How to Invest in Real Estate With Little or NO MONEY

One of the most common questions I get asked is: how much money do I need to get started investing in real estate? Today we are going to discuss whether you need money at all or if there are other ways to get into it. I’m going to tell you how anyone can get involved in real estate, all of the different strategies, and how much money you need for each of them. Let’s jump into it. 

I’ve been investing in real estate for the last 9 years and I currently own about $25 million worth of real estate. That’s made up of about 170 storage units and 162 units of residential real estate. I’ve had the opportunity to invest in a lot of different real estate with a lot of different strategies to do it, and I know a lot of other people want to do the same thing. However some of you have more money than others, and some have no money at all. In this article, I’m going to break down the strategies you can use to invest in real estate. Some of them don’t require any money to get started investing in real estate. 

Picking worms

First, there’s some principles that I want to share with you. When I was about 8 years old, I decided that I really wanted to buy things, as do most people. I also realized that I didn’t have a lot of funds. My parents were usually willing to pay for a lot of things in my life. But, they loved to fund me in making money so I could afford to get things for myself. So when I was about 8 or 9 years old, my dad talked to me about making money by doing yard work, mowing lawns, etc. Then he brought up another idea that really grabbed me. My dad told me that when he was young, he would gather worms from his yard and sell them to fishermen, and that he made pretty good money at it. I liked this idea because it had less overhead than doing yard work, mowing, etc. It had zero startup cost. After gathering the worms, all I had to do was find a way to sell them. I collected used milk cartons from the school, and put a dozen worms into a carton. Luckily I lived in Idaho where a lot of people fish, so I was able to sell the milk cartons of worms pretty quickly. I started making good money. 

Every night I would go out and pick up worms in the yard. After fighting with the worms and sometimes breaking them in half trying to get them from their holes, I learned about something called “worm squirmer.” I worked and saved up enough to buy worm squirmer, which makes the worms drunk so that they come out of the ground and you can easily pick them up. Eventually I got so many worms that I had a hard time finding enough fishermen to buy them all. Then I found a business that would buy them off me. Now I was catching tons of worms, putting them into massive buckets and taking them to the store to sell them by the pound. So why are we talking about worms? One, so I can show you that business isn’t always glamorous. It takes work and getting your hands dirty. You can scale it up and it gets easier, but it requires work upfront. Real estate is one of those things that is a lot easier than having to pick worms every night. When you’re going through this process and it’s a lot of work, just trust me that it’s preferable to picking worms. Two, you need to figure out how to leverage what you have to maximize your earning. You need to take a step back and look at your situation, this is not a one size fits all. Leverage your skill sets, your income, and your situation to maximize your returns in real estate. In this article we’ll cover what to do if you have no money, some money, or a lot of money to invest in real estate

‘Some’ money 

Let’s start by talking about what to do if you have some, but not a lot of money to get into real estate. Maybe you’re tight on money and this strategy will work as well. This strategy involves leveraging money that the bank is willing to give you. The bank will give you a loan on 75% of the property if you’re not living in it. So you have to come up with 25% down and you can get the other 75% from the bank. The bank will want you to have good credit, enough money in the bank for your down payment and for reserves on the property. They want to see reserves to know that you can survive and keep your business going after you buy the property, before the rents start coming in. They’ll also look at your debt to income ratio and your taxes (W2 or 1099). You can sit down with a loan officer and get all these questions answered completely free. You can show them everything you’ve got and see what amount they’ll approve you for or what you need to do to get approved. 

‘Little’ money 

If you want to buy a $400,000 property and don’t have $100,000 for the down payment, I understand. That’s why there are other strategies. One of these is to live in the property. If you want to buy a property with 4 units or less, you can get it for as low as 3.5% down. The lower down payment you get, the more you will be penalized with fees. So you have to decide if you want to put 10% down, 5% down, or 3.5% down. If you can get a fourplex and live in it, you can make money every month and get your rent for free, that’s a great deal! That’s something you should jump on. This takes a $400,000 property and takes your $100,000 35% down payment down to $14,000 if you’re doing 3.5%. If you can find a duplex for even less at $200,000, now you’ve cut that in half so you only need $7,000. Keep in mind that they’ll want you to have the down payment plus 6 months in reserves so they can see that in your bank account. $7,000 is pretty realistic for a duplex. This is an awesome deal where you can live for free and have someone else pay your mortgage. And it doesn’t require a lot of money down. 

Another option is to get into an even smaller, single family home where you can live for a year and then move into another home and rent the first one out. With FHA loans there are rules that you have to stay in a home for a certain period of time so I usually advise people to get multi-family homes so they can immediately start making money from rents. 

No money

If you have no money, not $7,000 or good credit, your first step will be to fix those things before you think about investing in real estate. If your credit is bad because you have debt, get that paid off first. It’s hard to overcome the interest on your debt with rental income. Better to pay that off first and then get yourself into a situation where you can afford to invest in real estate. 

If for some other reason you still don’t have enough money, there are some other options. With the previous strategy, you are leveraging in a huge way anywhere from 75% to 96% if you are only putting 3.5% down. That’s a lot of borrowed money. The less money you’re bringing to the table, the more and more leveraged you are. More leverage means more risk, and more time for you. I like real estate because while you can be really leveraged, you are also protected by LLCs, insurance, and a management company. There are a myriad of things you can do to mitigate your risk. 

Keep in mind that this next option works if you have no money to bring to the table, and even if you have enough money to buy one or two properties. This strategy uses other people’s money, which allows you to keep all your money in the bank. The reason to keep your money in the bank is that if all your money is gone, you won’t be able to get approved for another loan. For example, if you get a loan and buy the property with all the money you have, you won’t have enough money in reserves to get that next loan. So when you go to get approved, you’ll be denied even if you have someone that wants to give you the money. 

Let’s say you do the first deal with a partnership where it’s their money but you find the deal, you manage the deal, etc. and leave your own money in your account. You get approved and set up the partnership with them to use their money to get it to close. The bank doesn’t care where the closing money actually comes from, they just want to see that you personally have the money in your account so that you could do it. You still have all the reserves you need to get approved for future loans. If you structure things right, the income for the previous property will contribute to your debt to income ratio and will be another thing that will help you get that next loan in the future.
Sit down with your loan officer and strategize. Tell them your plan and what you want to do. If you take this strategy, as long as you’ve got enough in your account to get approved for the loan, you can do a partnership and use someone else’s money, then move that into an LLC and you’re all set. You’ve been able to buy this property with your financing through the bank but someone else’s money on the down payment. The only catch with this situation for someone with no money is that you have to show the money in your account to get approved for the loan. So again you’re at the place where you may have found a partner to put up the money, but you don’t have that money in your account to get pre-approved for the loan. This is a tricky spot where you’ve got an option: 

Scale up. Get a commercial loan. Try to build a relationship with the bank where you show them the value that you bring. The commercial loan will have worse financing, but it’s worth it because with it you can get ownership in a property. The major roadblock here is that the bank has no reason to trust you if you have no money. You’re not bringing much value to the table. You might be able to leverage some history such as having worked as a property manager in the past, or working as a banker, etc. If you have some experience or something you can use to get them to believe you can manage this rental property, you have a chance. I do not suggest starting this way because it’s tricky and hard. If you’re in a place where you can’t come up with $7,000 or show the bank you can get good credit and a good debt to income ratio, it’s not fair to expect anyone to give you money. You can do it and there are other ways to structure it such as a fund, syndication, partnership, with a commercial loan but these are topics for another day. 

If you’ve already bought properties, you can get to the point where you’re like me and I can say what I’ve done, what successful investments I have, and I can do a fund, syndication, or partnership where people give me their money to invest for them and we all make money together. I am looking into setting up a fund or syndication so stay tuned for details on that, or there are plenty of others out there doing it, so look into it if you have the money but want to be part of something like that instead of doing it on your own. 

To recap, you can get into real estate with 3.5%, 5%, 10% or 25% down if you’re not living on the property. You could get into a scenario where you buy a property with 25% down of someone else’s money because you bring value to the point where they’re willing to give you the money to buy a property. If you have a massive value-add property where you know you can go in and bump rents like crazy without a lot of renovation or other costs, and refinance very quickly, that’s a great option. You can do this with larger apartment complexes where they look more at the deal itself than your personal finances, especially if you have someone else involved in the deal with money and good credit. A syndication, a partnership, or a fund with commercial deals is a way to get into commercial real estate with literally no money of your own. These are some of the different ways you could potentially get into real estate. 

One thing I didn’t cover is a hard money loan, where you borrow the money and find a way to go into a deal, refinance, pull that money out later, and pay them back. I haven’t used this strategy because usually you’re paying high interest and you’ve got to bank on being able to pull that money out down the road. 

The last point I want to help you understand is that you can get into real estate regardless of how much money you have. However, there is something to be said for figuring out your own finances before going out for real estate investments. If your money is tight but you’ve been able to get enough reserves to buy a property and live in it, that’s incredible. Now you’re not paying rent, you’re getting equity because it’s going up in value, your tenants are helping you pay down the loan, plus all the tax benefits. If you’re sitting at home without a job, and you see what I’m doing with real estate and you want to get into it, I’m telling you that you should probably figure out how to get your finances right so that you can at least buy the first deal on your own. If you’re struggling to get there financially, and you’re willing to learn and work hard, I have resources for you at to get into a career where you can make good money and have a stepping stone to get into investing later. This is an opportunity to train personally with me and make a ton of money and a great way to build savings to start with real estate.