How To Buy Real Estate If You Are Low On Cash

You do not need excess savings to start investing in real estate. Sure, like any other business having access to capital can help accelerate your growth, but it truly isn’t a necessity. There are plenty of resources to find all the capital you need to start building your portfolio. Some options are straightforward while others require just a little out of the box thinking. What you shouldn’t do is think that just because your current savings isn’t where you want it to be that it disqualifies you from getting started. All it takes is one deal to give you the push you need to get your business on the right path. Not having money is a hurdle to start investing, not a road block. Here are five ways to start investing in real estate if you are currently low on capital.

• Wholesale: When most people think about investing in real estate they think of either fix and flip rehabs or buy and hold rentals. While these are both viable options, there is more to the business. There are times when you will be presented with an opportunity that makes sense, but just isn’t right for you at the time. Instead of discarding this deal and moving on you should look to generate income from it. Wholesaling certain deals isn’t just for new investors looking to break into the business. It can work for any investor on any particular deal. With wholesaling you find a discounted deal on a property and get it under contract. You then find an investor who wants the deal and is willing to pay you a premium for it. You make whatever the spread is from the contract price to the investors price. This allows you to get in and out without coming up with a dime or waiting for the deal to close.
• FHA Purchase: Buying a property with an FHA mortgage is one of the best ways to get started in real estate. With an FHA loan you can buy a two-family property with just 3.5% down payment. This down payment can come from almost any source, including a gift from an eligible family member. Additionally, you can still take advantage of buyer credits from the seller, lender, or both. Using these credits, and gift funds, allow you to get into the property with reduced personal capital. Once in the property you can live in one unit while renting the other unit out. In most cases, the income generated from the second unit will cover most, or all, of the mortgage payment. With FHA interest rates still hovering near all-time lows, your payment will be as low as possible. When you are ready to move on from the property you call either sell and use the equity or have two units of rental income. Either way utilizing an FHA loan and the reduced guidelines is a great way to establish a portfolio without needing excess personal capital.
• HELOC: Do you currently own a property? When is the last time you looked at the value? If it has been some time you may have more equity than you think. With increased equity you have the option of a home equity line of credit (HELOC). A HELOC is a new second mortgage behind your existing first mortgage. With any mortgage you will need strong credit scores and show an ability to repay. However, HELOC’s are not nearly as difficult as a new first mortgage. You may not need to get an official appraisal and the application cost is typically waived. With a HELOC you only repay on what you use. If your line is for $50,000 and you don’t touch it the only thing you may have to pay is a small annual fee for keeping the line open. When you need to tap into it, your repayment is interest only keeping your monthly payment as low as possible.
• Partnerships: There are plenty of people who want to get involved in real estate. Right now, you probably have a half dozen friends, family members or acquaintances that have thought about investing. They may have capital to invest but don’t know how to find the right deal or have a deal and lack the capital. Either way, with a simple blast email to your contacts you can find the right person to partner with. Your partnership doesn’t have to be for the duration of your career, it can be on a one deal trial basis and go from there. The right partner can help grow your portfolio without needing capital to get started.
• Seller Financing: All real estate transactions are not the same. There are a handful of non-traditional sales options that don’t require any out of pocket capital. One of those is seller financing. As the name would indicate with seller financing the seller holds a portion of the negotiated purchase price. They may hold the down payment and you finance the rest or hold a larger piece of the loan. Either way if you are limited with your capital you should always explore the option of having the seller hold some of the financing. If they are desperate enough and have limited options this can be a viable solution that appeases both sides.

It bears repeating that you don’t need capital to get your real estate career started. You can use any one of these options to find the capital needed to start building your portfolio.