How to invest with little to no available cash

Question

What's up everyone, I've browsed the forums but I haven't really seen any solid answers here.

What I'd like to understand, is there a strategy (besides wholesaling) that I can use while having access to little to no cash (say the max available cash is $10k).

I would just love to hear from someone with a specific game plan on how to go about doing this. I don't need income from the RE investment to pay for bills, I have that covered with my day job but I have no savings (and no, I don't need a lecture on having reserve funds for myself ;).

Thanks in advance!

Nathan Gesner · Answer

Go to the BiggerPockets bookstore and buy the book "Investing In Real Estate With Low (And No) Money Down" by Brandon Turner. Then take it with a grain of salt because it uses techniques that can get you in deep doo-doo if you aren't experienced.

People who buy highly leveraged are the same people who tend to go broke. If you want to invest wisely, you need to sacrifice. Earn more money, save more money, and invest when you have sufficient funds. People touting easy or quick paths to wealth are making their money selling to suckers.

Stuart Udis · Answer

Investing in real estate is capital intensive. There's a lot of courses and "gurus" out there who will suggest investing can be done with little or no money. This is merely to solicit mentees and buyers of their courses. Even Preston's example will do some who read this forum a disservice. Don't believe $19,000 is a sufficient amount of funds to execute a $480,000 total cost real estate opportunity. To elaborate:

The borrower in that scenario would have to pay for builder's risk and general liability insurance prior to closing &  it's also not clear whether the closing costs were included in the $120,000.00 budget. But let's focus on the interest payments.  Regardless of whether the interest payments were capitalized or paid outside of the loan (as is the case in Preston's example) what happens if there were delays and the interest reserve was depleted before the project is completed? The borrower was now paying out of pocket to cover the interest and this will be when the loan has been largely drawn down and the payments are at their highest. Or alternatively what happens when there were contingencies and the loan proceeds that were set aside for loan payments were required to complete the renovation. Borrower was still short cash to either complete the project or pay their loan payments.

Focusing on the renovation, the borrower required funds to not only begin the rehabilitation phase but the borrower would need additional funds to continue to advance the project. Whether the borrower used a 3rd party GC or oversaw the construction improvement, funds drawn through a construction loan are released in arrears. The borrower couldn't rely solely on the loan proceeds to efficiently move the project towards completion. Funds are needed at the beginning and funds are needed to make purchases for the longer lead time items such as kitchens, appliances, windows etc. Don't expect to find a sub-contractor base who requires no deposits (this is rare in the price point of this example).

Now fast forward to when the project is stabilized. If the borrower couldn't sell or the objective was always to refinance the property, most lenders want to see their borrowers have liquidity (otherwise the borrower's signature as a guarantor is worthless). This leaves the borrower with two options: bring in a co-guarantor who will take a piece of the deal or struggle to refinance and if the borrower succeeds on their own, the terms will be terrible.

Cash is necessary to successfully invest in real estate.  It doesn't necessarily have to be your own, you can raise capital. However, there are a lot of real estate investors who get themselves in trouble by getting started without being properly capitalized.  Being undercapitalized is just as likely to lead to a failed real estate investment as bad underwriting. My objective is not to scare people from investing in real estate. I merely want to those who are interested to understand what is required to succeed.

Preston Dean · Answer

Hey Brian!

This is a great question & I hope to help answer it the best I can and with some prior knowledge!

My answer to you would be to find a hard money lender who will lend you more than 75-80% ARV or LTV on a property. They probably will give you an outrageous rate like 15% or something but it'll get you a deal

Here are some numbers my business partner is currently working with

PURCHASE PRICE: $360k

ARV: $650k

REHAB COST: $120k

ALL IN HARD MONEY LOAN $480k

6 MONTHS INTEREST ONLY PAYMENTS AT 15% INTEREST = $6,000/MO

ORIGINATION FEE: $19K (this is the only thing he had to bring to the table)

The rehab is most likely going to be $80-90K but he over shot and asked for $120K on purpose so that he can make the 6 payments from the rehab loan

NET PROFIT (hopefully in 6-9 months) will be around $75K

Hard money lenders want to see that you have some kind of "skin in the game" so maybe tell your hard money lender you can only pay $10K and they might just charge you a higher interest rate. But if you are able to do the rehab cheaper than the $$ they gave you, you can just use the rehab loan to pay for the interest payments.

Hope that helps and if not just ask for clarifying questions!

Shiloh Lundahl · Answer

@Brian Leonard I would say yes you do need a lecture when it comes to not having money to start out with.

Real estate doesn’t solve money problems, it magnifies them. If at the end of every month you don’t have more money, or a higher net worth, or greater skillset that could create a quicker way to build wealth than you did at the end of the previous month, then you have a money problem. And that should be addressed before taking on something else that requires financial know how and discipline.

With that being said, if I were starting out again and I had my expenses converted by my income and every month I was able to save $500 - $1000 and I had accumulated about $10,000 in savings and I wanted to learn how to get into real estate, this is what I would personally do.First is would start by learning the language of real estate though reading about, listening to, and associating with other real estate investors. I would gain knowledge so I didn’t sound stupid in a conversation. I would not try to appear like I knew more than I did but I should appear like I at least knew something.

The next thing I would do would be to pick a specific strategy that I would want to start out with. Because there are so many possible strategies, a lot of people get stuck here.

As soon as I figured out a specific strategy I would then focus on learning as much as I could about that strategy and I would start associating with people who were experienced and knowledgeable in that strategy. I would set up lunches with those people where I would pay for their lunch or take them and their crew lunch at a job site so that I could ask a few questions. It’s often not what you know but what you don’t know that leads to costly financial mistakes. Gaining knowledge and building a network of knowledgeable friends can help save you from huge financial mistakes.

Now that I have knowledge and resources from the connections I have made, I would start looking for deals at the same time that I was securing funding. Funding may come from my personal savings of $10,000 and credit lines that I have established. I would also start sharing with others in my immediate circle about what I am doing in real estate. My family and friends may want to diversify their money into what I am doing with real estate. If you say you don’t have any family or friends with money, I could probably tell you pretty accurately why you don’t have very much money. I am not trying to criticize, rather just teach.

As I find deals, I would then start to run the numbers on the deals. As I did that I would start to become more familiar with how much actual money I would need in terms of privately borrowed money, financed money, and my own money that it would take to do a deal like the ones I am finding. I would focus on specifically finding out what a good buddy of mine, Odis James, tells his students find out:

1. How much does it cost?

2. How much does it cost to fix up?

3. How much will it be worth?

4. How much money will it make?

Then, with this information, I would know what to do next. I would either start making offers, or I would start securing more money.

Then, when the secured finances and deal match up, and my offer is accepted, I would buy the deal and carry out the plan that I formed through all of my reading, listening, and associating with other investors.

That is what I would do. If you want a more specific answer, then you would need to ask a more specific question.

Preston Dean · Answer

@Zachary Cain Humphrey here are the numbers he gave me

HML: $480K including the $120K rehab

INTEREST ONLY PAYMENTS FOR 6 MONTHS: $36K

ORIGINATION FEE $19k

AGENTS FEE: $39K

= $574,200

Henry Clark · Answer

Can’t really be specific since your resources aren’t known.1.  Buy offlist Texas property tax sales.  Land only. Not at auction.   You need to understand value add.  $10,000 can get you $50,000; $200,000.

2.  Palm Harbor looks like it’s a great STR rental locations.  Rent your house out weekly.  Buy an RV and live at a friends house.

3.  If you have a house with equity sale it.  Get into self storage with a managers home.

4.  Looks like you have done flips.  Be the go to fix it guy for OSS flippers and STR owners.  Do absurd prices.  $500 to fix a toilet, $500 to fix or coordinate a clogged drain.  Etc.

Key is to have a plan and stick with it for 5 years.

Brian Leonard · Answer

Thanks, Preston, love this approach of using the extra $$ to make the interest payments, great idea! Adding this one as a potential option.

Zachary Cain Humphrey · Answer

That is a great answer!

Jasmin Silva · Answer

you can do tax liens, tax deeds, seller financing or maybe even wholesale

Rob Beeman · Answer

@Stuart Udis I appreciate and agree with your response. Personal experience has taught me that more capital rather than less capital in any business (and especially real estate related businesses) is wise. As you mentioned, it doesn't have to be all your capital, but it is more comfortable when it exists, as things almost never go as originally planned on rehabs and capital takes care of the hiccups.

How to invest with little to no available cash

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