Investing with little in Real estate

When you invest in residential real estate, you are getting more than a home or a piece of land upon which to build a home. Real estate investment has become a popular way for people to make money, and it is not uncommon to buy a house or land without any intention of living there. Some people simply buy and hold property, waiting for it to appreciate in value before re-selling it. Having cash for a down payment is the quick and easy way to enter the real estate market, but it's not your only option. Many people have found ways to start investing in real estate with little or no money of their own. Options include borrowing money as well as a number of more unusual and creative paths to ownership. This article explores some of those paths.

Investing Without a Down Payment

·         Look into seller financing. If the seller is motivated enough, s/he may be willing to make it easy for you to purchase by giving you a loan. You could offer to make higher monthly payments instead of a down payment

·         You could also negotiate a deal where the seller pays your down payment to a traditional lender in order to sell the property faster. The seller might expect you to pay him/her back or s/he may throw the down payment in for free, essentially lowering the selling price.

·         Lease the property with the option to buy. You can invest in real estate slowly by making payments on a lease agreement until you have the money to buy. Your payments would (at least in part) be credited toward the purchase price

·          Work out a trade. You can pay for real estate by bartering another piece of property or a specialized skill you have. For example, a contractor could offer a real estate developer labor in exchange for a down payment

·          Other possessions you could offer to swap include motor homes, campers, boats, cars,  large appliances, valuable artwork  and furniture.

·          Take over mortgage payments. If you are interested in investing in a piece of real estate but you can't afford the down payment, offer to take over the mortgage payments in exchange for the deed. However, you will need to investigate the existing loan before you make such an offer. Some mortgage loans have specific language preventing this type of transaction

·          You could also offer to take over a seller's other debts such as credit card payments instead of a down payment. This is something you could pay off over time. 

Borrowing or Co-Investing for a Down Payment

Bring in a partner. If you are big on ideas but short on cash, bringing in a partner who will provide the funding and allow you to do the managing might be an attractive option. You will need to write up a contract that establishes who is responsible for what, and how the profits will be divided

If your partner is in place strictly for financial support, make sure you retain all control over the day-to-day management of your investment.

Borrow money. If you have little or no money on hand and you want to make a real estate investment, borrowing money from a bank or family and friends is another option. However, be sure you will be able to pay back the debt

 Find a lender who will allow you to take out a loan for a down payment on top of the mortgage loan you have on your own house. This could be a line of credit or a second mortgage using your home as collateral. Look for a low interest rate that will allow you to purchase the property economically enough that you can still make a profit later on your investment

 Ask friends, family members or business partners for the start-up money you need. You can pay them back as soon as a profit is made. Be sure to sign a detailed contract that includes repayment terms, interest rate and what ownership, if any, the lender will have in the property. (Approach this option very carefully. See the Warnings section.)

The value of your investment increases when the value of the property goes up. If the properties are leased by tenants, you can get cash flow from the rent payments.

Finding Properties to Purchase

 Work with an experienced real estate broker. It will cost you nothing to work with a real estate broker experienced in finding properties that have the potential of not requiring a down payment. Ask people experienced in real estate investing for names of brokers they have worked with. Look for details about a particular agent's background on the real estate company's website.

 Seek out motivated sellers. These people are desperate to sell for reasons such as bankruptcy, divorce, death of a relative, an out-of-town new job, poor condition of the property, behind on payments, etc. They will be more open to providing funding to close the deal quickly. Your local real estate broker can help provide information on who might be in this situation. 

Search online for properties that offer incentives. These can include little or no down payment or seller financing. Check out homepath.com, a resale marketing site. Fannie Mae also lists thousands of properties they acquired through foreclosure

Tips

There are many research options available to the novice real estate investor. They include websites, books, magazines, fee-based financial advisors, and friends and family who are experienced with real estate. Ask questions until you're sure you understand what you're getting into. Then ask some more.

*Research a property thoroughly before offering to buy it. Properties that have been on the market for a while or are in danger of foreclosure might have owners who are more willing to consider creative financing ideas. Look for opportunities that will allow you to acquire property without any money up front. Real estate agents and foreclosure-related websites can point you toward such properties.