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I found a deal, but don't want to commit my money - suggestions?
Does this title sound familiar? It seems to be all over BP these days, variations of which read along these lines: "Hi, I'm a wholesaler/investor/flipper/insert your title here, and I have found this smoking deal. The only problem is X; do you all have any suggestions on how I might mitigate X without using any of my own money?"
Sometimes I think that whoever told people that real estate is a free game should be marched out back and shot! People without any of their own game in the game are dangerous operators, as they are willing to take risks and gambles with OPM (other people's money) that they would never consider doing with their own funds.
I believe the problem lies partially in the idea of leverage, an investing tool that is prominent in real estate but rare (and often illegal) in other forms of investment. It seems that the idea that you can use leverage - OPM - to purchase assets otherwise unavailable to the average Joe has given rise to the thought process that one can work RE without ANY of one's own money.
What these individuals don't realize is that there's almost no leverage that is going to absolve you of having some of your own funds involved in the transaction. Even with the BP "BRRRR" strategy, it generally requires seed money to purchase and rehab money to bring the property up to standards before you can attempt to retrieve that cash through a refi.
At the risk of sounding like a stodgy old investor, I believe it is the duty of responsible investors to discourage this type of thinking - not only does it artificially inflate the real estate market through deals without sound fundamentals, it cheapens the experience as a whole for those who see REI as a legitimate vehicle for long-term wealth creation, rather than a "play at home" endeavor for those looking to actively avoid working.
Comments (4)
"Invest in real estate without using your own money!" - BiggerPockets.
Michelle Verdugo, almost 4 years ago
I thought that was the name of the game, but as a newbie I cannot see that happening. If I don't have money I really can't see it happening even in a BRRR. I have found one but even before I commit to that I paid to have an inspection. I would rather lose $300 to $500 than to lose thousands. My money is like everyone else's money valuable, it's the only way to make more money, but I cannot give it away. At my age that's crazy. Thanks for this blog because I thought i was losing it, thinking it could be done without money. Honestly, if someone came to me and did not have skin in the game, I wouldn't invest so why should I or would I ask someone else to do the same. Thank you so much.
Account Closed, over 4 years ago
I agree. Too many folks trying to do something with nothing, not even educating themselves, give real estate investors a bad name. That doesn't mean they can't start small, but it does mean at least learning your craft and saving a stash!
Judy Best, about 5 years ago
Bingo! Hey, I have a smoking deal. I just need your money to finance the purchase and rehab and then we will both be rich!
Gary C Jones, over 5 years ago