Investing in real estate costs money, but with a little resourcefulness and knowledge, you can buy real estate with little or even no money of your own. Having some quick cash to put down as a down payment is the ideal situation, but there are other options for real estate investors who don’t have much money. You have the traditional option of borrowing money, but we also tell you about some lesser known options that might work best for you. Here are your options when trying to invest without much money:
Options for Investing
1. Traditional Borrowing. Should you find yourself in the position of not having enough money to make a real estate investment, borrowing from a lender is always an option- just make sure that you will be able to pay the money back. Even though lenders have tightened their lending requirements, banks and credit unions are still able to lend you the money that you need for your investment if your credit score is good enough to qualify. You will most likely be asked to make a 10 percent or larger down payment, but there are still lenders that require less. Borrowing money from lenders is the safest and most well-known way of financing a real estate investment.
2. Seller Second. An often used form of financing, “seller second” can help you invest in a property by allowing the seller to provide a second mortgage. Normally, this second mortgage will be enough to cover most or even all of the down payment required. This type of financing allows you to buy an investment property without using much, if any, of your money, and the seller will get a large part of his equity. It is important to be sure that the mortgage loan that you qualify for allows a second mortgage to be added to it.
3. Seller Carry Back. This is a type of “creative financing” and it allows you to invest in a property with little or no money at all. Seller Carry Back is a form of financing in which the seller sells the property to the investor, but receives the money as monthly payments, for as long as 5 years after the sale. The seller must truly own their home, and not owe any money on mortgage loans.
4. Subject-To. This is another type of financing that can help the real estate investor if they don’t have enough funds. The name “subject-to” came from the phrase “subject to existing financing” which means that you are able to buy the home, but with the condition of the existing financing on the home will remain in the owner’s name, while the buyer will make the monthly mortgage payments. This type of financing gives you the advantage of not having to make a down payment because you will be able to refinance in six months and put the new loan in your name. Subject-to financing is only short-term because the seller is not going to be comfortable leaving the mortgage loan in his or her name for a long time.
5. Lease Option. Another popular way of investing in real estate with little money is by doing a lease option, which allows you to rent a home with the possibility of buying it down the road, before the lease term expires. During the period in which you are renting, which is typically two or three years, you will have plenty of time to get financing in order to purchase the home. The home owner will be unable to legally sell the property during the option period.
When investing in real estate without much money, it helps to be creative and resourceful. You shouldn’t let your lack of funds be an excuse to not invest in real estate. The solutions presented in this article show you that you can invest into this industry without having large amounts of money and liquid assets, but you have to make sure that you fully understand that these solutions might not always be a perfect fit for your situation.