When I tell people I invest in real estate, I generally get one of two comments:
- Why would you invest in real estate? That’s way too much work. I don’t need that kind of stress in my life.
- I would love to invest in real estate, but I don’t have any money.
If you’re in the first category, I get it. Investing in real estate is not exactly passive, but I enjoy (most) aspects of it so it’s a good fit for me.
If you’re in the second category, I’m here to tell you how to invest in real estate with no money. Yes it’s possible! You do have to be more creative, but there are numerous ways to get started in real estate with little or no money down.
Yes, you really can invest in real estate with no money. But if you don’t have any money, you will have to find some other way to contribute resources — time, skills, relationships, or sweat equity.
There are a million ways to structure a real estate deal, and if you can’t bring money to the deal, then what can you bring?
For me personally, when I wasn’t bringing money to the table, I was always able to bring something else. In one case it was the time and expertise to manage the rehab. I did all the work, and found a partner to put up all the money. In another, I put in a lot of hard work to find a really good deal, and was able to participate in the profits by partnering with another investor with money but no good deals.
The lesson here is if you want to invest in real estate with no money, then go find the people that DO have money and make it worth their while to put their money to work with you.
“Stop yammering on and get to the good stuff! Give me some examples!”
Ok ok, geez. I’ll try to keep these examples to a Twitter-worthy length just for you.
How can you invest in real estate with no money out of your pocket? Let me count the ways…
So technically this will require a little bit of money up front, unless you can get a 0% down USDA or VA loan. But even with a conventional loan you only need to come up with 3% down these days. You can often negotiate with buyers to cover closing costs leaving you with almost nothing out of pocket. This is way better than the 20–30% a lender will require you to put down for a pure investment property.
The idea here is to find a home you can live in, but will also make a good investment. Most lenders require you to live in the home at least 1 year before you can convert it to a rental property. But that doesn’t have to stop you from running the numbers like it’s an investment, or “house hacking” and renting out rooms to your friends while you live there.
This is what I did with my first home. When I was in my mid-20s and still single, I bought my first home — a 3 bedroom, 2 bath house in the city. I was used to having roommates, so it was easy to move in 2 friends into the spare bedrooms, and they paid me rent every month. While I wasn’t able to live completely for free, the rent coming in did cover a large majority of the mortgage. I ended up paying less to live there than I would have sharing a small apartment with a roommate!
Another idea is to buy a 2–4 unit building, live in one unit, and rent out the others. When I got married, my wife wasn’t too keen on living with roommates. While we didn’t end up going this route, we could have found a nice duplex and lived in one half and rented out the other to accomplish the same goal.
And 2 or 3 years down the road, if you used the 1% rule to evaluate your purchase and treated it like an investment, you can move out and turn it into a dedicated rental house without having to put any additional money down!
If you found a great deal, but don’t have the money for a downpayment, consider forming a mutually-beneficial partnership to purchase the house. This works great with flips, but could also work for a rental property as well if you structure it right.
If you’ve been attending real estate meetups and are involved in the investor community, you will meet all different kinds of investors. When I first started, I was one of the “no money” investors looking for scrappy ways to get into the game. If you prove you are a hard worker and offer value, there are plenty of investors with more money than time, and would be willing to partner with you on a good deal.
You can negotiate any terms you want, but often this looks like a 50/50 partnership. One partner will bring the cash to buy the property, and the other partner (that’s you, Mr. or Mrs. Real Estate Investor With No Money) brings the deal and manages the rehab work and eventual sale of the property. Once the property is sold, the profits are split 50% to the money partner, and 50% to the sweat equity partner.
Another way to get into real estate investing with no money is by utilizing hard money lenders. They usually have less stringent underwriting requirements than a bank, and will loan you money for both the purchase and rehab. The trade-off is that they charge you a lot more in interest. In my area, the going rate is around 10% plus 2 points (a point is 1% of the purchase price paid as a fee at closing) — which is significantly cheaper than it was even a few years ago as the market continues to get more competitive.
With a hard money loan, it is possible to get 100% financing for purchase plus rehab, but you would have to find the right lender and an AMAZING deal. Usually they will lend up to 70% of the after-repaired value, so if you can find an exceptionally priced property you could get away with no money down. Often, a hard money lender will want to see at least some skin in the game so you’d have to come out of pocket with a little money or see #2 and work something out with an equity partner for the rest of the cash.
Another option is a private money loan. This is usually similar in structure to a hard money loan, but instead of coming from someone who is in the business of lending money, you’d be getting a loan from an individual — often someone you have a personal connection with. I’ve gotten private money loans from investor friends and even family in some cases. With a private money loan, everything is up for negotiation — loan amount, interest rate, payback terms, etc.
It is much easier to truly invest with no money down with a private lender. But please be responsible and protect your lender! I always make sure they have a first lien position on the property and I personally won’t borrow more than 80% of the after repaired value just in case something goes wrong.
If you have no money to invest in real estate, why not get the seller to finance their property to you?
Are you starting to notice a trend? Everything in real estate is negotiable! If you find a property you want to buy, but have no money to invest, you can see if the seller would be open to selling it to you with seller financing terms.
This is very similar to a private money loan, it’s just in this case the lender is the seller. Perhaps you could negotiate to put no money down, and make monthly payments on the house on a 10 year amortization schedule. Often, the seller doesn’t need all the money up front, and if you can figure out what they really want to get out of the sale, then they may be able to help you by spreading out the payments over time.
I used to do a lot of wholesaling. It was one way I generated cash for down payments on rental properties. A lot of “gurus” will advise new investors who are looking to get into real estate with no money to start with wholesaling. While it’s not the worst idea in the world, wholesaling is HARD WORK. It is really a job, and not investing. But you can make good money doing it.
With wholesaling, the idea is that you go out and find motivated sellers — knock on doors, cold call, send direct mail — and put the house under contract for a price lower than another landlord or rehabber would pay. You then sell that contract to another investor for a higher price and collect the difference as an assignment fee.
You are essentially provide a service to rehabbers and landlords — you do the hard work of finding the good deals for them so they don’t have to, and they pay you a fee for finding the property for them.
The hard part about wholesaling is you have to find better deals than a normal investor so you can make a profit, and you also have to have a firm grasp of how to estimate rehab costs, how to run comps, and know what the house is worth as a rental or rehab (or both). These are skills you can certainly learn, but it takes time and I wouldn’t necessarily recommend a newbie start out as a wholesaler without a good support network behind them.
Sometimes the problem isn’t that you have no money to invest in real estate, it’s just you don’t know how to access equity that might already be available to you.
If you have a personal home that has equity (i.e. is worth more than the mortgage balance), you could get a home equity line of credit (HELOC) to tap into that equity. It essentially works like a credit card with a much lower interest rate. When you need the money for a real estate investment down payment, you can pull money out of the HELOC and then pay it back after you refinance or sell the property.
A strategy used by many real estate investors once they have a few rental properties is to take out a line of credit against one to pay for the next one. Once they fix it up, they can then refinance it with a more permanent loan, pay off the line of credit, and rinse and repeat.
We’ve been talking about how to invest with no money, but sometimes it might be easier to just go earn more money so you can invest in real estate WITH money! This is part of the path we took when we had no money to invest, it just so happens that a lot of the things we did for extra money were also real estate related.
But if you’re good at something other than real estate, then use that skill to generate additional income you can put toward investing in real estate. Here are some ideas to get you started:
- Become a real estate agent — This is what my wife did, and she brings in an extra $15–20k per year just in friends and family transactions.
- Make Money eBay Flipping — You can make at least a few hundred dollars a month by buying at garage sales and thrift stores and reselling on eBay.
- Become a virtual assistant — It’s often not glamorous work, but many business owners need help with all the day-to-day tasks of running a business. You can even offer your services to other real estate investors (putting out signs, sending out mailers, etc.) and learn from them in the process.
- Cash Back Apps and Credit Card Rewards — Before you dismiss this one, we make an extra $1,000 — $2,000 per year just by using a few passive cash back apps and taking advantage of credit card sign up bonuses. One nice thing about investing in real estate is I always have large expenses to hit those minimum spend thresholds to get the reward point bonuses!
Another question I see a lot is how can I invest in real estate with no money AND bad credit? If you review some of the strategies to buy real estate with no money down, many of them also don’t require any personal credit either (e.g. find a equity partner, hard money loans, seller financing, and wholesaling).
While this means you can buy a property with bad credit, I highly recommend that you work on improving your credit score if you intend to stay in the real estate investing game long term. If you want to build a portfolio of rental properties, good credit will go a long way to obtaining financing with better interest rates and terms.
One of the best advantages you have as a real estate investor is the ability to leverage low-interest debt to buy cash flowing property. With bad credit, you lose this advantage of real estate investing.
We’ve established that you CAN invest in real estate with no money, but there is one final question that I think needs to be asked. SHOULD you invest in real estate with no money?
Ironically, it gets much easier to invest in real estate with no money the more experienced you are and the more real estate you own. This is because you’ve got an established track record, and hopefully developed relationships with other investors, lenders, and contractors.
Five years in, I hardly ever use my own money to invest in a real estate deal because I have multiple sources to tap for funding. But that doesn’t mean that I literally have no money.
As a real estate investor, and especially as a rental property owner, you need to have a sizable emergency fund available for capital expenditures. What if you need to replace a roof? Or the HVAC goes out in the middle of summer? I don’t necessarily have a pile of cash sitting around, but I do have pre-existing lines of credit I can tap in an emergency. It is always good to be prepared.
What if you have a little bit of money and want to get started investing in real estate?
You could certainly follow the strategies above to get started buying physical property with little or no money. Or, if you want a more passive approach to invest in real estate with only a little money, real estate crowdfunding is a great option.
I don’t want to take up too much space with crowdfunding, but if this option intrigues you, here is some further reading:
When I was just getting started in real estate, we had enough cash to buy one rental property and then we were “broke” (house rich and cash poor as they say). I wanted to keep buying more properties but didn’t know how.
I ended up doing a lot of research on how to invest in real estate with no money, and used several of the methods above to jump start me on my investing journey.
- I got into wholesaling to generate additional income I could put toward rental property down payments.
- I took on equity partners or private lenders to buy and flip houses (again generating more profits to put toward down payments).
In reality, our “investing” became more of a real estate side hustle than a passive activity. But I learned a ton along the way, and found that I really enjoyed the whole business of real estate. We still do a lot of active real estate side hustling even though we don’t have to.
If you want to get started in real estate investing but haven’t yet, what’s holding you back? Let me know in the comments!