How to invest in real estate (even without cash)

Investing in residential property can come at a steep price. Having reserves of cash might be easy for millionaires but for most of us, it’s difficult to save for real estate and meet your daily expenses at the same time. This can also be true of foreign investment opportunities. As well as ready cash, there is the physical distance and red tape to navigate. People are “fear-frozen” about the idea of investing in property abroad because they believe there are too many challenges involved.

 

Many people who look to invest in U.S. property are ultimately too afraid to take the risk because they believe they don’t have the finances to do it and because it’s halfway across the world. 

 

But the reality is that there are different methods to invest without cash, even in the U.S.A. Overcoming that fear-frozen state will open your eyes to the various means you can try. Lending, joint ventures, and making land contracts with the owner of the property are just some of the methods that you can consider to avoid having to empty your bank account. 

 

Savvy investors utilise these opportunities and often rarely ever use their own cash to invest. 

Why the U.S.A residential property market?

 

The U.S.A residential property market is white-hot right now, causing foreign investors to flock to these untapped properties. Record low interest rates, increased activity, and the reassurance that the market is unlikely to crash any time soon (unlike the 2006 housing bubble) is luring more people to learn how to invest and create another stream of income.

 

Your chances of landing a great residential property at a low price is higher than ever. Properties in Australia and New Zealand can sell at ridiculously high prices, but the U.S is a different story. A down payment in Australia can be the entire property’s price (or even more) in the U.S.A with a staggering range of properties to choose from across all states.

 

Banks and lenders have learned from the mistakes of the past and have rigid practices in place to ensure the malpractices that crippled the economy in the past will never occur again, giving investors peace of mind.

 

Since the Covid-19 pandemic hit, people have become more active in seeking out homes in less populated areas to escape COVID hotspots. Working remotely also had people purchasing homes in quieter locations in order to better focus. This caused a spike in the market that investors abroad are now taking advantage of. 

 

The exchange rate between Australian and New Zealand dollars with the American dollar has recently improved, potentially making your investment even more powerful.

5 ways to get funding in the U.S.A market 

There’s no need to empty your pockets in order to make financial investments in the U.S.A. market. You can get savvy about using other people’s money. If you’re looking for ways to invest in real estate, these five methods are all feasible and often used by more seasoned investors.

1. Option to buy

 

Option to buy is a funding strategy that allows you to have the right to purchase the residential property without technically owning it. It means that if you find a property you want to invest in, you can buy an ‘option to buy’ contract that allows you to be the only person the property is sold to. That gives you breathing space to do some hard research on the property’s current and future value as well as get funds together for payment within that buying period. 

 

Because you have a legal contract you can even sell the house to another party for a higher price if you like. It’s a no-obligation, risk-free strategy that gives you full control over a property without putting down a lot of money.

 

While this sounds like an investor’s dream come true, it comes with a deadline, you won’t have exclusive rights to purchase the residential property forever. There will be an agreed time period for the buyer to make the required payments.

 

Typically an agreement period will range from 30 to 90 days, however, there are instances where it has taken months or even years for the seller to gather enough resources to buy the property. It all comes down to the terms of the individual agreement.

2. Private equity

 

Private equity (also known as hard money lending) is financed through private lenders outside of traditional lending institutions like banks. Private equity is the quickest way to get funding and secure ownership over a residential property, which makes it a favourable choice.

 

Keep in mind that loan terms are short compared to banks and traditional lenders. While most standard loans last five to 10 years, hard money lending can be completed in timeframes as short as six to 15 months. 

 

There are also private equity mortgages that can be an exception to the shorter timeframe. It spans anywhere from five years to 30 years, depending on the agreement. Private equity just generally has higher rates than conventional funding. 

 

Private equity is more lenient and loose with its terms as you’re not dealing with the rigid guidelines of banks or big lending institutions. In a matter of days you can receive the money for your investment, carry out renovations and make quick fixes to flip the residential property for a higher price. House flippers are a fan of this type of lending as it’s fast and easy. 

3. Joint ventures

 

Entering into a partnership with another investor (be it family, friends, or a willing third party) can be a great way to make a big investment and keep your personal finances stable. Even if your funds are low, your partner in this venture will contribute, making it easier to land the property.

 

The danger of this funding strategy is that not everyone involved in the joint venture will be on the same page. For this strategy to work, all parties need to be clear on what direction you want to be taking. Steer clear of joint ventures with strangers and discuss the outcomes well ahead of time. As always when money is split, there can often be arguments about who gets what. It’s essential you have good communication and completely trust everyone invested with you.

Joint ventures require every party to be satisfied with the agreement and how they’re working together to avoid a falling out. Make sure you cover yourself with the right documents so everything can be traced back to written agreements. 

 

Pooling resources is a great way to keep from overspending and secure the residential property you jointly want. At the end of the day, everyone is responsible for the property and the profit they receive from it. 

4. Borrowing against current properties

 

While not all of them do, some lenders may be open to lend against overseas properties. Usually, you need to borrow the funds in the country/ies where the property is, then use those funds to purchase the property in the country of choice. 

 

For example, if you have a property in Australia, you can get a line of credit loan and take those funds to buy a U.S. property. This is the common approach when it comes to using your current properties already.

 

But if you have the chance to loan against property/ies, you use your home or a secondary property as collateral. Instead of using money or credit, you use the difference between the total value of your property/ies and the loanable amount. 

 

This funding strategy can be a little more personal because a seller might look into your credit score and financial history in order to determine whether or not you’re a good candidate for their property, however, it’s a great way to invest without having to dole out cash.

 

Interest rates worldwide are generally lower, so borrowing against current property/ies can be a great way to rekindle an investor’s interest in their investments and see what equity they’ve built up. 

 

Of course, this method has its own drawbacks. If you borrow the money against your current properties and fail to make repayment schedules, your property/ies can potentially be put at risk. 

5. Land contract

 

Land contracts require you to make an agreement with the property owner where you pay an agreed-upon percentage upfront and then pay the remaining balance with an interest component.

 

The period of time this takes can be negotiated depending on how much time you need to do renovations and re-sell the property. When you sell it, you can pay the owner the rest of what you owe. 

 

This strategy can be a complex one. In a seller’s market, a seller has the flexibility to choose the most favourable buyer for their property. Buyers who can make payments in full might be the preferred choice. In spite of this, it’s still a viable option.

 

Investing in real estate doesn’t have to drain your pockets and leave you high and dry. There are plenty of options you can choose from that will have you spending just a bit of cash or even none at all. By being diligent, careful, and mindful of your repayment ability, timeframes and agreements with others, you can invest in real estate in the U.S.A and get a premium choice of properties at an affordable price to start bringing in additional income. 

 

If you want more information on how to invest in the U.S. market and what options are available, check out this video Masterclass I recorded recently.

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  1. Star Dynamic says:

    […] be overwhelmed by your financing options. There are a lot of options available when it comes to investing in real estate, even without cash, but one straightforward and low-risk option is working with private equity […]

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