Hot To Invest With Little (Or No) Available Capital
By JD Esajian on April 26, 2019
There are many different paths to real estate investing success. Some of the most popular investors you currently see on TV spent years grinding their way to get to where they are today. They often did so without a huge bankroll of capital or contacts behind them.
As great as having a blank check to invest can be it isn’t always realistic, especially when you are just starting out. With the way real estate is today, this is nothing more than a minor road block. There are numerous ways to get your foot in the door, meet important people and generate income without having capital of your own. You don’t need an open line of credit to pursue real estate. Here are five ways you can start investing with limited, or no, available capital.
- FHA Loan: The single best way to build a real estate portfolio is through an FHA loan. FHA loans are government backed loans that allow for minimal down payment. For just 3.5% of the purchase price you can start your journey. In addition to a reduced down payment there are guidelines for reduced credit scores and higher debt to income ratios. This doesn’t mean that anyone can get approved, but it is much easier than a conventional loan. The best part is that these guidelines hold for two- and three-unit properties. You can buy a three-family property, rent out the other two units and live rent free, or generate cash flow, with just 3.5% of the purchase price. You can even get the down payment in the form of a gift from an eligible source. If you currently don’t own a property and are looking to get your foot in the door, there is simply no greater option than an FHA loan.
- Find A Partner: There is a good chance if you reached out to 50 people at least three would be interested in investing in real estate. How many close friends or family members know you are in real estate? The simplest thing you can do is blast out an email detailing your current involvement in real estate and ask if they may have interest in working together in the future. From there you should set up a meeting and see if there is mutual interest. There are many people who want to dip their toe in real estate but don’t know how. If you have the real estate expertise they may be able to supply the capital. Of course, there are other issues to iron out, but at least you can get the ball rolling and conversation started. If the people closest to you don’t know you are in real estate, you won’t be able to capitalize on the contacts you have. Finding a financial partner is often much easier than you may think. Cast a line and see what you get.
- Wholesale: Real estate investing is all about finding deals. If you find deals there is always a way to profit off it. A common path for new investors is wholesaling. In short, wholesaling is finding deals from motivated sellers, getting them to commit to a contract and passing that deal off to an end investor. The end investor will then pay you a flat fee or in some cases a small piece of the end profits. This is a great way to make money on a deal without waiting for any improvements to be made or work to be done. You can move on to the next deal without having to cash out first. The hard part of wholesaling is finding juicy deals. Fortunately, with the internet and a little hard work it is not nearly as difficult as it once was.
- Birddog: If you really want to learn the real estate business while still generating income you should find a successful investor in your area. Ask them if they need any work done or if there is anything you can do to help their business. In most cases they will give you a handful of small projects to tackle. Even if they don’t you can go out and find deals. Every property that has a fsbo sign you should knock on the door and talk to the owner. Ask them if they are open to a quick, cash offer and what their bottom line would be. You may get nine angry responses but all it takes is one seller to make it all worth it. You should do the same with any vacant looking properties. Track down the owner and ask them if they would want to sell. This takes a little more legwork, but as is the case with fsbo’s all it takes is one motivated seller to generate a profit.
- Networking Meetings: Every networking meeting and investment club event is an opportunity to find capital to close. Even if you don’t think you have anything to bring to the table you should show your face and get out there. At every meeting there are hard money lenders, attorneys and mortgage brokers that can open a new door for you that you never knew existed. You would be surprised at just how many options you have if you simply put yourself out there. Don’t avoid meetings because you are uncomfortable, or you think they are unproductive.
There are plenty of ways to start investing without a surplus of capital. Use these five methods to begin your journey into real estate.