How to invest in real estate: 10 ways to buy without money
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Investing in real estate can be daunting, especially if you don’t have the money. If you’re ready to buy a property but don’t have the cash on hand, read on for 10 ways to start investing in real estate right now.
1. Real estate investment trust
REIT companies own or finance income producing real estate in various real estate sectors. REITs are similar to mutual funds, offering everyday real estate investors the opportunity to earn income and returns based on dividends. You can invest in a real estate portfolio by purchasing shares of individual companies through an exchange traded fund or a mutual fund.
As a REIT shareholder, you earn a share of the income produced without purchasing, financing or directly managing the property. If you choose to invest in real estate with a REIT, you are in good company, as nearly 145 million American homeowners have invested in REITs through their retirement plans, such as IRAs and 401 (k) and other investment funds.
2. Hard money loan
Hard money loans are also known as bridge loans, short-term asset-backed bridge loans, also known as STABBLs, and asset-backed loans. They are used for short term mortgage financing. You can’t get a hard money loan from a bank or a credit union. Only private and individual lenders offer hard cash home loans.
Obtaining a hard money loan is often an easier and faster way to invest in real estate than going through the traditional process of institutional funding and approval. Plus, your credit history is not a problem, as hard cash loans are asset based.
Investors who use cash loans to buy real estate are usually people who renovate and sell properties for profit.
3. Government loans
The US government offers loan programs for real estate investment. Here are a couple to consider.
- Department of Veterans Affairs (VA) Home Loan Program guarantees loans to eligible veterans, military personnel, reservists, members of the National Guard and certain surviving spouses of veterans. This loan usually requires $ 0 down payment and low interest rates.
- Rural Housing Loan Program offers direct and secured loans to buy, build and improve a permanent residence. You can finance a new manufactured home if it is on a permanent site and was purchased from a government approved contractor or dealer. The property must be located in a rural area and you must be considered a low income earner.
Real estate investors can make huge profits from wholesaling real estate. This strategy involves wholesalers selling multiple properties to a retailer, who then renovates them and sells them to a third party buyer at a much higher cost. The wholesaler may charge the retailer a lower price because of the volume sold to the retailer.
5. Home hacking
If you want to invest in real estate but are worried about how you’ll pay your monthly mortgage, consider hacking your home. As a hacker, you become owner and owner. How is it?
You are buying a multi-family property. You live in one unit and rent out the other units. You can also renovate a single-family home into a multi-family property, creating an apartment unit for rent. The goal of home hacking is to generate enough income from the rent you collect to cover your entire monthly mortgage payment.
6. Capital partnerships
One of the ways to invest in real estate with little or no money is to create capital partnerships. If you are short of funds, you can use your wedding rings to make up the difference. Find a cheap property that is not in the best condition, and your financial partner can use their purchasing power – credit score and capital – to finance it. Each equity partner gets a percentage of ownership on the property.
7. Vendor financing
Before embarking on seller financing, be aware of the financial and legal risks. With seller financing, the seller becomes your direct lender. If you don’t qualify for a traditional mortgage, you might consider financing a loan through the seller of the home.
You can negotiate your loan agreement and the financing process is generally faster than the traditional method of financial institutions. The seller-funded agreement is also referred to as a land contract or contract for deed.
8. Home equity loan
When property values are high, a home equity loan can be a viable real estate investment option for you if you don’t have upfront money available. With more equity in your home, you can capitalize on two options: rewrite in cash and refinance the first mortgage, or hold on to the first loan and take out a home equity line of credit, also known as HELOC.
Be sure to look for lenders who allow investors to take out HELOCs on rental properties.
9. Purchase option agreement
If you are a current tenant, you can enter into an option to purchase agreement with the landlord. This contract gives you the right to buy the property in the future. The Tenant and Landlord agree that a portion of the monthly rent payment is applied to the tenure of ownership over the term specified under the Rental Agreement with Option to Buy.
10. Private money loan
When you have no money and want to invest in real estate, a private cash loan can speed up the process. The catch is that interest on private money loans can range from 6% to 12%. Like hard money loans, funds come from individuals rather than traditional financial institutions. A good practice with private cash loans is to find a property that can be purchased for 50 cents on the dollar.
Your credit score is key
If your credit history isn’t great, you can still invest in real estate without putting money down. You must first know and understand your credit score. This is the number that lenders use to determine the likelihood that you will pay off your loan on time. The higher your score, the better your chances of getting a loan.
Keep in mind
If your credit score is far from perfect, you can still get financing, but it’s always better to negotiate from a position of knowledge rather than ignorance.
You can invest in real estate without cash using the financial tools described in this article. Take a look at them and choose the one that best suits your unique situation and needs.
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