One of the most common hurdles of entry in the real estate business is a lack of funds. While having surplus capital reserves is a nice luxury to have, they are not a necessity. Every day there are thousands of investors who get their start with limited capital. Their path to success may be a little longer but there is more than one way to invest in real estate. In today’s age of increased technology there are multiple ways to get started on a shoestring than ever before. As long as you are willing to put the work in you can start investing with whatever capital you have in the bank. Here are four ways to invest in real estate with limited funds.
FHA Purchase. There are many investors who believe that homeownership is out of their reach. While the mortgage process has become more difficult in some areas there are still several loan programs available. One way to enter the business is with an FHA loan. An FHA loan is a government backed mortgage that allows reduced credit scores with a minimum down payment of 3.5%. What makes this loan attractive for investors is that it is eligible for one and two unit properties. You can live in one of the units and collect rent on the other. Guidelines also allow the down payment to come from a gift, meaning that you don’t have to personally have all of the funds on your own. If a gift isn’t an option you can take advantage of a 3% credit from the seller. The seller pays up to 3% of the closing costs with the loan amount increased to cover the difference. Under this scenario on a $100,000 loan you may only need a few thousand dollars to own a rental property. If you do not own a property and are looking to get started in real estate this is an option you should take a hard look at.
Wholesale. Wholesaling is one of the most common ways for new investors to get started. As a wholesaler you are basically paid to find deals. After you find the deal, sign a legal contract you than sell that contract to an end investor. For your work you either earn a pre-determined fee or a small piece of the profits. One of the best parts about finding wholesale deals is that you are not directly exposed to risk. Once you assign the contract you move out of the way and on to the next deal. You don’t have to worry about having money tied up in a property for several months. You can also work on more than one deal at a time. The biggest hurdle for wholesalers is finding deals. This is made much easier by increasing your local contact base. If you are consistent networking with local groups and investment clubs you should be able to quickly build your contacts. Wholesaling does not directly cost you any money since you are not actually buying the property yourself. As long as you are diligent in finding deals you can carve out a great niche in wholesale.
Find A Partner. You don’t need to have your own funds to start investing. One of the ways around this problem is by finding a partner to help fund your deals. There are more hard and private money options than ever before. A hard money lender is an individual or small group that essential acts like a bank. They lend based according to their own criteria and not traditional bank guidelines. They are more interested in the property and personal collateral than the ability to document income. With hard money lenders you find the deal and they supply the funding. You will make a smaller percentage but just like wholesaling you don’t carry the risk. A private money lender works in similar fashion. These are usually people from your contact base that have capital and want to put it in the real estate market. They are willing to fund deals you find. Again, how you break up the bottom line is up to you but you can get started using other people’s money.
Find Deals. You can always generate income if you have deals. There are several different ways to find deals that won’t cost you a dime. The first is by scouring the internet. On craigslist alone there can be dozens of options almost every day. Start by emailing any investor who has a property for sale. Some won’t return your email but all it takes is one that has a property they want to get rid of to get you started. You can also reach out to listings of properties for rent. There are many disgruntled landlords out there who may be willing to sell just to get out of the property. You also drive by lead opportunities often without realizing it. Every bandit sign you see that says “we buy houses” or “close in 7 days” is from a local investor. Give them a call and see how you can work together or to contact you on the next deal they pass on. Someone in your contact base may be willing to jump on the property. Finally you should reach out to every owner that has a for sale by owner sign in their front yard. They may be waiting for the right investor to come along and make them an offer. A few hours every day can give you a handful of new leads that can turn into deals.
If you are passionate about the real estate business there is no excuse not to get started. You can make it happen regardless of what level of capital you currently have.
