A lot of people decide not to get into real estate investing because they think it takes a lot of money to Buy Real Estate. Nothing could be further from the truth. Yes of course one option is paying cash for everything, or even putting a down payment of 5-25%, but that is just the easiest way to go about it. There’s nothing creative about that.
If you don’t have the resource of cash, but still want to be a real estate investor, you’ll have to think creatively. The first thing to do is to find properties and sellers with a challenge. Once you find these challenges, your job is to determine who owns that challenge. Next step is to be Batman. What I mean by that is that Batman has no special superpowers, but he has a tool for every situation. As an investor, you are required to use a different tool for different situations. If you can’t think creatively and come up with solutions, the number of deals that you do will be limited to what makes sense on the surface. And you’ll most likely have to use cash.
Some possible solutions are to buy properties subject-to the mortgage, master lease, lease-option, option without a lease, seller financing, and equity sharing. Of course there are a lot of other options.
I’ll just talk about a couple of those in this article. First, Buying Properties subject-to a mortgage. This is where you find someone who is having challenges making their mortgage payments, and offer to make the payments for them in exchange for ownership of the property. This means you do not need to qualify for the mortgage with your credit, you are simply taking over the payments of the existing mortgage. If the owner is behind on payments, you’ll need to get them caught up, but that is likely the only money up front that you’ll have to have. And if the owner is not behind, you may not need to have any cash.
The second is doing a master lease. This is a great strategy the implement if you’re not sure that you actually want to own the property. You can sign a lease with the owner of the property, pay them rent each month, and then sublease it out to other people. This allows you to have control of the property without actually owning it. Sometimes this is called rental arbitrage.
A third option is to do a lease option. This is similar to a master lease because you’re still leasing the property and then subleasing it, but in addition to that you have an option to purchase the property for a specific price at some point in the future. The idea as the buyer is to have the price as low as possible, and to pay as low of an option fee as possible, and have the date as far into the future as possible. Of course the seller has the exact opposite goals. But as the buyer, you do not have an obligation to buy the property in the future, but if you want to exercise your option, the seller must sell to you. This is a great way to lock up control of a property now for later when you do have the cash to buy.
That’s just a small sampling but hopefully that gets your wheels turning to understand that there are many ways to creatively purchase property without having to use your own money, or sometimes any money at all.