Real estate investment sounds like a luxury option, but if you act smart, you can also invest with low capital.
There are several ways you can invest and take advantage of real estate with little or no capital.
Use Existing Home Equity To Invest In Real Estate
If you already own a home, you probably already have cash on hand to start investing in real estate. Options such as home equity lines of credit are popular and allow homeowners to free up funds to invest. Once you’ve paid off a significant amount of your mortgage and your home has appreciated over time, lenders can lend you money they received from your existing property. In addition to interest, you’ll also have to pay back what you borrowed, but these options allow you to get a lot of money without having to sell your home.
Refinancing and HELOCs have become popular options for homeowners to raise money for the down payment and closing costs of a second or rental home before becoming an investment to build further equity or generate rental income.
Although you will have to pay interest on the funds you borrow, the potential gains on a second property mean that the financial benefits of using this strategy can easily outweigh the funds you invest through interest.
Buy A Property With Multiple Units
You don’t have to own a dedicated investment property to raise money through rent. Many investors pursue a strategy of holding a duplex they rent out and use as their primary residence. This is also known as “house hacking.”
Suppose you can come up with a down payment (which is a hurdle in itself, although there are strategies to make it easier). In that case, you can buy multi-unit properties cheaply with rental income or live there for free by living there for a free place to rent additional units.
The beauty is that you can still build up assets in your property, and when you pay off your mortgage, the money you raise through rent turns into passive income.
Home Buying Partner
Working with wealthy people you know may make it easier for you to buy a home yourself. Even if you don’t need the money, you need a friend or family member with enough money to invest.
The most common example is when a parent helps a child pay some or all of the down payment, even if they legally cannot repay the gift.
You can also work with a partner who can provide you with a loan to help you buy a home, and then they will get some return on their initial investment, such as a home loan.
The only thing to consider is that this loan affects your debt ratio, so a large enough loan could cause your lender to reject your mortgage. Alternatively, you can use a co-signer on your mortgage, which allows the bank to determine your eligibility based on the borrower’s combined financial and credit history, making your purchase easier.
This option depends a lot on your situation and whether you can find a second party willing to help you with your purchase, but if you’re lucky enough to have access to it, it can be an easy way to start real estate.
Hard Loan For Real Estate
A hard cash loan can help you raise funds to buy a property if you don’t have money right now. These loans are processed by private coin lenders, unlike regular mortgages from regulated lenders, so that you can get a loan with little or no money.
On the downside, these loans tend to cost you more due to higher interest rates and tend to have shorter terms. However, they may be ideal for those looking to purchase property with private funds, an area where traditional mortgages are not readily available.
Vendor financing is a home buying option where the property owner finances the sale. Essentially, they don’t prepay for their house from the mortgage lender, but instead, allow you to pay them the cost of the house directly over time. Since they’re not a mortgage lender, they don’t have to follow the same rules as a minimum down payment, which means you’re likely to get a good deal.