15 Ways To Invest In Real Estate With Little Money
Does it really take money to make money? And can you start investing in real estate without the required 20% down payment? Well, the truth is that in every business passionate entrepreneurs started with little money. And many just started with a strong dream and determination to succeed.
So if you are willing to hustle, real estate is the right investment for you and it will pay you handsomely. Why? Well, when you own an investment in real estate, you make money from income, depreciation, equity build-up, price appreciation, and leverage.
Although, it is difficult to start and grow a real estate investment business from scratch, if it grows, it will set you up for life. And you could even retire if you choose and live on the real estate income. You can learn how to start investing in real estate with little money now. But to succeed, you will need strategies.
How To Start Investing In Real Estate With Little Money
1. House hacking
House hacking is the first way you should consider to start investing in real estate. What house hacking means is finding how you can earn rental income from your home. A simple house hack is to pack your things into a small property from a duplex, triplex or 4 plex and then rent the additional units to earn rental income.
Other creative ways include renting extra bedrooms, a basement apartment, a guest house or additional space of your lot if your local law does not frown at it.
To get the ball rolling, obtain owner-occupant financing to buy the property with a little down payment. For example, if you borrowed $200,000 to buy a property you could put a $0 to $7,000 down payment on some programs.
Some of these programs are:
- FHA loan (3.5% down),
- VA loan (0% down for veterans),
- USDA (0% down in rural areas)
- and Conventional loans (3% to 10% down with mortgage insurance).
2. Master leases and lease options
Did you know that you don’t need to buy a house to start investing in real estate? What you do instead, is to rent it. So, if how to start investing in real estate with little money is giving you sleepless nights, you can try to get Master Leases And Lease Options.
Master leasing is a system where you rent a property and get consent from the owner to sublease the spare bedrooms or units to other tenants. For example, if you rent a 3 bedroom condo at $1,500 /mo, you get two roommates to share the apartments and split the payment of the rent into 3 parts.
And note that you can negotiate a master leasing contract can with very little upfront money. Also, you may make a security deposit, prepaid rent, or make an offer to do some repairs for the owner.
Although master leasing might be good for a while you can also try to negotiate what’s called an Option to Purchase. This gives you the power to buy the property for a set price during a certain period of time. For instance, if you negotiate an option to buy a price of $175,000 and if the price rises to $200,00 you can buy the property or flip it to others at a profit.
3. Live-in house flip
To start this type of real estate investing, use your house as the first flip to benefit from the most profitable tax laws in the US.
How this works is that you buy a home, move in and live there for a minimum of 2 out of 5 years. Then you are allowed to sell the home at a profit and you don’t need to pay a tax of up to $250, 000 for an individual and $500,000 as a couple who jointly file taxes.
Note that you can also use the low down payment program we listed earlier in the house hacking program for Live-In Flips.
Another sure way how to start investing in real estate with little money is to use the Live-In-Then-Rent strategy. This technique is like the house hacking technique. How this works is that you move into a house, put it in order to rent it, and then keep it as a rental afterwards when you move out.
The trick is to buy a modest house that will work as a rental. In this case, you can benefit from the small down payment of the owner-occupier house but you may not live near your tenants.
This method is useful to those that have families as a house is normally bigger than an apartment. If you do just 3 to 4 Live In Then Rent properties, you could have rentals coming in for years and a tidy real estate portfolio.
5. Real estate crowdfunding
This method is quite new in real estate investment but it is a way on how to start investing in real estate with little money. The strategy lets you invest a smaller amount of money (like $1,000 to $5,000) along with a group of other investors (i.e. the crowd).
Your team could buy rental properties that are usually larger multi-unit properties or grant loans to other real estate investors that need money. Keep investment in this type of business small because it is fairly new.
6. REITs (Real Estate Investment Trusts)
Real estate investment trusts (i.e. REITs) are like mutual funds. How it works is that when you buy stock in a REIT, you now own a small piece of many commercial, income-generating properties. Also, a team of managers selects and supervises the investments in the REIT and earn a fee. This is like real estate crowdfunding. You earn passive income and can sell anytime on the stock market.
Airbnb is the big-online marketplace that allows you to rent out your home or a portion of your home for short periods of time. You can use this strategy to launch your low-cost real estate investing.
If you don’t have personal money for a real estate investment, you can start by using money from a partner. You can start a credit partnership. How it works is that you look out for a good real estate deal, find it and your partner place the down payment and gets a loan to buy the property.
Next, you lease the property from your credit partner with the option to buy it at a higher price. Then you sublease the property to a tenant, manage property and pocket the difference between the rent you pay and the rent you collect.
And before the option to buy property expires, you get a new loan to buy the property. At this time the property may have appreciated in value. Or you could sell your interest in the property to a new buyer at a higher price.
In this method of investing in real estate, all you did is hustle and use your brain with a little of your own money.
9. Seller financing
If you are looking for how to start investing in real estate with little money, try seller financing. In seller financing deals, the Seller “functions as the bank” for you. In this method, you do not get a loan from a bank. The seller allows you to buy the property over time using monthly instalments. Also, it is what you agree with the seller that you pay. And if the property needs repairs you could ask the seller to reduce the sales price. Though this does not always happen.
10. The buy, remodel, rent, refinance, repeat strategy
When you flip a house, all you do is to find fixer-upper property, buy it with short term finance like cash or a line of credit or your own money, remodel it, and increase the value. But instead of selling, you keep the property as a rental. And then refinance to collect some or all of your cash. and you can repeat the strategy if you need to do it again.
11. Borrow your down payment
Using this strategy is dicey. But you can try it to start real estate investing if you have no other way to start. You can borrow to pay a down payment and use your home as equity. The interest creates negative cash flow from the start. But, if you are able to do it properly, you could pay off the loan fast from savings and income from the property.
12. Become a real estate agent
You could begin to learn and earn money. You could also start a side business or a full-time career as a real estate agent. Here, you are not investing, but learning about real estate transactions and the full real estate market. But you will need to take some classes and write a test to get a license to operate.
Each state’s processes may vary. Also, join a local association of Realtors and pay for access to the Multiple Listing Service. To go full time get this book by Keller Williams founder Gary Keller titled millionaire real estate agent.
13. Find out deals for others
Finding out deals for others is a way on how to start investing in real estate with little money. You can begin your career by finding good real estate deals for more experienced investors. This strategy is called being a bird dog. What happens is that you “sniffed out” and “pointed to” deals like a bird hunting dog. In this case, you don’t need much money or experience to start. Just your time and energy to find many good deals.
In this method, you find extremely discounted deals and resell them quickly for a profit to other investors. In many cases, you may use very little money and still make a profit on a wholesale deal.
15. Find tenants for rental owners (aka leasing agents)
If you want to end up as a rental owner but don’t have the money yet, you can start as a leasing agent to earn money while learning the business. Also, as a leasing agent, you get a tenant for a particular rental unit and you earn a fee of between 50% to 100% of a month’s rent.