With all the talk about real estate investing being a wonderful way to build long-term wealth, you’re interested in getting onboard. The problem is that unlike some investors, you’re not independently wealthy.
It’s a common misconception that real estate investing is only for the filthy rich. By learning how to invest in real estate when you’re strapped for cash, you can put your money to work for you — even if we aren’t talking millions. Here are a few tips to break into the world of real estate investing without breaking the bank.
Look for Seller FinancingSeller financing is a wonderful way for those who are short on cash to secure a loan. One of the best things about a seller-financed deal is that you can create a unique loan structure that best suits you. Perhaps the seller would be willing to forgo a mortgage payment for the first three months so you have the cash to renovate and rent out the property?
If you can find a motivated seller who wants to sell quickly and is willing to work with you, this can be an excellent strategy to get your investment up and running. Keep in mind, however, that most seller finance agreements are for the short term — typically around five years. After that, a seller will expect you to be able to refinance and take care of the balloon payment they’ll be due at the end of the contract.
If you’re hoping to buy a home, renovate it, and sell it for a profit, getting a hard money loan from a private lender may give you a path to make the investment without having to put a large amount of money down up front.
Also referred to as bridge loans, hard money loans aren’t doled on based on your credit score. Instead, the lender will look at the property you’re considering and decide whether its ARV (after repair value) is worthy of this type of loan. Be aware, though: hard money loans are a great way to get money upfront, but they’re more expensive than a traditional loan. They also have a shorter repayment period, making them perfect for a buy-and-sell flipper but not an ideal solution for someone who plans to hold onto a property for the long-term.
Maybe you don’t have a lot of cash on hand, but you do have a nice amount of equity in your primary residence. If this is the case, look into getting a home equity line of credit (HELOC). Unlike a hard money loan, the interest rates on a HELOC are generally very low. The payments are typically interest-only, making them very low, as well. This can be an ideal solution if you find an attractive turnkey property that would be ideal for generating rental income.
Whether your plan is to purchase a long-term real estate investment and rent it out to generate immediate income or buy a home, remodel it, and sell it as quickly as possible, do extensive research and choose your property wisely. Understanding how to invest in real estate when you’re strapped for cash will only get you so far; after that, it’s up to you to secure a tenant or make the sale on your newly-remodeled investment. No one wants to be on the hook for a home that’s sitting vacant and unrented or struggle to flip a home as the mortgage payments keep coming month after month.
By doing your homework, developing an understanding of the housing and rental market in any area you’re considering, and moving carefully, you’ll be able to find a property that will generate returns. Even if you’re short on money now, there’s no reason you can’t be a savvy real estate investor and build your bank account for the future.