How to Make Money in Real Estate With No Money
Each year thousands realize that there is no better way to build wealth than with real estate investing. A large portion of this batch of new believers never gets started in real estate because they have little to no money to invest. They simply do not know how to invest without using a significant portion of their money. In this tutorial, we will touch on several ways to make money in Real Estate with no money. Each mentioned technique and method could easily be its own tutorial, but for the purposes of this article, it should be considered an introduction.
Method #1: Learn how to Wholesale
If you have any experience in real estate there is no doubt that you have heard of Wholesaling Real Estate before. Wholesaling is a form of arbitrage where you put a property under contract with the seller and then you sell the contract to a cash buyer for an assignment fee. The great thing about wholesaling is that you can literally start with no money and still find a deal.
For example; a property that looks vacant on your street is worth $250,000 once it’s repaired. After some research with the county records and a $1 skip trace, you find the owners name and phone number. The owner agrees to sell you the property for $100,000 as they are out of state and have no intention of fixing it to sell it traditionally and they owe taxes. You have an investor that is excited to pay $125,000 for the property in its current condition. You then sell the contract to the investor for a $25,000 assignment fee at closing.
Wholesaling is simple but not easy. It can also be expensive when you try and jump in with both feet and jump-start a deal pipeline. Although you can start with next to nothing by looking for deals networking with agents for pocket listings, or driving for dollars getting your first deal this way can take time. The quickest way to find deals is by marketing directly to sellers via google ads, SMS messaging and mailing cards and letters. A realistic budget to find your first deal is more along the lines of $2,000 in marketing costs using the above mentioned marketing techniques. Although $2,000 is a lot to many, it’s still not much compared to other business startup costs. In addition, the first $2,000 you put into your marketing might yield multiple deals down the road. Wholesaling is a great way to “earn your chops” in real estate, and many investors now begin their investing careers as a wholesaler. After some experience “wholesaling” becomes another exit strategy to the savvy real estate investor who has earned their stripes.
Method #2: Seller Financing
Another great way to get started investing in real estate is through seller financing deals. These deals range from super complex to very simple. Typically, a seller will allow the buyer to purchase their property while holding the note essentially acting as the bank. The seller gives enough credit to the buyer for the purchase price of the home and the buyer signs a mortgage at closing with the seller. Seller’s that are willing to take monthly payments from a buyer are typically distressed sellers in one way or another. My team’s favorite sellers are landlords with tenant problems they don’t want to deal with. We explain that we will make all the problems go away by becoming the new landlords and taking over the mortgage & tax payments. All the seller has to do is cash our monthly checks and they have a 1st position mortgage to secure their interest and a small monthly cash flow as well.
For example, on our last deal in Palm Beach County, our seller had a property worth $250,000 rented to tenants that were no longer paying rent and a mortgage payment of $750 per month. We agreed to pay the seller $1,000 per month, evicted the current tenants and placed new tenants in the unit for $1,800 per month. After monthly expenses we are cash flowing about $800/mo, the seller is cash flowing $250/mo and is no longer worried about dealing with his out of state rental unit. For the cost of an eviction, we are now cash flowing almost $800 per month or $9,600 per year and control $250,000 in real estate.
Seller financed deals can require no money to a small down payment. It all depends on your negotiating skills and how motivated the seller is to sell the property. In some market’s seller financing is a common way to sell a property and other markets it is not and can be much more difficult to find a seller financed deal. Learning how to negotiate with sellers to buy real estate with little or no money out of pocket is an art form, and you will use this tactic many times over your investing career when you learn it. To make money in real estate with no money is not only possible, but simple and easy when you become an expert investor.
Method #3: Real Estate Crowdfunding Sites
Over the last 5 years, technology and real estate have really began to converge in amazing ways. One of the coolest things to rise out of this new convergence is online real estate investing platforms. Now real estate ‘crowdfunding’ has been a thing for decades, but it was simply called old school terms like ‘Syndicates’ before. The biggest difference is you can participate in institutionalized real estate investing without needing to be an accredited investor. The other great thing is that you can invest in real estate using these platforms for as little as $10 to begin!
These sites pool together thousands of investors and use their money to fix & flip houses and lend money to other investors on their projects. Many have a good track record of about 10% returns per year to their investors over the last 5 years.
Like with any investment there are downsides to investing in Real Estate Crowdfunding Sites. Firstly, you have fees to watch out for, depending on the platform they are 1% – 3% annually. Just like any investment you are open to both the gains and the losses, so a bad year in real estate will affect your returns or lack thereof. Finally, you are locked in for a certain amount of time typically 6 to 12 months before you can withdraw your investment, so don’t invest money you will need access to in the short term.
To illustrate how you can make a lot with very little on your own plan, consider this: If you invest $1,000 in one of these real estate crowdfunding sites, and then contribute just $100 per month to this same account, you can potentially grow your investment to whopping $23,364 in 10 years. This of course is assuming you are getting the 10% returns they advertise. That is a lot of returns for such a small investment in real estate.
There are many services that offer different forms of Crowdfunding deals. Although many of the popular ones will show you that their investors earn 9% – 12% each year, that is not a guarantee. As you know when the market drops, so will the returns to their investors. As markets become tighter for flippers to make a profit on a deal, their returns will reflect this. We would suggest researching reviews on these services like at investorjunkie.com or others you can find on google.
Method #4: Sweat Equity Partnerships
Even if you do not have a dime to invest in real estate you can still use your most valuable resource to begin making money in real estate; Your time. Time is the one thing every successful investor covets and is willing to pay for either with cash or equity. In this case, you will want to convince another investor with money to trade his money in the deal for your time. You have to first convince an investor that your time is worth the percent of equity you are negotiating for in the deal.
Yours truly has done all the following deals in real estate without spending a penny of my money:
I negotiated with another investor to give me 25% equity in his deal by acting as a foreman and showing agent on a condo flip he was doing. All I had to do was make sure the contractors were showing up each day and report back to him each week on the progress of the jobs. Then once it was completed, he listed the property on an MLS flat fee service, and I was the contact on the listing. I would show the property to buyers and agents and then lockup the place after. I would also clean the property a couple times a week and keep it in show condition. Both these jobs took at most 3 to 4 hours a month of my time over a 5-month period. When the property sold, I got a check for $7,500 for my time, and a great experience to use in my own investing career. Even better than the check was the relationship I created with this real estate investor as we went on to do many deals together in the next few years.
Method #5: Bird Dogging
Another way of investing in real estate with no money at all out of pocket is by “bird-dogging”. A bird dog in real estate is typically someone that brings deals to investors for a quick finder’s fee. We had a bird dog that we would pay $1,000 each time they found us a vacant or distressed property we closed on. This guy happened to also deliver those coupon books door to door so he would come across these properties all the time. In his best month, he got 5 checks from us just by giving us lists of properties each week. Eventually, we taught the bird dog how to wholesale his deals to us and they went on to do very well as a wholesaler.
Many of you reading are wondering where do you find these types of investors willing to exchange your time for equity in their deals? They are EVERYWHERE, all over the internet, and most likely in your neighborhood. The best places to plug yourself into an investing scene is by going to your local REIA (Real Estate Investors Association) meetings. Most markets have anywhere from 1 to 4 REIA groups that meet monthly, and most cost next to nothing to join. You can easily search for a local REIA group on their website.
Other options would be online forums like BiggerPockets.com. BiggerPockets is a very active real estate website with a lot of like-minded people posting daily. The other place to meet investors are on one of the 1000’s real estate Facebook groups. Just be careful to avoid “Guru Traps” which is a so called “expert” that lures you in with the promise of free tips and training only to corner you into a $10,000 course on how to wholesale. No one should spend that much to learn how to begin in real estate.
Method #6: Renting out all or part of your existing home.
Short terms rentals are one of the hottest real estate trends of this millennium. It has become an incredible opportunity for anyone that controls any real estate to make rental income even if you are living in the property yourself. Not only can you easily rent out your entire house, but you can also rent out any room inside your house while you are there. If you have an extra room you can list it for short term or long term rent for a few hundred or more per month depending on the market and your property. This is a great way to create some monthly cash flow from real estate you already control with no additional out of pocket costs.
I have a friend who typically goes out of the country with their family during Christmas break and they rent out their property on Airbnb for the entire month at around $180 per day. Without vacancies, they can make an extra $5,000 after expenses for short term rentals in just that month not to mention the other weeks of the year they go out of the country and on their own vacations.
Unfortunately, many students and lower-wage employees are unable to afford their own place. With the rental market being so hot in many Florida markets it’s exceptionally difficult for these people to afford a 1-bedroom location. An employee of ours got a great deal on a 2-bedroom condo. Instead of using the second room as an office he now rents out that room to a local college student for $500 per month. Our employee uses that $500 to pay down the mortgage and has plans in the future to move out and rent the entire unit out when it’s paid off.
Now short-term rentals and house sharing have their downsides as well and it is not for everyone. First, you have to make sure you are legally allowed to do a short-term rental as many HOA’s, Condo Associations, and cities have specific laws against this. If you are renting your place it might be against your lease to rent out your room without landlord approval as well. It also takes a lot of trust to allow strangers to rent and live in your home short or long term and it’s not for everyone.
In conclusion, you can find many ways to make money in real estate with no money out of pocket. While some are simple & easy like dropping $100 into a crowdfund site account, others are simple but difficult like closing your first wholesale deal. There is no reason for anyone to not begin to educate themselves on how to succeed at any of the techniques described in this article. All the real estate education you need should be easily affordable, and the only significant cost will be your time.