How to Get Involved in Multifamily Real Estate with No Money Down
All investments come at a cost, and real estate investing is no different. Many people choose to invest in stocks or crypto over real estate because of the low barrier to entry - anyone with $100 to their name can get in on the action. The cost to purchase an apartment building is significantly higher and requires a bit more planning. However, there are creative ways for new investors to get involved without having to hand over a big sum of cash. I often hear this as one of the big reasons those considering investing in multifamily feel blocked. Most new investors don’t start with a lot of money upfront, which means that they need to find another entry point to get into the real estate game. You might be thinking there’s no way to get involved in multifamily without cash in hand, but plenty of people do.
If you’re running up against that same wall that many people face when first trying to get into real estate investing, here are a few ways you can participate in multifamily deals with little or even no money down.
Become a Wholesaler
Real estate wholesaling is a great way to get involved in the investing world without bringing money, or even much experience, to the table. A wholesaler essentially moves a real estate contract between the seller and a potential buyer for a profit without any exchanging of money in the process. What does it take to be a great wholesaler? You should be a people person who can easily build relationships and is willing to do the legwork necessary to acquire properties directly from a seller. That may mean driving around a specific area looking for opportunities in the rough or leveraging your network to find deals others can’t. Once they find a property, the wholesaler works out a deal with the seller, places the property under contract, then moves the contract to a buyer for higher than the agreed-upon price and collects a profit off the difference.
Wholesalers are in and out at the beginning of the deal and don’t get their hands dirty with renovations. That makes it a good alternative for those who aren’t excited by the HGTV intense construction drama that can come along with flipping. They also are able to get involved in the deal without any upfront cost, so if you’re strapped for cash but have some of the tenacity required of this role, it may be the right place for you to play in the real estate investing space.
Why would anyone work with a wholesaler, though, when they can just go out and get the same deal for a lower cost? Wholesalers are incredibly beneficial for real estate investors, as many buyers do not have the time to be the boots on the ground in search of a good deal. Remember, time is money. An active investor is willing to pay the added cost to a wholesaler for finding the deal, making it a win/win for everyone involved.
Taking things a step further, many wholesalers choose to ask for equity in the deal in exchange for something the buyer may need, such as co-signing on a loan. This allows the wholesaler to own a piece of the property and, therefore, reap a higher return on investment in the long run. Through tax benefits associated with rental properties, value-add scenarios, and the future sale of the property, wholesalers who choose the equity route are able to build their joint-venture portfolio and earn money towards the purchase of future properties.
Negotiate Seller Financing
Most people just go straight to the bank for a loan when they need to finance a deal. There are many reasons why you may not have the cash, credit history, or experience to qualify for a traditional loan, though. Enter seller financing. It’s a perfect solution for those who want to avoid the bank. Here’s how it works: rather than the investor taking money from the bank or hard money lender to purchase the property, a seller-financing situation allows the buyer to buy directly from the seller via the agreed-upon terms documented in a promissory note. The terms can be structured in various ways and are worked out between the buyer and the seller. Typically, though, the buyer pays the seller for the property in increments over time, similarly to how they would pay the bank on a mortgage each month.
If you end up going down the path of a seller-financed deal, focus on negotiating the terms more so than the price. The great part about this approach is that the only limit is your creativity. Work with the seller to find out what would work best for them, and then build your contract terms around their needs. Of course, it needs to be mutually beneficial, but taking the time to find out what their situation is and what would work well for them will allow you to structure a deal quickly, and oftentimes that is better than what you can do with the bank.
Also read: Three Easy Ways to Start Investing in Multifamily Real Estate
Raise Your Own Money
There are a few ways you can go about raising money for a deal on your own. The first is partnerships. Partnering with the right people can make up for certain things you may lack, like experience or money. Maybe you have the knowledge and expertise to flip a property or execute a value add business plan, but you’re tapped out on cash. Find someone in your network who has the money and resources to partner with you to fill that gap. Create a plan that offers a return on investment for their money with a commitment that you will be the one with boots on the ground, doing the hard work. This helps you build your experience and portfolio while giving them a place to invest their dollars for profit.
Another way you can raise money is to reach out to your friends and family. And I don’t mean just calling up your brother and asking him for money. Present them with a plan for your project and a proposal for how they will make money on the deal. You may be surprised at who in your network may have extra cash sitting in the bank and would be willing to invest with you for the potential of a higher return. If the people in your circle don’t have money to invest, you can also consider using a private lender instead. Just remember, private lending is not the same as hard lending, so be sure to protect yourself when you enter private lending agreements.
The third option is hard money loans. Hard money loans are short-term loans created for investors. They tend to come with a higher interest rate and are limited to 1-2 years; however, they are usually more accommodating for new investors than traditional bank loans. Hard money lenders often use privately raised funds, giving them the flexibility to underwrite potential deals using their own discretion rather than a set of hard rules. The collateral for a hard money deal or private lender is the property itself. Meaning if you were to default on your loan payments, the lender has the right to acquire the property and take over the title.
With the proper education, network, and resources, anybody can begin building their investment portfolio from the ground up. Many investors use a combination of the above methods, often starting as wholesalers and then working their way up until they have enough money coming in to fund their next deal. Instead of thinking about all of the reasons you can’t get started investing in real estate, get creative with your financing options, and start taking real action towards your goals.
If you’re looking for other ways to creatively finance deals once you do have some money to put in, check out our other article on 7 Ways to Finance a Multifamily Real Estate Deal on our blog page.
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