We all know that it takes money to make money, especially in real estate investing. Conventional wisdom suggests that you need a 20% down payment and a significant amount of cash to get started. But what if I told you that conventional wisdom isn't always right?
In reality, entrepreneurs get started in real estate every day with little money. They have a strong dream and apply a whole lot of hustle. How do I know this? Because that's what I did, and I've seen others do the same.
In this article, I want to show you 15 different ways you can start investing in real estate with little or no cash. These strategies have worked for me and many others, and they can work for you too.
House Hacking
House hacking is one of my favorite ways to start investing in real estate. It involves generating rental income from your home. You can move into a small multi-unit property like a duplex, triplex, or 4-plex and rent out the extra units for income. You can also get creative by renting out extra bedrooms to roommates or renting out a basement apartment or guest house. This strategy can be started with little money down because you can obtain owner-occupant financing to buy the property.
Master Leases and Lease Options
Did you know that you don't need to buy a house to get started with real estate investing? Instead, you can just rent it. Master leasing is a technique where you rent a property and sublease the extra bedrooms or units to other tenants. You can negotiate very little upfront money for master leasing, perhaps just a security deposit, prepaid rent, or an offer to do some repairs. You can also negotiate an option to purchase, which gives you the right to buy the property for a set price during a certain period of time.
Live-In House Flip
Have you seen those house flipping shows on TV and wanted to do it yourself? One of the best ways to get started with flipping is by turning your home into a flip. This is called a "live-in flip." It works by buying a home, moving in, and living there for at least 2 out of 5 years. Then you can sell the home for a profit and pay no taxes up to $250,000 as an individual or $500,000 as a couple. This strategy takes advantage of one of the most profitable tax laws in the U.S.
Live-In-Then-Rent
The live-in-then-rent technique is similar to house hacking. You move into a house, get it ready to rent, and then keep it as a rental when you move out. This strategy requires buying a more modest house that can work as a rental. You can benefit from small-down-payment loans for owner-occupants, and because a house is typically bigger than an apartment, it's more beneficial for people with families.
Real Estate Crowdfunding
Real estate crowdfunding allows you to invest a smaller amount of money, like $1,000 to $5,000, alongside a group of other investors. This can be in rental properties or loans to other real estate investors. While it's a relatively new option, it can be a passive way to get started in real estate. However, it's important to be cautious and spread your investments across different companies to minimize risk.
REITs (Real Estate Investment Trusts)
Real estate investment trusts (REITs) are similar to mutual funds but consist of commercial, income-producing properties. When you buy stock in a REIT, you own a small piece of many properties. REITs provide a passive investment option, and their shares are more liquid than other real estate investments, allowing you to sell them quickly if needed.
Airbnb
Airbnb is a popular online marketplace that allows you to rent out your home or part of your home for short periods of time. It can be a low-cost way to get into real estate investing. You can generate income from your home or part of your home and potentially grow it into a part-time or full-time income. Becoming an Airbnb host can be a specialized form of house hacking, leveraging the extra space in your home.
Partnership
When you don't have the money yourself, you can still get started in real estate by partnering with someone who does. A common partnership approach is a credit partnership, where your partner puts up the down payment and obtains a loan to buy the property. You lease the property from your partner and sublease it to tenants. This allows you to control the income and appreciation of the property with very little money down.
Seller Financing
Seller financing involves purchasing real estate where the seller becomes the bank. Instead of getting a loan from a bank, you negotiate with the seller to pay for the property over time using monthly installments. This approach is valuable because sellers aren't bound by traditional lending requirements. You can negotiate lower down payments or trade sweat equity (your labor) instead of a monetary down payment.
BRRRR Strategy
BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat. It involves finding fixer-upper properties, remodeling them, and increasing their value. Instead of selling, you keep the property as a rental and refinance to pull out some or all of your cash. This strategy allows you to recycle your funds and buy multiple properties in a row, rapidly growing your rental portfolio.
Borrow Your Down Payment (CAREFULLY!)
While borrowing money for a down payment isn't recommended, it can be done carefully. For example, you can use a home equity line of credit (HELOC) to borrow money against the equity of your home. You can then work on paying the funds back quickly from savings or income from the property. Another option is borrowing from your own 401k funds, paying yourself interest and paying the money back in a reasonable period of time.
Become a Real Estate Agent
Becoming a real estate agent is not technically investing, but it's a great way to learn about real estate transactions and the market. You can start a side business or a full-time career as an agent. While it requires some upfront investment for classes, tests, and licensing, it can be an excellent way to generate income and learn the ropes of real estate investing.
Become a Bird Dog (Sniff Out Deals for Others)
Bird dogging involves finding good real estate deals for more experienced investors. It requires little money or experience to get started. It's a specialized form of being a real estate agent, where you focus on finding deals for investor buyers. You earn finder's fees, which usually require you to have your real estate license. This strategy allows you to learn the business while earning money.
Wholesaling
Wholesaling is the business of finding deeply discounted deals and quickly reselling them for a profit to other investors. While it's not the perfect beginner business model, it can be a great way to make money if you're good at sales. Being a real estate agent can be an easier and lower risk way to make money initially, but wholesaling can be a great addition to your real estate business later on.
Find Tenants for Rental Owners (Leasing Agent)
If you want to become a rental owner but don't have the cash yet, consider becoming a leasing agent. You help match tenants with rental units and earn a fee in exchange for your time. This allows you to learn how to find and screen tenants while earning money and taking minimal risk. Working for a property management company or contacting individual landlords can provide opportunities for leasing agent positions.
These are just some of the many ways you can start investing in real estate with little or no money. Each strategy has its own pros and cons, so it's important to find the one that aligns with your goals and aspirations. Remember, real estate investing takes persistence, energy, and a lot of hustle, but it is possible to make it work for you. So, which strategy resonates with you the most? Share your thoughts in the comments below.