If you need more money, investing may not be the most prudent option, especially if you do not have much money to work with in the first place, but with rental property investment, it may still be possible no matter how little money you have. There is no doubt that investing presents immediate expenses, but so many people are encouraged to invest that this encouragement begs the question, “How can I invest with this little money?” While you should always exercise care with emergency funds or savings accounts, here is how you can get started with investments in property that will actually generate returns.
Establish Your Own Primary Residence
Beginning this exercise with the purchase of a home may seem strange if you do not have much money to begin with, but here is the logic behind the madness: With a loan, you can purchase a house and stay in it for one year, after which you can leave the house and rent it out to others. Living in properties before you rent them out is a potent way to legally circumvent the rules of investing. After all, establishing equity by investing in real estate does not begin and end with the property in which you live. The establishment of equity includes any property you own. Generally speaking, down payments for primary properties are not as stringent as down payments for properties you are just going to rent out to others. If you seek a genuine path into the world of investing, buying a modest property in which to live and ultimately renting it out might be one of the best available methods.
Another way in which establishing a primary residence may be useful is that, instead of buying a single-family home, buy or modify a property into a duplex so that you can live in a property and rent the other half of it to someone else. With a loan, you can get a hold of a two-unit home. Living in one unit and renting out the other might be a good option. Not only is a duplex’s down payment fairly insignificant, but you can use the money from rent to pay off the loan.
Encourage Sellers to Pay Closing Fees
With regard to most real estate transactions, a seller from whom to buy properties is often willing to pay a closing cost in order to make a sale more likely. A buyer will be more likely to buy as long as there is more incentive to buy, and paying a closing fee is one such common incentive. The primary downside of haggling with a seller to have that seller pay the closing fee is that you will have to provide the money up front. Employing loans or asking for more time may not be allowed. As long as your target rent will cover many expenses with a monthly flow of cash, then this expectation remains reasonable, but you will have to depend much on the rent you charge. The bottom line is that, if a seller asks you to pay a value that is far greater than the rent you can charge, then you have no choice but to look for a better deal. Otherwise, you are succumbing to extortion. With the routine maintenance and vacancies inherent to them, rental properties should never experience a lapse in positive cash flow.
Establish a Home Equity Line of Credit
Let’s say your primary residence ensures that you have a large amount of money. In this case, a bank may provide you with a Home Equity Line of Credit or HELOC. A HELOC is a tool with which you may begin your investment career. Most of the time, a HELOC offers about 75% of your existing equity. A HELOC is a potent alternative to more traditional investments that present fees from closing costs to interest rates with double digits. With a HELOC, there are no closing costs, so prices are lower and purchases ultimately take less time. Since many banks do not charge for appraisals of homes a HELOC may go a long way in terms of cheapening costs significantly. Using a HELOC to purchase a property, you can enjoy myriad benefits, though the main benefit is that you can use the money you get from rent to pay off a loan every month, including interest. A singular caveat with regard to HELOCs is that their rates vary, and they establish themselves as secondary mortgages on properties whose mortgages you must already pay, so each month, you may want to pay for as much of a principal as possible before interest rates skyrocket. If an interest rate is not too significant, then the amount of interest you have to pay will inevitably plummet.
