Wednesday | May 23, 2012
How to Invest in Real Estate Without Using Your Own Money
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By
Jonathan Patton
30 May 2006
Like most people without an extra $100,000 or so in the bank, you probably aren’t considering a sizeable real estate investment at this point in time. After all, the average house prices in your area may be anywhere from $100,000 to $400,000 depending on the market. Why would a college student or someone with a new career even look at such a substantial business enterprise?
One of the most common false impressions about real estate investing is that you need a lot of money to get started. But what if I told you there are several ways to invest without using your own money? That’s right! Although property typically does require a pretty good chunk of money to acquire, it doesn’t have to be your money. Now, in my biased opinion as a full-time real estate investor, that is one of the great perks of the business!
There are literally thousands of banks, lending institutions, and private individuals eager to loan money to those with some cash and/or credit. These benefits can be illusive, but there are still plenty of ways to finance a deal when you find the right one. After I got out of college, I used “hard money lenders” to purchase several of my first properties. These lenders rarely require any money down or even a credit report when the loan to value is low enough. Of course, you need to be sure you have negotiated the best possible price on the property in order for the deal to work (but that is another article, altogether). Hard money lenders usually lend up to 70% of the property value.
Early in my career, I used a hard money lender to purchase a house that was going into foreclosure. The homeowners saw one of my ads in a local newspaper and called me. I went out to take a look at the property but discovered that they owed $110,000 on a house that was only worth $120,000. These numbers did not work for me, but instead of giving up, I contacted the foreclosing lender. With some negotiating, they agreed to accept an $80,000 payoff of the property. I went to a hard money lender and borrowed $86,000 (acquisition cost plus $6.000 for repairs). After having it renovated, I sold the house for $120,000, paid off the hard money lender and walked away with a $25,000 profit.
Another great way to structure a purchase if you don’t have the money yourself is to partner with someone who does. I was a full-time college student and a new investor when I found a house for sale in the newspaper. The owner was motivated to sell because of health problems, and we agreed on a price of $205,000. The house was appraised at $235,000.
I took the deal to a friend of mine who I knew had some money invested in the stock market. Using his cash, we made a down payment and secured a loan to purchase the property. We repainted the inside of the house and put it back on the market. A few months later, it sold for $235,000. My friend and I split the $30,000 profit and started looking for another deal! That was my first house sale.
I hope that at least one of these ideas has helped to make real estate investing seem a lot more feasible right now. Do not let a common misconception or doubt keep you from taking a step that could transform your life. Start looking for ways to invest while you are young by focusing on how you can put together your first deal instead of on the hindrances that you might face. Do your homework. Check all the numbers before you buy, and implement one of these creative deal structuring ideas.
As a 21-year-old college student at The Citadel in Charleston, S. C., I started investing; and it radically changed my outlook on life. Real estate investing has become my life’s work and I continue to build my portfolio through innovative ways of finding and funding the right deals. I consider it one of my greatest privileges to help other investors do likewise.
© 2006, East Coast Investments
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