Controversial - you can't invest in property (real estate) with no money says Scott Trench, tosh I say!
True, he seems to define the term 'invest in property' to mean put your own money into it rather than time, contacts, knowledge, experience, etc. and as a result of course he would be right...but still only to a point and even then I think that’s a bit of a cheat. So yes, I do disagree with Scott and whilst I will say, with caution and 'subject to', it is indeed possible to invest in property with no money.
My disagreement with Scott is that we can use our time, contacts, knowledge and experience to create money that we can then use to invest in property. Saving up from our employed income is one way of doing this of course.
Some others include deal sourcing i.e. finding deals for other investors who pay a commission to do so. If one day we intend to find properties for ourselves to invest in, then surely it makes sense to get good at this sooner rather than later. What would make an investor pay us to find a deal? No time is one reason: busy, wealthy people often pay people to do things they can’t.
Equally, buying a property is not exactly difficult is it – Rightmove, viewing, offer within 5% of the asking price and off we go – simples! However, finding a good investment property might be trickier. The definition of a good investment property being one where we get a good discount when we buy…more like 20% to 25% instead of 0% to 5% for example. These sort of properties don’t exactly grow on trees and so an investor would probably pay a fair chunk of the discount in return for this opportunity, typically something like £3k to £5k say for atypical single let property. Add up these sourcing fees and we then have our first deposit…
Some other ways to invest in property with no money include a lease option and rent-to-rent, where they both involve leaving the existing funding on the property by the owner and / or lender in place and instead the investor rents or leases the property from the owner and charges it out at a higher rent to a tenant(s) instead. No money is required here…subject to…some fees, furniture perhaps, possibly a light refurbishment and a little bit of time and effort.
There are other ways but for now let’s just say that by leveraging our time, contacts, knowledge and experience we can create the money or investment capital we need to get going.
OK, so we now need to get the elephant in the room out of the way - money - when I talk about money, I do not necessarily mean MY money, which is a different position to Scott. What do I mean by this? Well, if you think of a Buy-to-let mortgage as someone else’s' money (a bank's) then we don't need the extent of the mortgage value in money ourselves to invest in property do we? No, we can use someone else’s money i.e. the bank, to put into the property and that explains the whole concept of using 'other people's money' or OPM – theirs, not ours.
Yes, I agree that if we use OPM with a mortgage then that only reduces the amount of money that we need but it does not rid us of having to find at least some money of our own. But even still, there are some ways where we don't even need to use any of our own money...some more palatable that others for sure...
Have you ever heard of a gifted deposit? Usually this is where someone, probably a close relative, actually gives us the money for our deposit in a property, usually our first home. This is now commonplace with first time buyers who are gifted some or all of their deposit by their parents or grandparents say. Add the gifted deposit to the bank’s mortgage and voila! We have ‘no money down’ or rather none of our OWN money down. It doesn’t take much imagination to apply this concept to an investment property rather than our own home. In fact, if we did apply the concept to an investment property rather than our own home then we introduce another concept into the mix – return on investment or ROI.
By using the idea of generating ROI with an investment property – meaning either rental income, or capital growth (or even both), then we can potentially even attract these deposit funds from our close relatives. Sure, the gift may not end up being a gift in the end if we agree to pay the ‘gifter’ a return on their gifted deposit value (e.g. by paying interest or a capital gain share) but there may be a different kind of conversation that we can have.
Imagine at aged 18, saying that you want your parents to support your investment goals AND your educational costs by buying a rental property in the city that you will go to. A gifted deposit from the bank of Mom and Dad and a Buy-to-let mortgage could allow the fresher Johnny or Jane to get a foot on the property ladder…with no money down before they first vote. Then apply this thinking a little wider and we can see other possibilities to do the same perhaps?
Now, what I did here is take what has become a fairly common practice of parental support and turned it into an investment opportunity with them supplying money to support MY investment goals. If the kind parents get a return on their money in whatever form (interest, rental income, capital gain on disposal say), then we have in effect created a Joint Venture or JV. Imagine the same concept of a JV partner providing funding, perhaps other than our kind parents and we open up a completely new dimension of investment possibilities to invest with none of our own money.
JV’s are powerful things as I have illustrated – the coming together of two or more parties that bring different aspects of what is needed to invest in property for a financial return. Money is just one aspect of what is required and whilst there are others that is for another day…
So we now have a few examples of OPM already…a mortgage, a gifted deposit and a JV partner are all such examples. In fact the lease option and rent-to-rent examples I used earlier are also examples of using OPM…we just need to find them and if that takes time, contacts, knowledge, experience, etc. then in my mind there is nothing wrong with that.
I have worked with several joint venture partners to help me to grow my own portfolio…it helps to accelerate the process. So, can we invest in property with no money…oh yes we can!
Source & credits: Biggerpockets