that part of the agreement. You will probably have a higher monthly payment, but if you can make a profit, it will be worth it.
Home Equity Line of Credit– A second loan on your personal home mortgage. If you have enough equity in your own home, you can pull out a second mortgage and use it for whatever you would like, including purchasing an investment home. I don’t recommend using for anything other than something that will generate income. You will have to pay monthly payments toward your HELOC, but they typically come with minimal interest rates. For example, I bought a house recently for $142,500 (it was a great buy in this high market right now) and I knew that the house is probably really worth $165,000 or $170,000. Therefore, I have around $22,500 in equity in that investment house. It is important to note that you have to always have 20% equity in your home loan, so anything more than that you can take out on a HELOC. Awesome, right?!
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