Similar to a couple of other businesses across different industries, you can kick start your journey in real estate with no capital. Some practical ways to achieve this include:
Use Your Residence
Homeowners who are currently residing in their homes are encouraged to invest. You’re already ahead of the game if you own a home. Turning your present residence into a rental property is one of the cheapest, fastest, and easiest methods to become a real estate investor.
Traditional investment property loans have higher interest rates and require a greater down payment. You should anticipate making a 20% down payment in most cases. The interest rate for an investment property is usually a half percent or more than the rate on your “primary” house. So the plan is to rent out your existing property and use the proceeds to finance the purchase of your next primary dwelling
You’ll pay a lower interest rate on both properties this way. If you still owe money on your first house, you can utilize the money you earn from renting to pay some or all of your debt.
To purchase a new home, use the following:
Use a Home Equity Line of Credit (HELOC) or a Cash-out Refinance
Existing homeowners can use a HELOC or a cash-out refinance to purchase the property. You may be able to use the equity in your current house as a down payment on your next home if you own one.
Borrowing is one technique to accomplish this. You acquire a line of credit against your property with a HELOC and then draw on it as needed. You might also start repaying the debt using rental income. A cash-out refinance is another option for accessing home equity. You can refinance your mortgage for a bigger amount than you owe with a cash-out refinance. The extra loan amount is then taken out as cash. The money you get from a cash-out refinance can be utilized to make a down payment on an investment property in this case. To put it another way, if you have enough equity in your current property, you could be able to begin investing with no money down.
Investing in the Interests of Renters
Be both a tenant and a landlord: Purchase a multi-unit property. Multi-family houses can be an excellent method for new real estate investors to get their feet wet in the market. First, discover a decent deal on a 2-4 unit property with the help of a real estate specialist. These homes are sometimes referred to as “multi-unit” properties. You’ll rent out the other units while you live in one. The rent payments can then be used to assist pay off your mortgage. The key is that you can buy a multi-unit property with low-cost financings, such as an FHA loan, as long as you also live there. Mortgage programs like FHA loans don’t just have good rates and terms. They also give you options for covering the down payment. You may be able to obtain gift funds, or perhaps even down payment assistance. And you can use these to buy the home with nothing out of your pocket. If not, thanks to FHA’s low down payment requirement, you’d only need 3.5 percent of the purchase price for the down payment.
You can go in on the investment together by acting as co-borrowers. You share responsibility for mortgage payments on the house, and you can also share profits that come from rent payments or equity buildup. A co-borrower doesn’t have to be a friend, either. It could be a family member or even a stranger that would purely act as a business partner.
Look for a Lease-purchase Option
Another proven way to invest in real estate with no money is through what’s known as a lease option or a “rent-to-own” home. Under the lease option, the property owner charges the buyer a monthly or yearly premium, in the form of higher rental payments.
The excess rental fee will then be channeled towards the purchase price. With this type of agreement, you may be able to invest in real estate via a slightly higher rental fee.
Assume an Existing Mortgage
An assumable mortgage is one where the buyer can take over the seller’s mortgage, typically with little to no change in terms of interest rate. Basically, the buyer receives the title to a property in return for making payments on the seller’s mortgage. Using the seller’s existing financing can be especially effective if the current loan has a low-interest rate. But keep in mind, this scenario requires a bit more research.
Fortunately, you don’t need to be a seasoned real estate entrepreneur to get started in real estate investing. And it only gets easier to invest in real estate with no money after you gain experience owning a home. With interest rates at historic lows, as well as homes continuing to appreciate, now’s a great time to start investing in real estate. You have exciting options. Stop paying rent, living with your parents, or living with a roommate and get out on your own.