Getting started real estate investing with no money down is about knowing which strategy to use
If you’ve ever wanted to get started in real estate but don’t have the money, you’re in the right place. I’ve been investing in real estate for more than two decades but it wasn’t easy getting started.
I didn’t have the hundreds of thousands needed to buy a house, let alone enough properties to really diversify my portfolio.
I had to find a way around this, how to get started investing with little or no money down.
By the end of this video, you’ll have seven strategies to invest in real estate with no money plus three critical points you can use with any property strategy.
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The Biggest Problem in Real Estate Investing
One of the biggest problems in real estate investing is the huge cost to buy properties. Even a lower down payment can mean tens of thousands and it’s the root of a lot of risks.
With that kind of commitment, most investors aren’t able to buy more than a few properties. That leaves them exposed to all the risks in those specific properties and in that region. So they have all their money in a few properties and are facing bankruptcy at the first sign of trouble.
Worse still though is that it just locks so many investors out of real estate. There is no other asset that has created as much generational wealth as property. I challenge you to name one single billionaire without real estate investments.
The fact that so many people can’t afford to get some of that just isn’t right.
I’ve been investing in real estate for twenty years since just after getting out of the Marine Corps. I was able to save up thirty grand while in the Corps but even that wasn’t enough to really get involved in property investing so I had to look for all the ways to invest in real estate with no money down.
That necessity was the mother of invention, right? I was forced to find those ways of buying property without those traditional costs.
Investing in Real Estate with No Money Down
I’m going to share seven of these strategies, seven ways you can get started in real estate for little or no money. Some you’ll even be able to start with no credit or bad credit.
I’m then going to reveal three keys to real estate investing that are going to help you be successful in any of these strategies. These are three critical points you need to remember to grow your wealth and avoid the biggest risks in property.
Make sure you stick around to watch those three keys because no matter which of these seven investment strategies you choose, these three hacks will make you successful.
Lease Option Real Estate Investing
This first no money strategy is one of my favorite because it takes a lot of the risk out of the buy-and-hold rental strategy. I call this one the Lease Option strategy but I’ve heard it called contract investing and seller financing option as well.
This strategy involves buying a rental property and using some of the investing keys we’ll talk about to get low or no-money down and then immediately renting it out on a lease option to your tenants. A lease option is a contract between you and the renters that they are buying the home.
Your tenants pay the normal rent you would get out of the house but also an additional amount that goes to paying off the home in their name.
This property strategy works on so many levels so I really want to detail how to do it and how to be successful because it’s probably the one I’ve seen work best for a lot of beginning real estate investors.
Your tenants are going to be giving you a down payment when they sign the lease contract so that down payment cancels out anything you put on the house when you bought it. That’s how you’re going to get the house with no money.
Since this is seller financing, meaning you are acting as the bank for the tenants to buy the house, the interest rate and the purchase price are going to be a little higher as well.
So let’s walk through an example, actually this is straight from one of the houses I’ve sold on a lease option. This was the second house I bought, a 768 square foot two-bedroom on Franklin Avenue. I got this one as a short sale from the bank so I was able to take over payments and put just $3,000 down.
I went in an changed the carpet, painted and put down tile floors for less than $2,000 and put it on the market. I had about $5,000 in the house and another $38,000 on the loan so I put it on the market for $50,000 and was able to sign a lease option to tenants within a month.
Now there’s a lot there, how I saved money doing repairs myself, how I found the deal in the first place and how I found the tenants. This is already going to be an epic video on these no money down real estate strategies and I can’t get off track with these other ideas no matter how important.
What I can do is link to another real estate video here that’s going to give you some general level tricks I’ve picked up over 20 years of property investing. Back to our lease option strategy though.
The tenants put down $5,000 so completely cashing me out what I put into the property. They paid $600 a month which included their loan and an escrow for utilities and property taxes.
That escrow is important because you don’t want to rely on tenants to pay these things. I’ve seen tenants move out of a property and leave a thousand dollar utility bill for the owner to pay.
Not only was I able to price the property for 16% more than what I paid but the interest rate on the lease option was 8.5% – and this was early 2000s so that was a few percent above rates on money I was borrowing at the time.
If you’ve ever tried the buy-and-rent strategy before, the benefits of this lease strategy are immediately obvious. With regular renters, you’re constantly fixing things, vacancy can be as high as ten or fifteen percent and tenants just don’t respect the property.
Why should they? They’ve got nothing to lose but a security deposit.
With the lease option strategy for investing in real estate, tenants pay all the repairs on a property because it’s their responsibility. They self-manage because if they don’t make those lease payments they’re going to lose everything they’ve put into it. Your vacancy drops to almost zero and you have no realtor fees.
I’ve done five lease options on two houses, so what’s that tell you? Over a ten-year time period, people get tired of living in the same place, they just stop paying the lease or whatever the reason about half of these lease options are going to come back to you.
That means you basically had a rental property that whole time but with no repair costs, no vacancy and you were collecting more than you could have on just straight rent.
Even on the properties that close out, where the tenants make all the lease payments, you’ve still made an amazing return on that higher price and higher interest rate, and it’s all on a property that cost you nothing after the down payment on the lease.
Whether you’re renting out properties now or plan on trying one of the other real estate strategies we’ll talk about, I highly recommend trying the lease option on one or two houses. It’s a great way to take that landlord’s stress out of real estate investing.
Using an FHA Loan to Get Started Property Investing
Our next strategy for buying real estate with no money is taking advantage of an FHA loan. This is a special loan program meant to help people buy their first home but you can also use it as an investor.
With an FHA loan, you can get a property for as little as 3.5% down and even bad credit. In fact, I’ve seen people with a credit score as low as 580 get an FHA loan.
This is just a great strategy, I love it because it opens up real estate to so many people. We talk about the income inequality in this country, how the richest 1% own more than half the wealth, well this is the way we fight that. Just about anyone can get these loans and I’m going to show you how to turn it into an investment.
So there are a couple of ways to do this to qualify for that sweet FHA loan. The program requires you to live in the home for a year after the loan closes. I’ve seen people move out within seven or eight months with no problems but even a year is an easy price to pay for what turns out to be a very cheap loan.
According to Zillow, the rate on a 30-year FHA loan is 4% right now. That’s about half a percent lower than comparable loans and the government program makes it so anyone can get a loan.
So let’s do the math here, because you know I’m all about the math. Say you buy a $125,000 home on the FHA loan program. That 3.5% down payment means you put just over $4,000 down and your payments are about $577 a month.
I know everyone in the coastal community is rolling their eyes right now. These are Midwest prices but the math still works out on other areas because you’ll be getting more on rent.
So you live in the house for a year and then start renting it out for $675 a month plus tenant pays utilities. You have about $1,200 a year that goes to property taxes, repairs and other expenses. You’re making about $4,000 a year on the loan payoff plus another $4,500 a year in price appreciation.
That’s almost nine grand a year on a house that cost you a $4,000 down payment, something you could easily get on a credit card and then pay off with rents.
One thing we’ll save for a different video but is going to be a big part of your returns in real estate investing is the ability to shield a lot of your income with that depreciation expense. This means you can take a portion of the investment’s value every year and take that off your cash flow. It’s one of the biggest benefits to real estate investing.
With the FHA program, I’ve seen younger investors buy a larger home and immediately start renting out rooms even while they’re living there.
This is what I did in my early 20s though it was with a VA veterans loan instead of on the FHA program. I had a five-bedroom house and had three roommates at all times paying off the mortgage and then some.
One of those three success hacks to real estate I’ll share after the seven strategies is really going to boost your profits on that last rental strategy so make sure you stick around to get those.
What is House Hacking?
Our third real estate no money strategy is a twist on the FHA loan and one that I recommend to all new investors. This one is called house hacking, it’s where you buy a duplex or even a larger triplex on an FHA loan. You live in one of the units and rent out the other two.
I’ve heard this one called training wheels for real estate investing and it’s absolutely true. With this strategy, you get multiple rental units but without a lot of the problems that come with jumping right into single-family rentals.
The problem with investing in single-family rentals is you’ve got half an hour or more travel time for any repairs. With three houses, you’ve got three-times the property taxes, three-times the insurance and other expenses.
You’ve also just got more house to worry about, right? Three roofs, three completely separate plumbing and electrical systems.
House hacking cuts this by half or more and it’s a great way to get started investing in real estate.
Again, you’ve got almost no money down in that FHA loan. I know three or four thousand might not seem like no money real estate investing but you can easily save that in less than a year or put it on a new card with a zero percent one-year rate.
I recommend the house hacking strategy to almost all new investors. I actually made the mistake of doing the opposite, buying all single-family rental houses, when I started out and the property management was a constant headache.
Anyway, use this house hacking strategy first to get a feel for real estate rentals and then decide if you want to buy more properties after a year or two.
Finding Investors for Real Estate Investing
This next no money strategy is to partner with investors in a real estate portfolio. Real estate is an amazing asset that offers some of the best returns and tax advantages you’ll find but it can also take a lot of work and time.
That creates a huge base of investors, people that want that direct exposure to property, but just don’t have the time to manage it themselves.
So I want to talk about structuring your real estate partnerships with investors as well as how to find investors because those are really the two topics that trip people up. It can be hard enough finding new investors but then making that partnership run as smoothly as possible is critical.
With this strategy, it’s going to help if you can show some experience and credibility before you go looking for investors so you might want to start with some of the other investing strategies we’re talking about.
Put in two or three years to produce some really good returns on your own property investments so you can show investors case studies and examples to sell the partnership idea.
You can structure your real estate partnerships in a couple of ways. First you can offer either a debt or equity investment in the deal. An equity investment means they put up some of the money and then get paid out from free cash flow and the eventual sale.
A debt investment is a loan so you’re committing to pay semi-annual or quarterly interest and then pay the loan in full, usually with a lump sum after three- or five-years.
Obviously the equity structure is less risky because you don’t have that debt commitment but you also potentially have to share the profits. With the equity investment, investors might want a say in how the project is managed as well but you can decide on their level of involvement when you write up the partnership contract.
The second part of the structure here is the formal partnership and who gets what in the deal. I would highly recommend you create a limited liability corporation and LLC for each partnership deal you make. That’s going to spell everything out legally and keep your personal wealth legally separate from it.
It costs less than a couple hundred to set up an LLC and all the profits flow through to the partners so there are no extra tax problems.
Now as for who get’s what in the deal, who puts up the money and who gets the profits, there are a couple of ways you can do this. There are a few things you can do here to get more investors and a couple of things that will help the deal go smoothly.
First, real estate partnerships almost always mean the investor puts up the down payment, closing costs and usually a reserve fund and initial renovation costs. This is basic and really the reason why you’re bring on an investor, right? To pay those initial costs so you can invest in real estate with no money on your side.
How the investor is paid back is the part you can play around with. If you’re a newer real estate investor or looking to fund a larger project, you might have to offer more. If it’s a smaller deal or if you can show an almost 100% certainty of return on the project then you might be able to get enough investor funding from terms that give you more of the profits.
One partnership I’ve seen that works well is the investor puts up all the initial money and then everyone splits net cash each month on a 50/50 basis. Now when I say net cash each month, don’t forget that you want to estimate an annual amount for things like vacancy, repairs and taxes.
This is going to build up a reserve fund so when these large expenses come due, it doesn’t push you into negative cash flow and you’re forced to out-of-pocket for the mortgage.
With this kind of deal, usually the investor gets paid back their initial investment so that down payment and costs, first when the property is sold. Then everyone splits 50/50 the profits from the deal.
This is a sweet deal for both sides because you have absolutely no money in the project but get half the cash flows and half the ending profit. The investor gets half the cash flows and profit plus they’re paid out their initial investment at the end as well.
I’ve also seen partners try to structure this kind of a deal where the investor gets paid out money each month from cash flows to pay back their initial investment. So you take maybe 20% of cash flows each month and use that to pay off the investor’s part and then split the rest of cash flows 50/50.
At the end of the project, if the investor has received their initial investment back already then the profits are split 50/50. This is a little more persuasive for the investor because they get paid back their investment earlier but you still do well because you’re getting that 50/50 split on no money invested.
I’ve seen a couple of these partnerships set up with only the main partner’s name on the mortgage. This is obviously better for you because you have full legal control of the property, even if the partnership agreement gives the investor some rights.
A lot of times, people do this if the investor already has reached that 10-mortgage limit or if their credit score is so low it would hurt getting a mortgage.
You can also try putting the property in the LLC so making it owned by the partnership. That usually gives the investor more rights and seems more fair to both sides.
As for finding investors for this real estate strategy, this is where being active in real estate investing groups is going to come in handy and we’ll see that again in our last no money down real estate strategy. There are a few places and ideas I want to highlight here, good sources for finding real estate investors.
First is the National Real Estate Investing Association, they have local groups all over the country. This is a great place to start for new real estate investors because you’re going to get a lot of education through events and training but of course it’s going to cost that annual membership fee.
I think the best strategy here is to join for a year, learn as much and meet as many local investors as you can and then decide if you want to keep being a member.
Another good source to find investor partners is through local real estate investor groups on Facebook. Maybe I’m old fashioned but I still prefer the groups that meet at least once a month or so in person but these online groups can be a good source of contacts as well.
Make sure you focus on local groups and ones that are legitimate investor groups, not just spammy groups where nobody ever really interacts.
If you’re not sure how to find some of these groups, you can always ask around to real estate agents. It’s part of their job to have these connections so why do the extra work yourself if you can just ask the agents?
One strategy that’s worked for me is creating my own local real estate investors group. It’s a small group of about 20 people that meets every month and not only is it a way to meet potential investors but you get a lot of great information on how to manage your properties and finding deals. A lot of the people in your group will become investors in your deals or will pass on investor contacts.
My recommendation here would be to start the group early and as a way to exchange information rather than looking for funding on your property project. Make the group about everybody’s benefit and sharing what you’ve learned.
Then after at least a few months, you can start talking about the deal you want to do and start looking for investors. And keep these groups open to different people in the real estate food chain, you want some agents, some contractors and trade workers, if you can get a real estate lawyer in there that’s always helpful to have their advice.
Our last place to find real estate investors, and this is somewhere nobody else looks but it has brought me more funding than anything else, is local medical professionals and teachers groups.
These professions, especially doctors and lawyers, these people have lots of money to invest but no time to actively manage real estate. They want that exposure, man they’re hungry for it, but they just don’t have the experience or time to do it themselves.
So what you can do, instead of just stalking these groups, is offer to do a presentation about real estate investing. Give a 30-minute presentation at their next meetup, talk about a specific investing strategy or something that is really going to highlight your experience.
That’s going to get your foot in the door and you can make your connections and start talking to people about your partnership ideas.
Using Seller Financing to Invest in Real Estate
We’ve got three more no money down real estate strategies and our next one is seller financing. This is a little like the lease option we talked about earlier but this time, you’re the one getting the lease option from the property owner. You can then either sell the home to someone on a lease option of your own or you can hold it for a buy-and-rent strategy.
Because it’s a special type of financing, you might be able to get better terms on down payment or rate. Now unless it’s a very motivated seller, you’re usually not going to get a low rate and no money down.
You’ll get one or the other but if you can get a property on no money down and then get renters to cover the payments then you can afford those higher rates.
Again, here one of those three keys to success are really going to come into play. We’ll talk about all three in a bit but it is so important to negotiate a good price on these seller financing deals. If you can’t turn around and get more for the property in a lease option sale or make enough from the rent to cover your own payments then you can get underwater very quickly.
You cannot be afraid to walk away from a deal. In fact, in my experience as a real estate investor, you should be walking away from more deals than you accept.
So we’ll talk about different strategies I have in negotiating and how to get the best price when we talk about those three keys to success.
Some of the best seller financing deals are going to be from motivated sellers like For Sale by Owner or Bank Real Estate Owned properties. Banks are in the business of making loans, not owning real estate so they will usually let go of these foreclosure homes for much less than what they’re worth.
What is Real Estate Wholesaling?
This next real estate investing hack is one of my new favorites, real estate wholesaling, and this is one where you really are unlimited on the return.
The idea with wholesaling is that you go under contract to buy a property, one you think is a really good deal and where there could be strong interest from other investors. You schedule the closing date maybe 30 or 45 days out and then start pitching the property to investors or other buyers.
Here instead of looking for investor partnerships though, you’re looking to sell the property completely to another buyer. When you find someone, you schedule the closing date for the exact same day as when you’ll be signing to buy the property.
This is like extreme house flipping because you might actually own the property for all of 15 minutes between closing. Your buyer’s down payment and earnest money is going to cover the money you put down for the house and sometimes even more. Sometimes you won’t even need to come to the closing with a down payment because you’ll just sign over the check from your buyer to the original seller.
Here is where it really pays to be connected into a network of real estate investors because you might only have a few weeks to line up a buyer and arrange for simultaneous closings.
That means you can only go after the sweetest deals, the ones with enough equity in them that you know you can find a buyer quick, and you need to have a network of investors you can go to with a good shot that one of them is going to buy the house from you.
Finding these kind of deep equity properties is going to be the biggest challenge because you really need to be sure on the value. The best are going to be those For Sale by Owner listing and properties that might not be on the market yet but are for sale.
Finding these means driving the neighborhoods looking for houses with overgrown lawns, ones that look like nobody is living there or where maybe the owner isn’t up to taking care of the house. Estate sales work for this kind of strategy as well.
There are a few things you should look for, a checklist for wholesaling properties.
First is you’re looking for properties you can buy for 70% or less of the fair value, that’s as-is or repaired. You want to do a full walk-through and take some pictures and you need the get the right to show the house to potential buyers as well.
Next you’re going to create a fact sheet on the property including all the details like square foot, property characteristics, neighborhood, value estimate and repairs needed. You can advertise this on Craigslist, the local newspaper and on real estate sales sites but I’ve gotten most of my deals sold directly through my investor contacts in clubs and groups.
When you meet with potential buyers or investors, you want to be ready with a comparable sales report to prove the property’s value. You also want to have a transfer contract to sign and the details of the agreement.
Before the closing, you want the title company to be in contact with your buyer. You also need to verify funds for the buyer and their financing.
Wholesaling can seem like a very complicated process. While it can be intense, it can also be fairly easy if you already have those investor connections and know what deals will have that quick demand so you can find a buyer fast.
Having that 30% or more equity in the property when you sign a contract is a great start because even if you can’t find a buyer for a higher price, you can always use one of these other investing strategies like buy-and-rent or lease option and come out way ahead.
Taking over Mortgage Payments
One more no money required real estate strategy before we get to those three keys that are going to help you with any strategy. This one is just simply taking over mortgage payments from the current owner.
Like with the seller financing strategy, banks aren’t in the business of owning real estate so whenever they have a borrower in trouble, they’re more than willing to sign over the mortgage to someone else if the new buyer qualifies for the loan.
This one works best with short sales, so when someone is selling a home for less than the mortgage, or for people just trying to get out from under their mortgage.
In the two deals like this that I’ve done, it’s usually enough just to take over the payments but if there’s some good equity in the house then you might sweeten the deal by offering to pay off some of their other debts in lieu of that down payment.
Of course, this all has to be worked out with the bank as well but that’s usually a formality if the owner is falling behind on payments or isn’t able to pay. The bank doesn’t want that house. There are so many costs to foreclosing and taking a home, banks are deathly afraid of REO or real estate owned portfolios.
Three Tricks to Invest in Property with No Down Payment
Those are the seven strategies I’ve used to buy real estate with no money down or basically no money. Some of these might require like three or five percent down but that’s nothing compared to a traditional mortgage and 20% down payment.
Now I want to share three keys, three things to remember that are going to make your real estate investments a success. These are probably the three most important concepts I’ve picked up in 20 plus years of real estate investing.
Negotiating for Real Estate Deals
First is just learning how to negotiate. This is something I see so many investors avoid or just not do very well and it’s too bad because it’s a huge opportunity. People just aren’t good at negotiating so you can get some great deals if you spend a little time bargaining.
The start of any successful negotiation is before you even talk to the other person. This means doing your homework to know exactly how much the property is worth to both sides, and it’s not always the same value.
Maybe they’re using it as a single-family rental but you think you can remodel it into a duplex or maybe the current owner just isn’t getting as much rent as you could so it’s going to be worth more to you.
So you need to know how much it’s worth to the seller and buyer but then also how much it’s worth in the market. You do this by looking at similar homes for sale or sold in the neighborhood within the last year. You get this information from either Zillow or Realtor.com or your local county assessor will have sales information.
Once you’re able to compare it to other homes on the market, you can put together a list of comparables that proves the value you want to argue. So this means cherry-picking five or so properties that maybe sold for a little less per square foot and using that to argue a lower value for the property.
But one of the biggest negotiating mistakes people make is just going in to argue on price. If both sides won’t budge on price, then where are you going to go?
That’s why you want a list of other things for which you can negotiate; things like all taxes to be paid or closing costs. You can include repairs to be paid or maybe a longer closing date if you’re trying to do a wholesaling strategy. The idea is you want at least three to five other points on which you can negotiate to get a little more value out of the deal.
And again, never be afraid to walk away from a deal. There are tens of millions of properties just in the U.S., the odds that you’ll never find another deal to close are zero.
Using Multiple Property Investing Strategies
The second key to real estate success here is using multiple strategies and diversifying your property portfolio.
You’ll notice that some of these no money down strategies can be started right away while others it helps to have some experience and connections. Some might work better when the economy isn’t doing so well while others are a better bet during economic growth.
If you can combine at least two or three strategies then you’ll always have a Plan B and you’ll always make money.
For example, if you have a solid rental business where you set tenants up on a lease option, you’ll always have a way out if you can’t find a buyer on the wholesaling strategy. Using some of the loan-based strategies is also going to help get funding to buy more properties.
One point that most real estate investors miss is that idea of diversifying in different property types. This is crucial but almost always underappreciated.
Different property types; so residential, office, industrial, storage, have different management needs and characteristics. Having a mix of at least a few is going to give you the best of all worlds and help smooth out your cash flows.
You’ll be able to find a broader list of investors and buyers and won’t be caught when one property type tumbles because of the economy.
Getting Started Real Estate Investing, the Right Way
Last here is just to take it slow and learn how to be a successful real estate investor. This might not sound like much of a key to success, especially since I know you’ve already committed to learning since you’re watching this video, but you would be amazed at how many property investors are ruined every year.
More than just about any other asset, because of the huge numbers behind real estate including buying and leveraging a property, there are a lot of catastrophic mistakes that will bankrupt you. You don’t see it in stocks or bonds where one company goes under and you lose maybe a small portion of your wealth. You mess up in real estate and you’re on the hook for everything.
That’s why I love some of these no money down investing strategies so much because the risk is lower in some but there are still some major stumbling points.
So just take it slow. Buy a couple of properties in maybe two or three of these strategies and take a year to learn how to be successful before you put on more properties or move into other strategies.
Those were your seven strategies for buying real estate with no money down and three keys to investing success. Don’t forget to share your favorite real estate strategy or the property type you’re interested in below in the comments.