Real estate investing takes a lot of money… right? Or what about all those late-night TV gurus telling you that it’s possible to invest with no money down? Is that a thing? In this video, Brandon Turner (Author of The Book on Rental Property Investing and The Book on Investing in Real Estate with No (and Low) Money Down) shares his thoughts on the concept, as well as some real-life tactics for investing in real estate with no money down.
So, how much money does it really take to invest in real estate? Can you invest if you don’t have a lot of cash? Isn’t that a big scam? I’m Brandon Turner, author of The Book on Rental Property Investing and The Book on Investing in Real Estate with No and Low Money Down, and today, I want to share with you my top tips for investing in real estate without using your own cash. So let’s do this thing.
So first of all, let me tell you a quick story of a 21 year old kid. This kid figured out that real estate investing was going to be his ticket to escaping a life of slavery to a nine to five job, but he had one major problem. He had no money, he worked a dead end job had very, very little money, not good credit, and no experience whatsoever. But this kid did not let that stop him.
In fact, he figured out a way to make it happen anyway,. He used a variety of different strategies to acquire more than $2 million of real estate in the next several years, including a 24 unit apartment complex purchased with almost no money out of pocket. So if you haven’t figured it out yet, that kid grew up some, grew a nice beard, and became me. Yes, that’s my story.
In fact, with the more than 40 units I have today, and the dozens of transactions I’ve done, I’ve hardly ever used my own money. So to give you a broad answer to the question of whether or not you can invest in real estate without using a lot of cash, the basic answer is yes. However, should you invest in real estate with no money? Well, that’s a little more difficult question. For me, it’s not as much about the amount of money I put into a deal, it’s more about the kind of deal that I can get.
So if you think back to 2008, a lot of people lost their homes, and their entire livelihoods because they had these loans that were little or no money down, and that caused a big mess. So I don’t believe in putting myself or anybody else in a risky situation like that. That’s not what we’re talking about today. Instead, I want to hustle my tail off, so I can find the best deal possible. So even if I put little or no money into the deal, I still have a lot of breathing room in case something bad happens.
Here’s a quick example of what I mean. Let’s say there was a house and it was worth, let’s say, $200,000, and you were to take $50,000 of your own hard earned money and use it as a downpayment. So now you have a mortgage for about $150,000. There’s nothing wrong with that and that’s what most people do. So now on the other hand, what if I were to find that same property of $200,000, but I hustled to find that deal for only $150,000 and then I obtained $150,000 mortgage, meaning I used a no or low money down strategy to buy it. At that point, both of us would have the same $200,000 property. We both have a mortgage for $150,000, but you put $50,000 of your own money into that and I didn’t put any money into it.
So who was really at greater risk here? I would argue that we’re actually both the same amount of risk of something going wrong because we have the same loan amount and the property values the same. However, you have a lot more to lose, because you put $50,000 of your own money in the deal and I put nothing. So if something goes wrong, you can lose 50,000 and I wouldn’t lose anything.
This is why I value the idea of ‘how good of a deal can I get’ a lot more than ‘how much should I put down’. If you want to buy a deal and put down a large downpayment, more power to you. In fact, sometimes you can get more cash flow or get a better deal by doing such. Just know that it’s not the only way.
Next, understand that investing with no or low money down has nothing to do with being broke. You see if you are flat broke, you got no money and you think that some clever no or low money down strategy is going to be your way, your salvation to recover from your difficult financial situation, think again.
Creative investing is about leveraging other people’s money so you can do bigger and better deals. It doesn’t mean you’re broke. I mean, the real estate irony is this, the richer you become, the more deals you do, the more advanced you become, the less you actually use your own money. In fact, most of the multimillionaires and billionaires that are doing real estate today are barely using their own money at all. In fact, they’re almost entirely using other people’s money. So creative investing is really for anyone no matter how much money you have currently in your checking account. Creative investing truly is a mindset game.
Okay, next on to the big question. How do you do it? How do you invest when you don’t have a lot of cash? Or you don’t want to put a lot of your cash into a deal? Well, for that you’ve got to change the way your mind works. Most people have a very simple yes or no response when they’re presented with a real estate purchase. Either yes, I can afford it or, no, I can’t afford it. And for the vast majority people, sadly they turn their brain off when they get to that No. But creative investors, they don’t say no, instead they ask the simple question, ‘how can I afford it?’
So how do you become somebody who thinks creatively? Well, the good news is you probably already have what it takes. But just to find out, let’s do a quick test. If somebody offered to sell you a million dollar mansion for just $1,000 bucks, would you do it? Of course you would. But what if you did not currently have that $1,000? Let’s just say you had 50 bucks to your name, that was it. Then how would you do it? Knowing that you could turn around tomorrow, sell that property and make almost a million dollars in profit? I would like to believe you’d probably find a way.
So right now do you have any good ideas for how you would get that $1,000 to buy the million property? Perhaps you’d borrow money from a friend. Maybe you’d partner with someone who had it. Maybe you’d find a way to take out $1,000 loan. Now call me optimistic, but I’m guessing that you would find a way, come hell or high water, to make sure you got that $1,000 so you could make the million. And that is the spirit behind creative real estate investing. Sure, you might not be getting a million dollar property for 1000 bucks, but look, the mindset how you think about it is exactly the same. Once you have that mindset and that commitment to saying how can I instead of I can’t.
Now you’re ready to look at the tactics for acquiring real estate with little to no money down. Now there are a lot of tactics that you could use to invest in real estate creatively and each deal you’re presented with is going to be unique in determining what the best tactic is that you’re going to use.
For example, you could partner with someone who has the funds. You could house hack a property and obtain a low downpayment loan from the government. You can use the equity from an existing property to fund the investment. And you can raise private money. You can use a hard money lender or you can use a lease option. You can utilize seller financing. You could ask the seller to carry back a second mortgage. Or maybe you’d use a combination of these tactics to come up with a good solution to buy a property. For example, the BRRRR strategy, which you can learn more about at BiggerPockets.com/BRRRR. The point is, there are a lot of tactics that a person could employ.
To be able to purchase property using little to no money down there is no one size fits all method to creative investing, because every single deal is completely different. Each deal requires you to look at it creatively. Put on your creative lenses and say, “How am I going to make this property work?”
In fact, I like to think of creative investing as a toolbox. When you have just one tool like a hammer, there’s not a lot you can do with it. You could pound in a few nails, put a hole in the wall or defend yourself against getting mugged, but that’s about it. However, as you add more tools to your toolbox, you can take on bigger and better projects. Maybe you’ll add a saw to your toolbox, or maybe a drill or a tape measure, and pretty soon your toolbox is full and no job becomes too difficult.
In the same way the more creative investing tactics you put into your mental toolbox, the greater chance you’ll be able to tackle any project that comes your way. For this reason, don’t just listen to some late night TV guru or some YouTube guy with a beard. I’m telling you the best way to invest in real estate without using a lot of money because here’s the secret to creative investing, there is no secret one way.
Instead, you just need to fill up your mental toolbox and fill it with a variety of creative strategies. Ask other investors how do you invest using other people’s money? Listen to real estate podcasts. May I suggest the BiggerPockets Podcast, which you can get to on iTunes or at biggerpockets.com/podcast. Or attend real estate webinars like the ones that I do every week on BiggerPockets which you can sign up for the next one at biggerpockets.com/webinar, or read books on creative real estate investing.
For example, the book on investing in real estate with no and low money down which you can pick up at biggerpockets.com/nomoney and then start taking action on what you’re learning. Because all the talk, all the learning, all the reading, all the listening, all that means nothing if you don’t get out there and take action. In the words of Michael Jordan…
Some people want it to happen, some wish it would happen, and others make it happen.”Michael Jordan
What kind of person are you? Are you going to let your lack of caches stop you from achieving all of your goals? I didn’t think so. For BiggerPockets.com, my name is Brandon Turner, signing off.
Transcribed by https://otter.ai
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