Two new real estate investors start their journeys at the exact same time. The first has a sizable savings built up, and is ready to pour those funds into the perfect property. He works with an investor-friendly real estate agent, spots a great deal and pulls the trigger immediately. With cash on hand he’s able to close in a matter of days and get to work tackling the renovations. He’s sunk virtually all of his life savings into this property, but things are looking good. In a few months—a year, maybe—he’ll have made $30,000 on his investment, then will move onto the next.
Investor #2 stalls coming out of the gate. He has almost no cash and decides that maybe this isn’t the right time to start his real estate investment career. After moving some funds around and selling off some shares of stock he’d forgotten about, this would-be investor has still only scraped together about $5,000—nowhere near the cost to buy a residential or commercial property. But then he attends the Nick Vertucci Real Estate Academy (NVREA) or stops by one of a workshop and hears about real people making realmoney without investing more than a few dollars of their own. He leans in and starts putting the pieces together in his head. And when he leaves, he’s ready for action.
Armed with a few thousand dollars—peanuts in traditional investing—this new investor finds a great deal, gets into contract with just $10 in earnest money then, just two weeks later, flips the purchase agreement to a powerhouse rehabber he met at a local networking event. Our newly-minted investor collects a $10,000 assignment fee for what ultimately amounted to a few hours of work spanning just 10 days. That $5,000 he had going in is now $15,000—then $25,000, then$35,000 as he flips a few more wholesale properties in the months that follow. Backed by some serious momentum and, now, cash, he finds a private money lender and, with none of his money down, secures his first rehab property. He ultimately turns the same $30,000 as investor #1, without tying up a penny of his earnings along the way. And, don’t forget, he already made $30,000 by assigning those contracts while investor #1 was toiling away on his first flip.
To the untrained eye, the first investor started from a place of power. He had cash and could simply dive in. But sometimes money’s not the be all, end all solution in real estate investing—sometimes success requires more than cash in the bank.
The second investor knew he had to hustle and find ways around common problems. There was no sitting back and waiting for a payday. Those first few weeks and months were spent gaining a strong understanding of the real estate investing industry and where he fit in. The end result? A windfall of investment earnings and a deep, meaningful knowledge of how to get things done in this business—something you can only get by doing.
I know which investor I was—and I know which I’d rather be, even today. And if you’re that investor—if you’re cash-poor but passion-rich, listen up. Because this is your moment. This is when you’re going to turn those peanuts into true, lasting financial freedom.
How to Invest with $5,000…OR LESS
So the million dollar question: how to invest in real estate with $5,000 or less in the bank? While there are a host of options, I typically recommend these three to my NVREA students. These approaches are less complicated and don’t hinge on existing relationships like some other methods do. Granted, as you start banking success after success, those relationships will naturally begin to form and open up more doors on the financing front—and that means more opportunities to invest without tapping your own savings.
We spend a lot of time on wholesaling at NVREA, and for good reason. I often recommend new real estate investors start with wholesaling so they can gain a better understanding of the industry and its players—specifically, spotting deals and navigating negotiations with sellers and rehabbers. But, beyond that, wholesaling typically requires no investment whatsoever, except for the few dollars you spend building your cash buyer list and getting the word out about your deal.
In a nutshell, wholesaling means you’re getting a property into contract and assigning that contract to a new buyer ahead of close. That buyer takes on the terms you’ve committed to—the price, the close date, the contingencies—and you get paid an assignment fee for your (minimal…) work. You spot an amazing deal, you lob a reasonable offer that accounts for your fee—usually around $5,000 – $25,000—and you get to work finding a cash buyer to take this property off of your hands ASAP.
Is it hard? In the beginning it does take some serious elbow grease. My advice is start building your cash buyer list early so, when you get into contract, it only takes a few emails or phone calls to drum up interest. But once you’re in motion, wholesaling can be the easiest way to make serious cash. In my early days I’d plunk down $10 or $20 in earnest money, sign the purchase agreement and go—to local Real Estate Investor Association (REIA) meetings, to renovation sites, to investor message boards and everywhere in between, searching for a buyer. I built my cash buyer list from zero to 100+ in weeks and, in no time, could track down the right buyer for any property with a few quick clicks. And, again, with nothing more than a $20 bill needed to set the wheels in motion.
#2: Tax Liens
When homeowners don’t pay their taxes in a timely manner, a lien is placed on the property. This accruing debt is assigned a set interest rate—typically from 5% to a whopping 36% depending on the state—which needs to be paid when that property is sold or refinanced. Real estate investors often buy up these liens at local auctions, paying off a percentage of back taxes. Once that’s done, the investor can collect accordingly.
Repayment terms are typically set from six months to three years. If the owners doesn’t make payments, the investor can foreclose on the property. It’s rare, but it does happen—but, typically, the bulk of the money made on tax lien investments comes from the higher than average interest rates assigned to these debts.
#3: Lease Options and Rent-to-Own Agreements
While most sellers are looking for a traditional purchase agreement—they want to get their cash and get out—depending on the market conditions, some may be open to lease options. In a lease option agreement, you gain control of the property, with the ability to officially purchase it at a later date at a predetermined cost. Until that time, you make set monthly rent payments. If you don’t wind up buying the property outright, 100% of the funds paid go directly to the seller. If you do buy the property on or before the established purchase date, a portion of each rent payment is credited towards your down payment or taken off of the sale price.
These are also commonly known as “rent-to-own” agreements. In most cases, the prospective buyer lives in the property while payment rent. However, in investment scenarios, an investor takes over the property by way of this structured deal, and rents it out to a new tenant. That tenant makes rent payments directly to the investor who, in turn, pays the owner based on the original agreement terms. The benefit, in these scenarios, is that you, the investor, can take a few months or, even, a few years to build up enough cash or equity to make the purchase. And, if you don’t, you’ll still be making money off of the monthly rent payments made by your tenant. It’s a win/win.
There are a host of other options including combination hard money/private money financing, leveraging other people’s credit to buy, owner financing scenarios, among many more paths to success. We cover these are more at the Nick Vertucci Real Estate Academy so, if you’re still feeling a bit shaky, check out the website and see what’s coming up. By shoring up yours skills and know-how, you’ll be ready to step into the real estate investing industry with little or no cash on hand, and emerge another powerhouse success story. I did it. Many of my students have done it. And now it’s YOUR turn. See you soon.