Real estate can be one of the most lucrative assets to add to your investment portfolio, and many people are starting to realize this. However, those with moderate incomes, bad credit, or a lack of capital in general, feel that this investment type is simply out of financial reach for them. I’ve been there myself many years ago, but decided I was going to find a way to make it happen. I took the time to do extensive research, learned how to buy a rental property with no money, and moved forward with the knowledge I had gained. I now own many investment properties that bring in a steady cash flow each month.
I want you to know that although owning a rental property may seem like an unattainable dream right now, in reality, when armed with some insider knowledge and determination, it’s a totally achievable goal. This is why I would like to share the knowledge I’ve gained with anyone interested in becoming a real estate investor. With that in mind, let’s begin with a brief answer to the question I will be covering:
How can I buy a rental property with no money? You can make a rental real estate deal happen even when you have no money by utilizing one or a combination of the following strategies: Purchasing a property with retirement account funds, using non-recourse financing, or a private money lender, obtaining unsecured business credit cards, taking advantage of seller financing, as well as tapping into your home’s equity.
Ideas for investing in Rental Real Estate When You Have No Money
Now that I’ve sparked your interest, I’m sure you’re eager to learn about the various ways you can invest in real estate when you may not have the financial means to do so. But first, I’d like to touch on something very important, and that’s the realization that even if you had the funds to move forward, it’s not always a good idea to use your own money to buy real estate. The wise way to go about it is to utilize other people’s money. This may not sound right to you, but believe me when I say that the richest and most experienced real estate investors use other people’s money to buy rental properties — this frees up their funds for other opportunities, and is advantageous in many other ways.
With that said, if you feel that you’re in a bad spot by not having the cash to invest, know that you’re not actually at a disadvantage because, as I explained, it’s really not a good move to use your own funds.
Ok, let’s take a look at some excellent ways you can invest in a rental property when you don’t have the money or the resources, as well as the credit score to make it happen.
1. Fund Your Property Purchase with a Self-Directed IRA
You may not have the cash on hand to buy an investment property, but do you happen to have an underperforming 401(k), traditional IRA, or other retirement account? If so, when properly done, you can use the funds within a retirement account to purchase a rental property. How is this possible? Well, it can be accomplished with an SDIRA. For those who are not familiar with this term, it’s a self-directed individual retirement account, and it doesn’t have the same “investment-type” restrictions that most retirement accounts come with.
For instance, a 401(k) and traditional IRA mostly only allow for investments such as stocks, bonds, mutual funds, and the like. So, you’re basically stuck with asset types that coincide with how Wall Street and the economy are doing. If the stock market were to crash, or the economy tanks, so does your life’s savings, and wouldn’t that be terrible if it happened the same year you were set to retire. With that in mind, rolling your funds over to a self-directed IRA allows for alternative investment types such as rental real estate, and it’s a much more stable and less risky way to grow your funds.
If you think this might be a good path to head down, but you’re not sure how to make it happen, I put together an entire article on the topic that will teach you how to utilize your retirement account in this way — How To Use a Self-Directed IRA To Invest in Real Estate. You can also learn more about this investing tool in the video below:
In a nutshell, you would have your current retirement funds rolled over to an SDIRA by a custodian who specializes in this type of account. The property you would like to purchase would then need to be approved by the custodian, unless you have an SDIRA LLC structure where the property is purchased through the LLC. In this case, you would not need custodial approval.
You also have the option of utilizing a full-service real estate company, such as Morris Invest, that can set up the SDIRA for you, as well as provide you with a new construction property that already has a paying tenant and property manager placed.
Many investors don’t even know that self-directed IRAs exist, but it’s an exceptional tool that enables you to buy a recession-proof, performing asset that will set you on the path to a wealthy retirement.
2. Non-Recourse Financing — A Hidden Real Estate Investing Gem
When you don’t know how to invest in a rental property with no money on hand, and feel that owning a lucrative piece of real estate will never happen, this next idea will certainly turn your thought process around. It’s non-recourse financing, and it’s an outstanding strategy that’s excellent for those who have no substantial savings, individuals with bad credit, as well as anyone with a low income that wouldn’t stand up to a bank loan application. You’re probably thinking, “I want in; tell me more”. Ok, but let’s start with what a recourse loan is, which will help you better understand or appreciate non-recourse financing.
Recourse VS Non-Recourse Loans
You most likely know all about traditional financing, where you get approved or denied based on your credit score, the amount of money you have in savings, assets you own, and how much money you make, as well as the length of time you have been at your current place of employment. Basically, it’s all based on you and your ability to pay a loan back, and the loan would be in your name — this is called a recourse loan.
Now, let’s talk about non-recourse loans. This type of loan is not based on you, your income, your credit score, or anything else pertaining to your ability to pay back a loan. So, what’s it based on then? It’s 100 percent based on the property, its condition, the area it’s located in and if it has the potential for a steady cash flow, and the like.
A non-recourse lender will also look at the fact that a renter may already be placed, and if there’s also a property manager taking care of the rental. If all their requirements pass with flying colors, a loan will be approved, and the property itself will be the main player on the agreement, which also means that if the loan were to default, they would seize the property and not your personal assets.
It’s totally worth the time to learn more about non-recourse financing, so grab a cup of coffee and dive into the video below:
Non-recourse financing is an outstanding way to obtain a rental real estate loan without the funds or credit history that traditional banks are looking for. However, if you really have no money, what are you going to do about coming up with a down payment? Well, my suggestion is to combine the strategy of using a non-recourse loan with an additional method to drum up the down payment. For instance, you might use business credit cards, utilize equity from your personal property, or partner with another individual whose part would be to contribute the down payment funds.
3. Consider Seller Financing When You Don’t Have the Cash or the Credit to Invest in Rental Real Estate
If your current financial situation is stopping you from getting approved for a traditional bank loan, you can take the path that many investors have gone down, which is utilizing seller financing. This method can turn out to be a more appealing option for both a seller and buyer because of the fact that both parties are able to benefit from creating their own terms, as compared to the standard bank agreement.
It’s typical for buyers to not have to worry about their “not so great credit score”, or the amount of debt they own when going down the seller financing path. The buyer will just need to ensure that the monthly payments can be made, which shouldn’t be a problem because the tenant will be able to make those payments for the buyer. If a down payment is stated in the agreement, which it most likely will be, you can utilize one of my other suggested strategies to come up with the funds, such as private financing or working with Fund & Grow, which I’ll discuss later.
What Exactly Is Seller Financing?
Also commonly referred to as owner financing, this is a strategy that includes a real estate agreement between the seller and the buyer, where installment agreements are being paid directly to the seller, and the buyer commits to these payments, with the end goal of purchasing the property. The seller is, in a sense, taking on the role of the lender and, therefore, extends credit to the buyer.
Seller & Buyer Benefits
A seller benefits from a deal such as this because they can avoid high commission costs by not having to work with a real estate agent, and it’s also attractive to receive a large down payment. Sellers can also benefit from not having to pay capital gains tax upfront since they can finance it out to the buyer and not sell the house all at one time, but instead, sell it over a period of time. Additionally, it’s especially advantageous when a seller can specify their own terms. These are just a few seller advantages, and it’s good to become familiar with them, so you’re better able to present the idea in a way that is appealing to them.
As a buyer, the main benefit of a deal such as this is having the ability to finance the property directly through the seller without your financial situation putting a halt to things. However, there’s a significant advantage that you may not realize; it’s common for real estate investors to make an offer to the seller close to the end of the agreement, enabling them to pay less than the agreed-upon amount.
For example, let’s say that there’s $24,000 left to pay on the property; the buyer makes an offer to the seller to pay half on the spot, instead of continuing to spread payments out over an extended period of time. In many cases, the seller would love to receive $12,000 in instant cash and will take you up on your offer, saving you a big bundle of money.
If this method of financing a rental property seems promising to you, a good way of finding interested parties is to check newspaper listings or Craigslist for seller notices, as well as sending a letter of intent out to property owners. Additionally, you can find a list of owners who might be interested in selling by searching the County Clerk’s office for real estate that has tax liens placed on them, or driving through neighborhoods to find distressed properties where you think the seller would love to have their house taken off their hands.
4. If You Don’t Have the Money to Buy a Rental Property a Private Money Lender Will — Partnering with Others
When you don’t have the money to buy a rental property that looks financially promising, you can seek out private money lenders that are willing to part with their funds for a good cause. This good cause could be that they’ll make money on the deal, or maybe they’re a friend or relative that feels good about helping you out, with the agreement that they will be paid back with interest, or something along those lines.
As for a quick definition, private money is referred to as funds that are obtained from a non-bank source, and it’s a loan that’s not regulated by the government. When it comes to private money lenders, they’re typically like-minded rental real estate investors, friends, family members, and basically anyone willing to lend you the money who’s not tied to the traditional lender arena.
If you’re interested in going down this path but don’t have any friends or relatives that are willing to fork over a bundle of cash, a common method of finding someone who would be willing, is to attend real estate meetup groups. You’ll find that there are often people there that are actually looking for investors to lend money to, with the goal of making a profit. See, this whole private money lender strategy is not as difficult as you thought it would be, right?
Also, it’s worth mentioning that you should go into this from the frame of mind that you’re not borrowing, but instead joining forces with a private lender as a partner; this puts you on an equal playing ground.
More On Partnering with Other People
As mentioned, you can partner with private money lenders where you may be doing the work, and their part is to provide the funds. Regarding this, I want to reveal a bit of info that comes from experience — there are a lot of people out there who are not real estate investors, but they happen to have large sums of money, and are commonly interested in investing in something besides the volatile stock market, an asset that’s a hedge against inflation, especially in these resent days.
I’ve found that doctors make exceptional real estate investing partners. However, many doctors are totally immersed in their field of work, with a time-consuming schedule, and so they don’t have the free time or experience to know what to invest in. With that in mind, find a way to bring a good deal to someone like this, with a great presentation on the ROI and investment security involved, and you’re as good as gold.
You may also want to dive into my other article — How to Buy Property with Multiple Investors. Or, watch this video I created on investing with partners.
5. Utilize Unsecured Credit Through Fund & Grow to Make a Real Estate Deal Happen
This is an option that I’ve utilized, as well as many of my fellow investors, that makes it possible to invest in buy and hold real estate when you have limited financial resources.
It includes taking advantage of all that Fund & Grow offers and specializes in. Who’s Fund & Grow? They’re a company that assists investors in obtaining the funds they need to invest in rental properties by helping them get approved for unsecured business credit cards. These cards come with an introductory offer of a 0% interest rate, and the rate increases after the introductory timeframe expires.
Once your business credit cards are approved, you then buy a rental property with 0% interest, pay down the balance as much as you can before that introductory rate expires, and then you refinance.
You see, if your financial situation is not what it needs to be, you may not be able to get approved for a bank loan to buy a property, but with Fund & Grow actually making a property purchase possible, once you own it, and after about 6-8 months, a bank will then be willing to refinance it so you don’t continue to pay credit card interest rates.
Fund & Grow works with you by combing over your financials in detail, assisting you in cleaning up your credit, and going full force on scouting out the best business credit cards that can fund your real estate purchase.
This company really has its system down, and I highly recommend looking into them. To use this strategy, you will need some money to pay the hard-working people over at this company. I’m not sure of their exact fees, but when I worked with them in the past, I paid around $4,000, and it was well worth it.
I have a few resources for those who are thinking about using this company. The first is our Fund & Grow review, and the second is a way to get $500 off Fund & Grow’s start-up costs; just head over to our main Funding page for information on that. My third resource is this video I put together that covers how Fund & Grow’s service actually works:
6. If You’re Lacking the Funds to Invest in Rental Real Estate Try Tapping into Your Home Equity
If you own a home that has a good chunk of equity sitting in it, you have just found your money to buy a rental property. For those of you who are first-time home buyers and totally new to the game, I’ll provide a brief overview.
Equity is the difference between the market value of a piece of real estate and what’s still owed on the mortgage. For instance, if a property’s current market value is $350,000 and the mortgage balance is $300,000, the property owner has $50,000 in equity to play with.
Now, how do you take advantage of the equity you have in your property? There are basically two equity strategies that I like to use; a cash-out refinance and a home equity line of credit (HELOC). Let’s go over these two options that could be the answer to your question on how to buy a rental property with no money:
Taking advantage of a cash-out refinance is a smart investment move that allows you to leverage your property with the power of equity. If you’re not exactly sure what a cash-out refinance is, it’s the process of refinancing a property loan for an amount that’s “over” what’s owed on the mortgage.
The amount of money that is in excess of what’s owed is the equity. In the process of doing a cash-out refinance, the original loan is “cashed out”, the existing mortgage is paid off, and the investor is left with the overage (the equity), and that money can be used as a down payment for an investment property.
Keep in mind that not all the property’s equity can be leveraged; it may be about 75% of it. Also, the homeowner will now have a new mortgage since the original one was “cashed-out”.
Home Equity Line of Credit (HELOC)
This is a great option for those who don’t have the cash available to invest in real estate. It’s similar to a cash-out refinance because you’re tapping into your home’s equity, with the difference being that the bank gives you a line of credit where you can draw from that equity.
The homeowner will typically be provided with checks or a credit card that’s attached to the account. As with the cash-out refinance, you won’t be able to draw from 100% of the property’s equity, but it could be as much as 80%. The bank will determine the draw period, where you will be able to withdraw funds, and will most likely just be making payments on interest during that time. At some point, the draw period will end, and payments on principal, as well as the interest, will be due each month.
A few things to take note of would be to shop around and find a lender with a good rate. I recommend trying local banks, credit unions, and the like, since they may be able to give you a better interest rate. Also, before diving into applying for a HELOC, make sure you have enough equity built up for it to be worth it, at least enough to make the down payment for a rental property.
Utilizing a cash-out refinance or a HELOC can provide you with money for a down payment on another property. As for the rest of the money needed, simply combine one of the other strategies discussed in this article.
Take a moment to watch the video below that details the differences between a HELOC and a cash-out refinance:
You Now Know How to Buy a Rental Property With No Money — Go Out and Make it Happen!
Now that you’re armed with multiple strategies for purchasing rental real estate when you lack the necessary funds to do so, I hope you will move forward with making it happen so you can work your way out of your current financial situation. In addition to this, if you want to accelerate the process of becoming financially secure, I recommend diving into the following resources and programs that I’ve created, along with my exceptional team:
- Financial Freedom Academy
- 90-Day Financial Empowerment Bootcamp
- The Freedom Number Cheat Sheet
- Morris Invest & SDIRA Wealth Real Estate Investing Programs
I hope this article has helped set you on the path to making your dream of owning a cash flowing rental property a reality. If you have questions on any of these strategies, or you would like the help of a full-service real estate company to provide you with a lucrative property, possibly utilizing non-recourse financing, your retirement account, or perhaps another financial strategy, we are here to make it happen for you.
We can take care of all the necessary details, such as locating a property in a thriving housing market, placing a reliable tenant for you, assigning a property manager, and everything in between. If you’re interested in finding out more about our process, or you would just like to speak to one of our experienced team members, feel free to schedule a complimentary phone call with Morris Invest.
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