Real estate is expensive. While you can drop a couple hundred dollars into a retirement account, you can’t invest in real estate without thousands of dollars, usually hundreds of thousands and in some cases millions.
But there are options…
6 Ways to Invest in Real Estate When You Don’t Have a Lot of Cash
1. Investment Loans
Traditional investment loans can be extremely useful for beginning your rental empire. They allow you to purchase properties that would otherwise be out of reach, and provide access to one of the best types of investments possible.
Just be aware that investment loans often (but not always) come with strict terms that can make the loans less affordable and cut into your potential profits.
2. No-Income Loans
Another option for investment properties is what’s called a “no-income loan.” While typical investment loans will require the use of your income and debt load to qualify, this loan can actually use the potential income from the rental property to qualify. For example, if you can reasonably expect to gain $3,000 a month from the property, that $3,000 can be used as the income towards loan qualification.
To verify the expected rental amount, you’ll need to have a professional analysis of the property, which will include a review of area rental amounts, as well as the quality and demand for the property itself. There is also a mathematical equation that takes the potential rent into account; we won’t bog you down with details, just know that rent can, in certain cases, be used as the income.
3. Consider a Business Partner
If you are short on cash, a business partner can be extremely effective, especially if they bring something to the partnership that you do not have. Perhaps you have lots of knowledge about real estate, having worked in the industry for the past decade. However, you lack money to invest. A business partner with cash, but little or no experience in real estate, would be the ideal match.
Partnerships can be difficult and are fraught with legal difficulties. Therefore, it’s best to have everything in writing, with expectations from each partner, as well as expected divisions of profits, clearly noted and agreed upon.
4. Join a Real-Estate Investment Group
If you don’t have a lot of money, don’t have a lot of experience in real estate, and simply want to ease into the world of investment properties, a real estate investment group is a great strategy. Basically, these are groups that pool their finances together and purchase rental properties, splitting the profits appropriately between the members.
There are many advantages to real estate investment groups, but most of all they allow you to become a landlord (basically) with a small price. It also allows you to steadily learn about real estate investing and gradually see if it’s right for you and your future. You don’t have to dive in head first, with a real estate investment group, you can dip your toe and test the water.
However, decisions on the properties are made by a committee, so the slow-pace of seemingly simply tasks can be frustrating. You also don’t have complete control, so you’ll need to work well with other and respect the choices made by group leaders.
5. Purchase a Duplex and Live in One Unit
Many government-backed loan programs allow for the purchase of a multi-unit property, such as a duplex. Using an FHA loan or a Fannie Mae-supported conventional loan, you can likely (but not certainly) purchase a property with a smaller downpayment and lower interest rates.
Basically, this strategy will mean purchasing a multiunit property and living in one of the units for a certain period, usually at least a year. The supporters of these loans have requirements for owner occupancy, but once the requirements are complete you can move out and place the entire property in rental.
6. Home Equity Loans
If you own your home or have a mortgage with a significant amount of equity, you can take advantage of a home equity loan to purchase an investment property. Basically, if you have lots of equity, your money is locked into your home. This seems good, but the money is locked away, so you can’t use it for investments and other purposes. A home equity loan, which is basically a loan against your property, can allow you to access the cash in your property and increase your investing potential.
While risky, these loans often have better terms, as your current property serves as collateral. Of course, if anything goes wrong, the bank can claim ownership of your house, so you need to be extremely careful when using home equity loans to fund an investment. When used wisely, however, the can be a great way to invest in real estate without a significant pile of cash.
7. Buy a New Primary Residence and Keep Ownership of the Old Property
This is actually a fairly common practice that allows people to conveniently enter into investment properties with little to no upfront costs. Basically, when you are ready to move into a new home, perhaps because you want to downsize, upsize, or move to a new area, you can simply keep your old property and place it as a rental. This will allow you to conveniently start your investment-property collection while avoiding many of the stricter terms that come with investment-property loans.
While this step is useful, it may not be ideal if you are moving a significant distance from your old property. If you are moving hundreds of miles away, you’ll at least want to consider hiring a property-management company to oversee and maintain your rental.
Find an Affordable Loan for Your Investments
If you need an investment loan for a new rental property, contact San Diego Purchase Loans today. We understand the needs of investors and can help you find the right loan to maximize profits. Whether you are purchasing an investment under an LLC or with a partner, we are here to help!