Updated: May 7
Back in the 1980's, when I started to read about real estate, "Buying Real Estate with No Money Down!" was a really big thing. All the books and late night infomercials seemed to be screaming that theme. The trouble was, the way they did it, was extremely dangerous.
The pitch was relatively simple. 1) find a property in deep distress (let's say $100k), 2) buy it from the existing owner by assuming their existing mortgage (let's say $80k), 3) get your Uncle Pete to lend you $15k and 4) put the remaining $5k on your visa. Sure, there was none of your money going in, but you were 100% leveraged. If your were flipping, you had better be able to get in and out REALLY quick, and if it was a rental you had to hope the rents covered the monthly payments and you never had a vacancy. This was a very risky and dangerous game to play.
There are less risky ways to get into real estate investing, on a smaller scale, without a lot of money required. Let's look at my top 5 favorite ways:
1) Wholesaler / Bird Dog: A bird dog is someone who finds properties for other people and takes a finder’s fee. You will look for a specific type of building, make an offer that gets accepted, tie up the building so that nobody else can buy it, and then find a buyer. Once found, the new purchaser steps in and finalizes the contract with the seller. When the deal closes, you collect a finder’s fee, which can be anywhere from a few hundred to several thousand dollars. You never actually own the property; you are just the go-between. A twist on this is to find buildings for realtors to list and collect a fee.
2) Doing Partial Renovations: Another strategy is to purchase a property to flip that is REALLY nasty at a huge discount (no structural problems, just really disgusting inside). But instead of doing the full reno yourself, which will most likely be extremely expensive, you would just do sufficient clean up to be able to sell it to another flipper. Some buildings are just so disgusting that even professional renovators are scared to touch them. If you don’t have a problem with going into a building and cleaning up the REALLY nasty stuff, then it becomes acceptable for other renovators to come in and take it from there. You make the difference between what you can buy it for and what you can sell it for.
3) Complete the Permitting Stage and Then Sell: Another strategy is to buy a building where most of the value of the building is the land underneath it. If the building is so old or is condemned or is a knock down, you buy the building, leave it as is and go through the process of getting the proper development and building permits to allow you to create a new building on that land. At that point, you sell the property ‘as is’ along with the zoning and permits to a builder. They would then knock it down and build a whole new building. Professional builders like to spend their time building. They don’t want to take the time and effort to deal with the bureaucracy at the municipality. There is a market for a turnkey package where everything is ready to go to start a new build.
4) Land Parceling: This is where you find two or more adjacent parcels of land that are owned by different groups. Individually, there is not much that a builder or developer could do with those lots, but when you put them together as one large parcel then the larger piece becomes attractive. You would tie up those lots with either a purchase agreement or an option with the existing owner(s). The difference between what you spend to tie up the property, and what you flip it to a developer for, would be your profit. Again, you are adding value and making a profit by completing part of the work required to build or develop without actually doing any of the really expensive work.
5) Buying a Property With An Agreement for Sale: An Agreement for Sale is just like a Purchase Agreement. The difference between the two is that an Agreement for Sale will have a longer closing date. Title or ownership of the property, and any existing mortgage, stays with the seller for the life of the contract, but the buyer (you) can make use of the property in the meantime – put in your own tenant, collect rent, be responsible for the taxes and other costs etc. You still end up buying the building, but in two or three years time. That gets you control of the building with little money invested and without qualifying for a new mortgage. It gives you time to build up the value of the building and create cash flow.
There are lots of ways to get into real estate when you are short on cash. These are just my five favorite.
For more details on these and other ideas and advice on how to increase cash flow with your real estate investments, check out my book on "Cash Management in Real Estate Investment"
For advice on which strategy might suit please read my book on "Comparing Real Estate Strategies"
Or you can always contact me directly and "Book a Chat"
I look forward to hearing from you.