Ways to Invest in Rental Property When you’re Penniless
You’ve undoubtedly heard that buying real estate can be an excellent investment. If you don’t have a lot of money right now, you may think that your lack of ready funds means that you cannot buy real estate, but that is not the case. With some knowledge and creativity, it is quite possible to buy real estate, even if you don’t have money of your own to invest. Here are some ways to buy real estate, even if you are broke.
Figure out why you want to invest in a rental property first
This is an extremely important, especially when you don’t have a solid budget available. Knowing exactly why you want to buy a rental will persuade you to focus on your goal. Times are tough, and on this economy not many people can afford to buy homes. Fortunately, there are ways you can invest in a rental without a lot of money. First, you need to ask for advice from a specialist. Talk to a Realtor or expert in real estate investing, assess market prospects and check related websites for a clearer perspective.
Use your home equity
If you already own a home, then you may be able to use the equity in your house to buy additional real estate. You can get equity out of your home as either a Home equity loan (which is usually a fixed interest rate), or a Home equity line of credit (which usually has a variable interest rate). One advantage is that the interest rates on these are low compared to other loans. Check with your accountant to see if you can deduct the interest on your taxes.
Borrow hard money
These hard money lenders are individuals who loan money for real estate. They base their loans on how much your property is worth, and will often lend up to 100% of your purchase price. They want to make sure that their investment is secure, so they will generally have a fairly conservative estimate of the property value.
Find a partner
If you have the real estate knowledge, and the motivation and willingness to do the work of finding a good investment property, then you may be able to find a partner to cover the financial side. There are many people in the world who have money, but lack the ability, time, or motivation to find a deal themselves. If you can find somebody like this, it can be a rewarding partnership for you both. Make sure you have a solid partnership agreement in place.
Get a Lease-Option
This is a strategy where you gain the use of a property via a long-term lease, with an option to purchase it for a set price at some designated point in the future. For the duration of the lease, the investor has the right to use the property, or rent it out for cash flow, without taking legal ownership. The investor can also sell the option to someone else.
Buy “Subject To” properties
Buying “subject-to” property is a somewhat riskier strategy, but it can work. What happens is that the current owner sells the property to the investor. Title to the property is transferred, but the current owner’s mortgage is not paid off. The mortgage holder would probably not approve of this practice, but as long as you continue making the payments on that old mortgage, they may never notice or care.
Use private money
You can find people with money who are looking for diversified investments that provide a good rate of return. The way it works is that a wealthy person loans a real estate investor a certain sum of money, secured with a lien on the property. The real estate investor offers them a fixed rate of return, anywhere from 12 to 20 percent.
Very few people can afford to invest in rental properties. And yet, it’s not something impossible to do, as long as you know how to do it. If you’re short on cash, borrowing or asking for a loan can be solution. Make a wise decision and try not to rush things through. You can always ask for help from family or friends, but do is cautiously. Have a reimbursement plan in mind and do everything you can to maintain a good credit score.
Category: Real Estate
