How to Invest in Real Estate Even if You're BROKE!
In this blog, we are covering how you can get started in real estate if you’re broke or have very little money.
And make sure to stay until the end where I will talk about the biggest mistakes I see people making when they are getting started with these strategies.
Let's just jump right into the main strategies and then talk about each of them.
The Strategies Are Going to be:
Co-hosting for landlords
Airbnb Arbitrage
Buying real estate for cashflow - but with creative financing
And Partnering with people who can help with financing
Co-Hosting
This is still one of the best ways to get started because it requires no money to get started. Okay, maybe a little money maybe $50-100 for some software setup?
This is where you help Airbnb hosts manage or optimize their property in return for a cut of the revenue.
From a high level, the way you land co-hosting clients is to reach out to traditional landlords or people who are considering becoming landlords and you show them how much more money they can make by furnishing the property and listing it on booking sites instead of doing the traditional landlord model.
There’s a trick to landing co-hosting clients very few people talk about so listen up.
The trick to getting more co-hosting clients is to target regular landlords who don’t do Airbnb yet or people who are considering buying an Airbnb instead of people who already have properties on the Airbnb platform.
The way you appeal to or pitch these people is to explain to them how much money they can make and all the other benefits of furnished rentals compared to traditional rentals.
But remember this point, you are just educating them and helping them understand what they can make. Do this instead of just pitching them on why they should use you.
You want to show them this first, the analysis of their property, and only after you have provided value and shown them the findings, you can mention to them that you are happy to help if they have any concerns or aren’t ready to take this on all by themselves.
That this is what you and your business can offer for support.
Regarding pricing when you are first starting when you are getting started, start with low pricing or even offer to manage for free for a few months if you need to get your foot in the door.
This can be 5% and you can grow it to 10-20% over time. I know successful co-hosts who don’t own any property but make anywhere from 5-15k/mo.
Some people are skeptical to pay a manager let alone someone who is very new.
But that's fine because you are getting experience and you are getting your first client who can become a testimonial.
By starting with a lower price you are much more likely to get a foot in the door.
But similarly to arbitrage, when you get your first property everything gets easier because many landlords have multiple properties, and when they see you do a good job on 1.
2. Airbnb Arbitrage
This one is a little less conventional but I know a lot of you are interested in this strategy and now is as good a time as ever to get into this game with a lot of landlords needing help filling units, especially new builds.
That is why there is an opportunity for you.
Arbitrage is where you find a piece of property, you rent that property, and then with the consent of the landlord, you list that piece of property on booking platforms.
Your guests pay you for using the property, you pay the landlord rent, you pay expenses, and you get to keep whatever is left over as profit. You should be able to make $500-600 per bedroom profit at least with this strategy when done well. It can start to snowball into many thousands of dollars per month.
It's great because you do not need that much money to get started but you can control an asset that should cashflow every single month.
The key here is just building relationships with landlords.
My favorite ways to do this are:
Starting a podcast so you can interview them and explain to them what you do.
Networking with brokers in Facebook groups, meet-ups, or referrals.
Joining Facebook groups of people who are looking to connect with arbitrage operators, there are more and more of these popping up.
Cold call and cold email owners from places like apartments.com, FB, and Craigslist.
3. Purchase
There are a few different flavors of purchase we will break down but from a high level purchasing a property to do real estate is pretty much what it sounds like.
You obtain ownership of an asset and then you can rent it out or put it on Airbnb to make money.
What that really means in the context of this blog is that there are different types of loans or acquisition strategies. That is what we are going to focus on here.
Modified House hack
This is one of the most underrated strategies
Some of you may be aware of this strategy but for those that aren’t did you know that many banks will lend you 96.5% of a purchase price of a property if you are going to live in it?
So what you will do for this strategy is buy a property using those types of loans and then rent out the other portions of the home either a 30-night minimum on Airbnb or traditional rentals and you will live for free or you will be paid to live, a little profit every month.
The tactics to get started with this are calling 2-3 banks, explaining your financial situation, telling them you want to buy a property to live in, and putting as little money down as possible - ideally 3-5%.
Then you find a 1-4 unit property, with the help of a broker, and this can also be in the area you live. If there are not many 1-4 unit properties near you, you might have to go slightly outside of your current city or neighborhood.
You can run the numbers to see if the property works as a house hack using a website called Rentometer, we also have a house hack tool, if you want it to drop a comment below or DM us on Instagram and we’ll send it to you.
But once you get approved for financing at 3.5% down, you can buy a property, and rent out the other units with either 30-night minimum rentals or traditional tenants and by doing this you should be able to make money to live every month instead of paying for the mortgage or paying rent.
You get all the benefits of real estate and you live for free. Then when 1 year passes, you can move out of the property and do another one of these.
Great Strategy.
10% down vacation home loan
So, this might not work if you’re completely broke, but I’d argue you can find a way to come up with a 10% down for a property if you make a plan and work for the next 90 days.
Yes, I know 10% can be a lot for some people, it was a lot for me when I was first getting started, but I just did everything I could to save any money I made and find extra side hustles.
When you can find a way to save up to 10% on a property, you will be able to use something called a 2nd home loan.
This is where you buy a property in a vacation area and a lender will finance 90% of the property for you.
You just need to explain to them that you will use the property for a portion of the year and that you will rent it out when you are not there.
Pretty straightforward, and a great way to start stacking massive cash flow.
Once you have the property under contract and closed you can finance the furniture on a low-interested deferred APR credit card and then pay it down with cash flow.
4. Partnering
This is a strategy that seems really confusing but once you get the hang of it, there are tons of different possibilities.
My view of Partnerships is that they only work when people from all sides are bringing some value to the situation.
In some cases this will be money, in some cases, it will mean they get a loan in their name, in other cases it means they find the property.
This is a quick chart I made to break down different partners. If you want it, drop a comment below with the word ‘partnership template’ and we will share it with you
Basically, any activity or value someone brings to a property should be quantified and turned into an equity position. This is why we played around with this sheet in a way that made that simple.
So for example, someone can get a loan in their name worth 20% equity and manage the property which can be worth 30% equity, and you can find a deal worth 20% and pay the downpayment for 30% - or vice versa, you can start to play around with different options when you have the sheet and the percentages.
This doc should be the start of a partnership negotiation framework.
Biggest Mistakes People Make When Starting
There are a lot of things I wish I would have known when I was starting down the path of low or no money investing. Here are a few of the biggies.
Not finding a mentor early enough - You can get rich in a lot of different ways, but one of the fastest ways to stay broke is to try to do everything by yourself.
You can find mentors in all different ways but it just matters that you have one - You can find mentors at real estate meetups, you can add value to them by offering to do their social media for free or you can offer to pay them for their time and or buy their programs if they have any. It matters less how but more that you do.
Waiting too long to take action - What I recommend is to set a goal deadline of when you are going to have your first property or you are going to start making offers. Understanding the steps matters so if you are still confused check out this series on sequencing - here
Wrong surroundings - Similar to mentor but a little different. A mentor is 1 person or a few people who are ahead of you and going to help you. Your surroundings are your friends or people you surround yourself with every day.
These are the people who you mastermind with or talk to all the time about progress on things and help each other with challenges. These are not going to be the people living in debt, getting drunk, or partying every weekend.
Until next time, be great, and good luck getting into the real estate game with these strategies!
