Investing in real estate is one of the most popular ways to build long-term wealth. With the right strategy, real estate investment can generate passive income and significant capital appreciation over time. However, the biggest hurdle for many aspiring investors is coming up with the down payment and capital to get started. Fortunately, there are ways to invest in real estate using other people’s money rather than your own. This allows you to leverage other people’s capital to acquire investment properties and control valuable assets. Some strategies include hard money loans, crowdfunding, partnerships, wholesaling, and house hacking. Implementing these can help investors with limited funds purchase their first investment properties and get started building their real estate portfolio.
Hard money loans enable the leverage of private capital for down payments
Hard money loans are asset-based loans provided by private lenders and investors. These loans are collateralized by the real estate asset itself. Hard money loans typically have higher interest rates and shorter repayment terms than conventional mortgages. But they allow real estate investors to leverage other people’s capital for down payments and renovations to acquire properties. Hard money lenders focus on the underlying property asset rather than the borrower’s credit or income. This allows investors to qualify for financing they may not be able to obtain from banks. Hard money loans can cover 60-80% of the property’s purchase price and rehab costs, enabling investors to purchase properties with a smaller down payment.
Crowdfunding leverages small investments from a group of people
Real estate crowdfunding platforms allow investors to pool capital from a group of retail investors. This model leverages small investments from many individuals to finance larger real estate deals. Crowdfunding operators evaluate potential deals and sponsor ones on their platforms. Investors can browse offerings and invest small amounts like $5,000 to participate in deals. The platforms handle due diligence, property management, reporting and distributions. For investors, crowdfunding allows you to gain exposure to deals with much lower capital requirements than investing solo.
Partnerships allow investors to combine resources with others
Partnering with other investors is an effective way to leverage other people’s skills, knowledge, and capital to purchase real estate. There are many ways to structure partnerships – from pooling together a down payment to joining forces with an experienced investor who manages the entire process. Partnerships allow you to buy into deals you may not access on your own and reduce your capital requirements. Make sure to draft an agreement detailing each partner’s rights, responsibilities, and ownership stake before proceeding.
Wholesaling utilizes contracts to control properties
Wholesaling involves putting a property under contract and then selling that contract to another investor for a profit without taking ownership. It allows investors to gain experience and make money in real estate with little upfront capital. Wholesalers identify deeply discounted properties in need of rehab, put them under contract, and market them to rehabbers and landlords. The end buyer purchases the property directly from the seller at the new negotiated price and closes on the property, while the wholesaler takes a percentage as their assignment fee. This enables dealmaking without financing.
House hacking allows you to access multi-unit properties
House hacking involves purchasing a multi-unit residential property, living in one unit, and renting the others. This can significantly reduce your living expenses while generating rental income. Many lenders allow house hackers to count potential rent from vacant units toward qualifying income. This enables investors to buy more expensive multi-family properties. The rental income produced can cover much, if not all, of your monthly mortgage and expenses. This profitable model allows those with limited funds to purchase multi-unit properties they may not otherwise be able to afford on their own.
In summary, hard money loans, crowdfunding, partnerships, wholesaling, and house hacking represent effective strategies investors can use to invest in real estate with limited capital. These models allow you to leverage other people’s money and resources to purchase properties, enter deals, and gain experience. Implementing them can help aspiring investors with restricted funds overcome barriers, get started in real estate, and build their portfolio over time.