How to invest in real estate without any of your own money

You’ve heard the adage ‘It takes money to make money’ and in some cases it does. But it is equally important to use strategies that keep your initial …

You’ve heard the adage ‘It takes money to make money’ and in some cases it does. But it is equally important to use strategies that keep your initial capital low and reinvested. Investors are always interested in investing in real estate while being able to preserve and keep the capital they have available. Ideally the best investment is one made by using cash flow or funds made available from capital you already have invested somewhere else. Here are three low risk easy ways to invest without touching your capital.

Strategy 1. Line of Credit

Use what you’ve got. A good asset puts cash in your pocket every month; a bad one takes it out. Of course there are a few exceptions, but for arguments sake let’s only focus on positive cash flow properties. If you have equity in your home you may be able to harness the power of today’s incredibly low interest rates and use your LOC to invest. If you borrow money at 2%, and make 10% on it, that is a gross gain of 8%.

The general consensus is the best use of a line of credit is to purchase assets. Anything that you purchase that appreciates and gives you monthly revenue is an asset, however, purchases that depreciate and cost you money monthly are liabilities.

Many people see no problem with using a line of credit to pay credit card debt or for a vacation; however, this is the worst thing to do. You’re paying interest on a purchase that produces no income and sure you can say you have great memories of the trip, or now your card is clean, but you’ll soon put another charge on it and the vacation will be long forgotten while the debt remains.

What to do?

Purchase cash flow positive real estate and you are leveraging the value of your home to purchase an asset.

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How do I do it?

  1. Ensure that your bank will give you a line of credit on your property.
  2. Calculate expenses of your investment real estate to make sure the property cash flows. If it doesn’t you’ve bought a liability that will take money out of your pocket monthly both from mortgage payments and your line of credit.
  3. Work the numbers with many different interest rates see how far of a safety range you have and leave a good safety net in the bank for unexpected repairs.

Strategy 2: Self-Directed Retirement Funds

Over the last year a lot of us have seen our retirement funds cut in half. For many the mutual funds that they have been contributing to for years with the hope of an early or adventure filled retirement, have now decreased in value and have pushed retirement further out of reach.

You can take your RRSP or IRA out of the banks hands and recapture your dream of early retirement. Self directed IRAs and RRSPs are those where you can invest with your retirement capital into a range of investments. Investment real estate is one of them. Just make sure to follow the transaction guidelines to stay out of trouble.

So how do you invest?

Hold a first or second mortgage using your retirement capital. The rates range from 6% to 10% at set terms and you can get balloon or monthly payments. Basically you become a lending bank to investors who can’t get conventional financing.

How do I do it? (RRSP)

  1. Check if your RRSP is self-directed or not. In most cases you can change your RRSP to self-directed by paying a small fee.
  2. Get legal counsel that is familiar with this type of investment and make sure you have recourse on your funds.
  3. Do your own due diligence on the property. Check the numbers and make sure you aren’t backing a dud.

How to do I do it? Self-Directed IRA

  1. Make sure your funds are rollable.
  2. Find a custodian that will accept self-directed IRA investments. To find them do a Google search for “self-directed IRA”
  3. Roll your funds over them find a property.

Strategy 3. Hold a mortgage

If you have a steady job and a good credit rating you can leverage your borrowing power in lieu of funds to invest in revenue real estate. Many investors need mortgages and there are strategies that enable you to participate. It is important to follow the bank’s rules and operate in accordance with the mortgage and financing laws.

Some investment companies pay people to qualify for mortgages for them. What are the benefits? Generally you get a cut of the cash flow the property produces and a percent of the profits at sale. All this just by qualifying! It’s a pretty good deal because you aren’t bothered with the day-to-day management of the property but can enjoy the proceeds.

How do I do it?

  1. Get independent legal advice before you sign anything. This is most important, as mortgage fraud is a serious crime. Ensure you are on title as a caveat and that the mortgage is paid and not in arrears.
  2. Find out your borrowing power. You can be pre-approved for a certain amount of mortgages or funds and then shop around to find an investor who has a proven track record of quality investments and is in good standing.
  3. Think ahead. If you own your own home then great however if you haven’t bought your own residence yet you may want to keep your borrowing to a pre-determined limit so you can purchase your dream home when it finally comes your way. If the bank pre-approves you for 3 mortgages, use two for investments and keep one for your future plans.

These are all safe, proven strategies that I personally have employed over the years. When staying out of the ‘grey area’ and working with a knowledgeable lawyer you can open up some great opportunities to profit in revenue real estate without having to put up any initial capital.

Glenn Simon Inc. delivers superior, revenue joint venture properties in the economic power house region of the Alberta Oil Sands, Canada. Our goal is to partner you with equity building Investment Real Estate, strong appreciation and consistently profitable, safe and secure Joint Venture Real Properties. Todd enjoys spending time with his family, traveling around the world and a variety of outdoor sports.

 

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