Don’t Have Enough for a Down Payment? No Problem, You can Still Invest!
When buying a new rental property, you have two options: you can pay for it in full, or you can borrow the funds using a mortgage or other type of loan. If you go with option B, you’ll quickly discover that most lenders require a down payment of at least 20% to secure the loan. On a property priced at $100k, this means you’ll have to have $20k on hand. For a real estate listed at half that, you’ll still on the hook for at least $10k. For lots of people, this is a dealbreaker. The average American barely has $1,000 in their savings accounts, let alone 20 or even 10 thousand bucks.
So what’s a would-be investor to do when they only have a small savings to put forward on a property? Here are 3 options for you:
- Form a partnership – Have you thought about pooling your resources with another investor? This is a good option for people who don’t have a pile of cash on hand and who don’t mind sharing the responsibilities of ownership. Of course, this means you’ll also have to share the profits, so keep that in mind. Also, you need to make 100% certain that you and any potential partner are on the same page about your objectives, division of responsibilities, strategies, and more. Partnerships can be tricky, especially if/when disagreements arise, so have a plan for navigating these challenges.
- Crowdfunding – Crowdfunding offers another option for the small investor short on capital. The way it works is this: opportunities are presented (often through social media), and those interested can invest so long as they meet the minimum requirement (usually around $5k). With small investments like these from a lot of people, a large sum of money can be raised quickly to get investors into the market and realizing profits in the very near future.
- Private loan – Finally, you could explore the world of private lending. Sometimes called hard money loans, these loans are funded by private individuals or companies who aren’t subject to all the rules and regulations that banks and credit unions. This gives them leave to essentially make up their own rules – it’s their money, after all – and as long as both parties are in agreement and there’s nothing shady going on, it’s all good. Things like down payment, interest rate, term length and other factors can all be negotiated. To find a private lender, you can search online and easily come up with a list of options; however, I suggest talking to a trusted peer (another investor, real estate agent, etc.) to see if they have any recommendations first.
See? You DO have options for investing in property, even if you don’t have enough for the traditional 20% down payment. Take what you do have, and find a solution that works for you. Or, keep saving a little longer until you’re in a spot to comfortably put down more money…and then come talk to me about turnkey investing!