It is much easier to become an investor today than a few years ago: there is no financial threshold for entering the “investor club”, it is not necessary to have a huge accumulated capital for investment, to walk in a suit and follow the numbers on the stock exchange. All right, but nevertheless, investing in real estate requires some serious work from the investor, unless, of course, you want to waste all the money on the first 2 transactions. The most interesting thing is that today it is possible to invest in real estate even without having your own funds at all. How? There are 6 working and effective ways.
Being engaged in remodeling houses and their subsequent sale — flipping , the investor has 3 main items of expenses: the purchase of the real estate unit itself, renovation and improvement, house maintenance and the cost of selling it. As a rule, banks and lenders can only help with the first point. In addition, if you take out a loan to buy a house and separately funds for maintenance and repairs, then you will have to pay quite large sums at the same time. Therefore, it is better to find money from one source.
1.Investor partners.
It is believed that this is the easiest way to find someone who will invest money for you. These can be relatives, friends, acquaintances, business partners, as well as other investors or owners of real estate who rent it out. Think about who from your environment may be interested in additional income and has funds. Sometimes such partners appear from completely unclear places — the attending physician, a neighbor or a colleague at work.
The ideal scenario for such a deal: the partner invests the money, you take on all the work. Accordingly, the income from the sold house is divided in half. However, everything is individual and depends on the specific partner and offer. For example, someone might share their savings with you. Offer your prospective partner a favorable percentage to interest him, but do not forget about your income, even in the worst resale scenario. Here, unlike credit companies, you can regulate the terms, payments and interest rates themselves.
If you are just starting your investment career in real estate, then in the early stages it is better to look for a partner who is already working in this field. This way you can get not only start-up capital, but also learn a lot. To find such a partner, think about what is your value, how you can be useful to him and your joint project. Perhaps you are a great salesperson or designer, or you may have a lot of experience in building or renovating homes.
2. Special creditors.
Companies that are ready to give you the full amount you need. They don’t care about your income or plans. They will happily give out a large loan, as they are interested in a high interest rate and extra points.
If you are planning a quick sale and a short ownership period, then this option is worth considering. If you want to engage in construction for six months or more, then this is not the most suitable source of financing, since the average interest rate for such companies is from 14 to 20%. Therefore, the less you own a house, the less you pay, respectively, the longer the ownership period, the greater the amount of payments, which means less your own income.
For example, if you borrow $ 100,000 at 16% and it takes you half a year from purchase to sale , then the interest will be about $ 8,000. Accordingly, if the resale takes a year, then the interest will already be $ 16,000. And that’s not counting the extra points that many companies charge for using their services.
3. Buying without buying.
When you are in the business of reselling a home without actually buying it. You discuss with the seller the terms of purchase and the price of the property, find an investor who actually buys the house and repairs it. You earn on the difference between the cost of the property and the price to the end buyer, or you get a flat rate of 5–10% on the sale of an already renovated house. You can create a group of investors for the initial purchase and renovation of a property by acting as a networker . Thus, you do not invest in the purchase and do not prepare. Your task is to bring buyers and sellers together, for this you take your percentage.
4.Crowdfunding .
You purchase a home with the help of a group of investors. Each of them contributes some part of the required amount and receives an additional percentage after the sale. The disadvantage of such a source of funding in time. It can take months to raise the necessary funds. True, some crowdfunding platforms have the ability to immediately redeem an object.
5.Seller.
The real estate seller can act as an investor. Offer him your services to “transform” his property, as well as a better selling price. Sellers are often more interested in a good deal than selling here and now. Most importantly, do not forget about your own income and calculate a financial plan for each object — how much will it cost to renovate a house and how much you can actually sell it. This scenario has many advantages: you do not need to look for an investor, the seller is initially interested in selling the property, and you do not have to pay commission to real estate agents working directly with the seller.
6. Traditional banks.
As noted above, banks generally give loans only for the purchase of real estate, which does not include the costs of re-registration, maintenance and repairs. Nevertheless, if you have a good credit record, a clear understandable business plan and confidence in the profitability of your idea, then you have every chance of getting the required amount.
As you can see, investing without initial capital is possible, but do not forget that in order for the transaction to be really profitable for all its members, you need to know the local real estate market, its price order, study the tastes and preferences of potential customers, be able to draw up a competent business plan taking into account the smallest items of expenses and be a good networker .
However, any investment is a risk that often does not depend on you. Therefore, when calculating your business plan, consider the worst-case scenarios for the outcome of the transaction: if the house is not for sale, the renovation is not going according to plan, the deadlines are delayed, and so on.
Today there are many options for working with finished real estate. For example, lower the price. Calculate the minimum cost of the property in your business plan to cover all losses. If there was no buyer at such a price, then it is worth selling the object even after going into the red, but make conclusions why this happened and take on a new unit, taking into account previous experience.
Also, you can always rent out the house or sell it to the tenant. That is, act as a lender. The tenant can pay a down payment so you can cover most of your expenses and then pay you a monthly amount. In some cases, such a deal is even more profitable if you can afford the time.
In any case, the real estate market is mobile and active. You can find your potential buyer or tenant for each property unit, the main thing is to be able to quickly adapt to new conditions and make informed decisions.
Dmitry Tsyplakov, CPO of Fincase.
