04 Nov How to Invest in Real Estate with Little Money
We’re going to share with you how to invest in real estate with little money. This strategy that we’re talking about today is one of our favorites, and you’ll see why. Keep reading to see how you can start investing without having a ton of liquid assets.
If you’ve ever thought about investing in real estate, whether that’s to buy your own home or to buy rental properties or flips, you may have thought it wasn’t for you simply because houses cost money. And not only do they cost money, but you usually have to put 20% down on your purchase.
But what if you didn’t have to have a ton of money to invest in real estate?
How to Structure the Deal
A common question is, “How to invest in real estate with little money?” Followed by, “Can you really get into real estate investing with zero money down?”
And the answer is yes. There are several ways to structure a real estate deal, but today, we’re going to discuss one of our favorite strategies.
This deal is with one of our High 6 Associates. We have them all over the country.
This gentleman is in Pennsylvania and found a beautiful Estate Auction on ten acres. The purchase price we bought it for was $420,000. We did not actually put any money down in order to make this deal.
Our agreement with them is an owner financing deal with principal-only payments of $1,540 a month for 24 months principal only, no interest.
We sold this to the buyer for $499,000 on a lease-purchase, rent-to-own.
The new buyers will pay us $2,100 a month with no credit and principal–it's just a straight lease payment.
For this deal to work as a rent-to-own, the buyer put down $64,000 as a non-refundable down payment on this purchase. We like to call this down payment Payday #1. For all our deals, we like having 3 Paydays™.
Payday #2 is the difference between what we're collecting and what we're paying out over 24 months, which comes to a little over $13,000. Then, Payday #3 arrives at the end of the lease-purchase agreement. So, for this deal, it’s at the end of the 24 months, when we will owe $383,000 to the original seller, who we bought the property for $420,000.
This is where Payday #3 comes in. The buyer, the rent-to-own buyer, bought the property for $499,000. We owe $383,000, and the buyer purchased the home on a 24-month lease, so when the lease is up, they will pay us in full, we will pay the original seller, and we will have about $30,000 in profit because of principal payments.
With this deal, we used owner financing upfront for the seller.
In a deal like this, the seller is like a bank. They have the protection of a first mortgage on the property and then a volume payment from us due in 24 months.
Discover more about how to invest in real estate with little money on our YouTube channel.
Why You Can Invest with Little Money
You may be asking yourself why someone would want to buy a home as a rent-to-own purchase. What makes a structure like this attractive?
A typical rent-to-own person has challenges that either with credit where they need some enhancement or seasoning. They need some more time. Maybe they're self-employed, or they have some other seasoning required. Regardless, time is needed in every case.
In this case, the pre-qualification came back to say the buyer would be ready in 12- to 18-months. This amount of time is perfect for a 24-month lease, so we accepted them as our buyer.
Well, let's just say somebody might be self-employed, but they've only been self-employed for ten months. So there’s a lot of situations out there right now coming from the lending side. Most lenders require a two-year employment history. This is a fantastic opportunity to get into that house.
With a lease-purchase agreement like the one just outlined, someone who needs a little more time to qualify for their loan is a great candidate.
Great credit just needs seasoning.
That’s a great opportunity, and from the real estate investing perspective, we’re talking about that no money down situation, unbelievable!
Don’t forget! Get your free copy of our Real Estate Investor’s Blueprint. Just fill out the form to the right and we’ll email you our step-by-step guide to getting into investing and owning more homes without using your cash or credit.
And — you can learn more about how to invest in real estate with little money by reviewing our other blog posts.