Many people think that they are unable to buy real estate because they are broke. Buying real estate does cost, however there are methods that you can adopt without needing to have the funds yourself.
Ways to Buy Real Estate Without Using Your Own Cash:
1. Hard-Money Lenders – these people will loan up to 100% of the purchase price of a property if the deal will give them a good return. If the real estate investor can find a home that will resell for a higher figure once repairs are made, then the hard-money lender will look at this figure when deciding how much to lend.
2. Home Equity – if you already have your own property in which you can find your property’s worth, you may be able to borrow funds against it to make further real estate investments. You could get a Home Equity Line of Credit, which has a variable, but lower rate of interest. Alternatively you could opt for a Home Equity Loan which has a fixed interest rate, but it may be higher.
3. Find a Partner – some people have finances, but no real estate knowledge to fully understand the processes involved. So if you have the knowledge and skills to make a real estate investment, you can ask them to provide the financial backing that you need. In this instance you should always make sure any agreements are put into writing for your security.
4. Private Money – there are many people who have finances that they would prefer to invest, rather than simply put into a savings account as they want a better return on their cash. Real estate investors usually offer them 12-20% return on their investment, meaning that this is often a better deal for them.
5. Lease Option – you can buy from a homeowner, without having legal ownership. The real estate investor will sign a long-term lease with the homeowners, with an “option” to buy the home at an agreed fixed price at a later date. Then the property can either be rented to generate cash-flow, or the investor can find a buyer to take over the option period.
6. “Subject To” Properties – this is where the legal title of a property is transferred from the homeowner to the investor, without the original mortgage being repaid. However, as long as payments are made, the bank may never find out about the transfer. It is a risky option to take when buying real estate, so it is important to have a backup plan.
7. A Combination – any of the above options can be combined so that you can still buy real estate. You could find a hard-money lender, and then a partner to refinance the property once the repairs are done. Alternatively you could take the lease option until you are able to find the private money to be able to purchase the home outright from the seller.
By considering all these options, you can see that you are able to buy real estate when you are broke.