{"id":11089,"date":"2022-11-18T19:31:51","date_gmt":"2022-11-19T00:31:51","guid":{"rendered":"http:\/\/blog.jlbn.net\/?p=11089"},"modified":"2022-11-18T19:31:53","modified_gmt":"2022-11-19T00:31:53","slug":"4-no-money-ways-to-invest-in-real-estate","status":"publish","type":"post","link":"http:\/\/blog.jlbn.net\/?p=11089","title":{"rendered":"4 \u201cNo Money\u201d Ways to Invest In Real Estate"},"content":{"rendered":"\n<p>Interested in&nbsp;<a href=\"https:\/\/parentportfolio.com\/real-estate-investing-for-beginners\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>investing in real estate<\/strong><\/a>&nbsp;and reaping the benefits of passive income, but you\u2019re afraid you have no money? There are creative ways to acquire&nbsp;investment properties&nbsp;without necessarily having the cash in your bank account.<\/p>\n\n\n\n<p>When I started real estate investing and closed on my first real estate\u00a0investment property, I waited to hear back from the bank on how much I needed to bring. My\u00a0<a rel=\"noreferrer noopener\" href=\"https:\/\/parentportfolio.com\/real-estate-investing-team\/\" target=\"_blank\"><strong>banker<\/strong><\/a>\u00a0works with numerous investors, so I trusted she knew what she was doing. When I showed up at the bank, I just signed papers and never had to write a check.<\/p>\n\n\n\n<p>I was able to make this<em>&nbsp;\u201cno money\u201d<\/em>&nbsp;purchase through the power&nbsp;<strong>leverage<\/strong>! Specifically, I could leverage the equity in my&nbsp;primary residence&nbsp;to acquire my first&nbsp;rental property.<\/p>\n\n\n\n<h2 id=\"4-ways-to-invest-in-real-estate-with-no-money\"><strong>4 Ways To Invest In Real Estate With \u201cNo Money.\u201d<\/strong><\/h2>\n\n\n\n<p>The most significant barrier that prevents potential\u00a0real estate investors\u00a0from\u00a0<a rel=\"noreferrer noopener\" href=\"https:\/\/parentportfolio.com\/investing-in-stocks-versus-real-estate-which-is-better\/\" target=\"_blank\">investing in real estate<\/a>\u00a0is the lack of capital. People\u00a0<em>think\u00a0<\/em>you need a lot of cash to acquire\u00a0rental properties.<\/p>\n\n\n\n<p>Though that may be true, it doesn\u2019t necessarily have to be&nbsp;<strong><em>your&nbsp;<\/em><\/strong>money. Seasoned investors leverage&nbsp;<strong><em>other&nbsp;<\/em><\/strong>people\u2019s money&nbsp;and pay it back (interest included) through the profits generated by the&nbsp;investment property.<\/p>\n\n\n\n<p>Here are four ways investors invest with \u201cno money\u201d:<\/p>\n\n\n\n<ul><li>Hard Money<\/li><li>Private Money<\/li><li>HELOC<\/li><li>Business Line Of Credit<\/li><\/ul>\n\n\n\n<h3><strong>Hard Money<\/strong><\/h3>\n\n\n\n<p><strong>Hard money<\/strong>&nbsp;is a type of loan provided by an individual or a company. However, they operate a little differently than a bank.<\/p>\n\n\n\n<p>A bank typically checks a person\u2019s&nbsp;credit score&nbsp;and employment to see if they qualify for a loan. On the other hand, a&nbsp;hard money lender&nbsp;does not check for those things. Instead, a&nbsp;hard money lender&nbsp;values the&nbsp;<em>quality of the deal<\/em>&nbsp;more than the&nbsp;borrower\u2019s employment history.<\/p>\n\n\n\n<p>Hard money loans\u00a0last for a shorter term than a traditional loan, such as 6-12 months, and have higher interest ranging from 12%-15%! These loans work best for\u00a0<strong>house flippers<\/strong>\u00a0planning to rehab a real estate property and quickly put it up for sale.<\/p>\n\n\n\n<p>For example, a house flipper found a distressed property being sold for $50,000 that needed about $25,000 to be fully renovated. The&nbsp;<a href=\"https:\/\/parentportfolio.com\/what-is-an-arv\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>after-repair value (ARV)<\/strong><\/a>&nbsp;is estimated to be $150,000.<\/p>\n\n\n\n<p>The house flipper can borrow $75,000 from a&nbsp;hard money lender&nbsp;and pay back the loan through the sale. With \u201cno money,\u201d the house flipper was able to make a profit!<\/p>\n\n\n\n<p>Another benefit of hard money is that it can allow a property to be closed in a matter of days rather than weeks. For example, traditional lenders usually&nbsp;<a href=\"https:\/\/parentportfolio.com\/ways-to-prevent-low-home-appraisals\/\">hire an appraisal<\/a>&nbsp;to justify financing. The timing of the loan now depends on the availability of the appraiser.<\/p>\n\n\n\n<p>Hard money lenders&nbsp;understand real estate and will confidently support great deals!<\/p>\n\n\n\n<p>You can typically find them by networking with other investors. An excellent place to start is attending a local real estate group.<\/p>\n\n\n\n<h3 id=\"private-money\"><strong>Private Money<\/strong><\/h3>\n\n\n\n<p><strong>Private money<\/strong>\u00a0is another \u201cno money\u201d strategy very similar to hard money. However,\u00a0hard money lenders\u00a0usually lend from their businesses. In comparison,\u00a0private money lenders\u00a0are\u00a0<em>nonprofessionals\u00a0<\/em>who are usually friends or family. They usually can tap into their 401k or other retirement accounts to lend money.<\/p>\n\n\n\n<p>Also,&nbsp;hard money lenders&nbsp;usually charge high&nbsp;interest rates.&nbsp;Private money loans&nbsp;have much lower rates and are even negotiable. The term also has the flexibility to be longer compared to a term on a&nbsp;hard money loan.<\/p>\n\n\n\n<p>In this stage of my real estate investing career, I don\u2019t finance my deals using hard money or private money. However, if I wanted to quickly scale my real estate&nbsp;portfolio, financing through these options seems necessary.<\/p>\n\n\n\n<p>I am open to the idea, but I am hesitant because I\u2019m not comfortable mixing money with friends and family. Therefore, I recommend that anyone who wants to use private money create a&nbsp;<strong>legal document<\/strong>&nbsp;clearly stating all the terms between all individuals.<\/p>\n\n\n\n<h3 id=\"heloc\"><strong>HELOC<\/strong><\/h3>\n\n\n\n<p>Otherwise known as&nbsp;home equity loans, a&nbsp;<strong>Home Equity Line of Credit<\/strong>&nbsp;(HELOC) doesn\u2019t disperse an entire amount like a loan. Instead, it\u2019s a readily available amount that can be borrowed and paid back.<\/p>\n\n\n\n<p>A\u00a0HELOC\u00a0is similar to a credit card where a\u00a0borrower\u00a0pays monthly interest payments on the amount borrowed.<\/p>\n\n\n\n<p>For example, a&nbsp;real estate investor&nbsp;can use a&nbsp;HELOC&nbsp;of $50,000 towards a&nbsp;down payment&nbsp;on a house. This amount includes rehab&nbsp;expenses&nbsp;as well as the actual&nbsp;mortgage. The investor can then pay back the balance through a property sale or the cash flow generated from a&nbsp;rental property.<\/p>\n\n\n\n<p>The amount of the&nbsp;HELOC&nbsp;is based on a percentage of a person\u2019s home equity. A house\u2019s equity is the&nbsp;<strong>market value<\/strong>&nbsp;of the house minus the&nbsp;<strong>balance of the&nbsp;mortgage<\/strong>.<\/p>\n\n\n\n<p>For example, the market value (purchase price) of a house is $175,000, and the&nbsp;mortgage&nbsp;loan balance of the house is $100,00. Therefore, the equity a person has in the place is&nbsp;<strong>$75,000,&nbsp;<\/strong>which they can access via a&nbsp;refinance! The more significant the difference between the market value and the&nbsp;mortgage&nbsp;loan, the greater a person\u2019s equity.<\/p>\n\n\n\n<p>The percentage used to determine how much can be borrowed is called the loan-to-value (LTV). Usually, LTV ranges from 75% to 80%. For example, an LTV of 80% with a home equity of $100,000 with yield a balance of $80,000 ($100,000 x 80%).<\/p>\n\n\n\n<p>The&nbsp;interest rate&nbsp;on a&nbsp;HELOC&nbsp;is variable, which means it can change from month to month. Also, the time frame on when the balance is to be paid back varies between lenders.<\/p>\n\n\n\n<p>If you\u2019re looking for alternative ways to tap into your home equity, check out this\u00a0<a rel=\"noreferrer noopener\" href=\"https:\/\/arrestyourdebt.com\/hometap-review\/\" target=\"_blank\">Hometap Review<\/a>.<\/p>\n\n\n\n<h3 id=\"business-line-of-credit\"><strong>Business Line of Credit<\/strong><\/h3>\n\n\n\n<p>A Business Line Of Credit (LOC) is very similar to a&nbsp;HELOC&nbsp;because the available balance can be based upon someone\u2019s home equity. This is the primary way I make down payments on my&nbsp;investment properties!<\/p>\n\n\n\n<p>However, a Business LOC can also use&nbsp;<strong><em>other assets<\/em><\/strong>, such as stocks and cash. For example, an investor has $100,000 equity in their&nbsp;primary residence. With a 75% LTV, the investor can get LOC with a balance of $75,000 ($100,000 x 75%).<\/p>\n\n\n\n<p>Furthermore, the investor also has $50,000 in stocks. The lender would then use the stocks as collateral and increase the LOC lending balance by $50,000. Therefore, the investor now has a LOC amount of $125,000.<\/p>\n\n\n\n<p>Some lenders will even increase the LOC by how much cash an investor has in their bank account.<\/p>\n\n\n\n<p>It\u2019s important to note that different\u00a0<a rel=\"noreferrer noopener\" href=\"https:\/\/parentportfolio.com\/free-stocks\/\" target=\"_blank\">stock brokerages<\/a>\u00a0operate differently. You need to verify first if your account can be pledged as additional collateral. The broker will typically have their own\u00a0<strong>Collateral Pledge Agreement<\/strong>\u00a0for use.<\/p>\n\n\n\n<p>Ultimately, reach out to a local bank and build a relationship with a banker. A great banker can come up with creative solutions to help finance your deals!<\/p>\n\n\n\n<h2 id=\"3-creative-low-money-ways-to-invest-in-real-estate\"><strong>3 Creative \u201cLow Money\u201d Ways To Invest In Real Estate<\/strong><\/h2>\n\n\n\n<p>Other creative strategies investors use to acquire their&nbsp;investment properties&nbsp;may not be \u201cno money\u201d strategies but rather \u201clow money\u201d strategies. Here are some&nbsp;<strong>\u201clow money\u201d<\/strong>&nbsp;<a href=\"https:\/\/parentportfolio.com\/ways-to-invest-in-real-estate-without-buying-property\/\" target=\"_blank\" rel=\"noreferrer noopener\">ways to invest in real estate:<\/a><\/p>\n\n\n\n<ul><li>Seller Financing<\/li><li>House Hacking<\/li><li>Wholesaling<\/li><\/ul>\n\n\n\n<h3 id=\"seller-financing\"><strong>Seller Financing<\/strong><\/h3>\n\n\n\n<p><strong>Seller financing&nbsp;<\/strong>is when the&nbsp;seller&nbsp;owning the house acts like a bank.<\/p>\n\n\n\n<p>An investor will still take legal ownership of the house. However, the investor will pay the previous owner instead of making\u00a0mortgage payments\u00a0to a traditional bank.<\/p>\n\n\n\n<p>For example, a&nbsp;seller&nbsp;wholly owns their property and wants to sell it for $200,000. With&nbsp;seller financing, an investor can request to make a 5%&nbsp;down payment&nbsp;with a 10%&nbsp;interest rate.<\/p>\n\n\n\n<p>Traditional banks usually require a 20%-25%&nbsp;down payment&nbsp;for&nbsp;investment properties. So, a 5%&nbsp;down payment&nbsp;is a relatively low out-of-pocket expense.<\/p>\n\n\n\n<p>As for the&nbsp;seller, they also benefit. They will receive&nbsp;monthly payments&nbsp;with a 10%&nbsp;interest rate&nbsp;and&nbsp;<strong>avoid being taxed<\/strong>&nbsp;on a large lump sum of a sale.<\/p>\n\n\n\n<p>This can be a \u201cwin-win\u201d situation for both the&nbsp;buyer&nbsp;and&nbsp;seller. The terms between the two are negotiable that technically a person can&nbsp;<a href=\"https:\/\/parentportfolio.com\/tips-for-buying-in-a-hot-house-market\/\" target=\"_blank\" rel=\"noreferrer noopener\">buy a house<\/a>&nbsp;with&nbsp;<strong>no&nbsp;money down<\/strong>!<\/p>\n\n\n\n<p>Seller financing&nbsp;can still be accomplished if there is a&nbsp;mortgage&nbsp;on the property. This is what is commonly known as \u201c<strong><a href=\"https:\/\/parentportfolio.com\/subject-to-real-estate\/\">subject-to<\/a><\/strong>.\u201d The legal ownership of the house will transfer to the investor. However, the&nbsp;seller&nbsp;is still \u201csubject to\u201d the loan and is still responsible for making&nbsp;<a href=\"https:\/\/parentportfolio.com\/how-to-lower-your-mortgage-payment\/\">monthly&nbsp;mortgage payments<\/a>.<\/p>\n\n\n\n<p>Unfortunately, the risk with \u201csubject-to\u201d is that the previous owner could\u00a0<em>default\u00a0<\/em>on their loan, and the lender could take possession of the property. Also, some lenders may have a\u00a0<strong>\u201cdue-on-sale\u201d clause<\/strong>, which requires the loan to be fully paid back once sold.<\/p>\n\n\n\n<p>Therefore, the&nbsp;seller financing&nbsp;strategy is ideal for&nbsp;sellers&nbsp;that fully own their property!<\/p>\n\n\n\n<h3 id=\"house-hacking\"><strong>House Hacking<\/strong><\/h3>\n\n\n\n<p><strong>House hacking&nbsp;<\/strong>is when an investor purchases a multi-unit property, lives in one of the units, and&nbsp;rents&nbsp;out the other unit(s). When you successfully&nbsp;house hack, the&nbsp;tenants&nbsp;\u201cpay down\u201d the debt service by giving investors&nbsp;rental income&nbsp;while the investor lives&nbsp;<strong>rent-free<\/strong>!<\/p>\n\n\n\n<p>This technique is an excellent&nbsp;short term&nbsp;strategy for those wanting to get started in real estate. You can learn all about renting and property management without risking too much capital. Check out my article&nbsp;<strong>\u201c<a href=\"https:\/\/parentportfolio.com\/house-hacking\/\">House Hacking: Live Rent Free\u201d<\/a><\/strong>&nbsp;for more details.<\/p>\n\n\n\n<h3 id=\"wholesaling\"><strong>Wholesaling<\/strong><\/h3>\n\n\n\n<p><strong>Wholesaling&nbsp;<\/strong>is when a person (wholesaler) finds a deal on an investment opportunity and finds an investor interested in purchasing the property. The wholesaler then charges a&nbsp;fee&nbsp;to the investor. The&nbsp;<a href=\"https:\/\/rethority.com\/how-much-money-can-you-make-wholesaling-real-estate\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>better the deal<\/strong><\/a>, the more a wholesaler can charge!<\/p>\n\n\n\n<p>Investors are always looking for deals, especially good ones! Unfortunately, searching for these deals can be very<strong>\u00a0time-consuming<\/strong>, especially if an investor has another full-time job.<\/p>\n\n\n\n<p>Investors are willing to pay a relatively small&nbsp;fee&nbsp;to acquire a great deal. This situation is where a wholesaler can be beneficial.<\/p>\n\n\n\n<p>For example, a wholesaler finds an\u00a0<a rel=\"noreferrer noopener\" href=\"https:\/\/parentportfolio.com\/absentee-owner\/\" target=\"_blank\"><strong>absentee owner<\/strong><\/a>\u00a0willing to sell their property and has them sign a contract. The wholesaler reaches out to an investor, informing them of the deal. The investor pays for the purchase of the property while the wholesaler collects a\u00a0fee.<\/p>\n\n\n\n<h2 id=\"conclusion\"><strong>Conclusion<\/strong><\/h2>\n\n\n\n<p>Real estate investing doesn\u2019t have to be a \u201crich man\u2019s game.\u201d<\/p>\n\n\n\n<p>With the power of leverage, there are multiple ways for a person to&nbsp;<a href=\"https:\/\/parentportfolio.com\/best-real-estate-books-for-investing\/\" target=\"_blank\" rel=\"noreferrer noopener\">invest in real estate<\/a>&nbsp;with \u201cno money\u201d and become a&nbsp;real estate investor. However, it\u2019s crucial for investors, especially beginners, not to over-leverage themselves.<\/p>\n\n\n\n<p>Real estate is&nbsp;<em>cylindrical<\/em>. The real estate market will have high moments and low moments. Therefore, it\u2019s essential always to be prepared for those quiet moments. Plus, if you prepare well enough, you can seize on the investment opportunities that will present themselves when the market is low.<\/p>\n\n\n\n<p>Seasoned investors are financially wise when it comes to their money and buying property. They use conservative numbers when buying an\u00a0investment property\u00a0or an\u00a0<a href=\"https:\/\/parentportfolio.com\/how-big-is-an-acre\/\">acre of land<\/a>, and have enough money in reserves to anticipate\u00a0long term\u00a0unforeseeable issues.<\/p>\n\n\n\n<p><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Interested in&nbsp;investing in real estate&nbsp;and reaping the benefits of passive income, but you\u2019re afraid you have no money? There are<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3421],"tags":[],"_links":{"self":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/11089"}],"collection":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=11089"}],"version-history":[{"count":1,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/11089\/revisions"}],"predecessor-version":[{"id":11090,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=\/wp\/v2\/posts\/11089\/revisions\/11090"}],"wp:attachment":[{"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=11089"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=11089"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/blog.jlbn.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=11089"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}