There are many reasons why people think they can’t invest. The media only focuses on the 1% and how the middle and lower classes are drowning in debt. There are very few reasons keeping you from investing. Some roadblocks are bigger than others, and it may not be easy. They take imagination and sacrifice to pull off, at least in the short-term. The good news is that once you’ve put the hard work in to get off the ground, it gets easier.
Investing with Bad Credit
Having a bad credit score doesn’t mean that you can’t invest in real estate. It will take some creativity and more risk, but if executed correctly, you can invest successfully and raise your credit score at the same time.
- Hard Lenders: With a higher cost of capital, this method is good for those looking for a short-term fixer-upper to renovate and sell it inside of eight months.
- Co-Signer: Using someone else’s credit to purchase real estate. Keep in mind that if the asset fails, the person co-signing the loan will also be negatively impacted.
- Partnership: Different from a co-signer, you may be able to find someone else who is interested in real estate investing and create a partnership.
- REIT: Real Estate Investment Trusts can be invested in using discount brokerages like Etrade, Schwab, or Fidelity.
- Repair Your Credit: It may take longer, but by paying down debt and keeping current on outstanding debts you can raise your credit to take advantage of more financing options.
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Investing with No Money
Of course, it takes money to invest, but many people don’t have $10,000 laying around for a down payment. Obtaining money with these methods may not be ideal, but they will get you off the ground. They are riskier, as with bad credit, but with the right strategy you can be very successful.
- Seller Carryback: In some cases, you may be able to borrow the money from the seller. Just like with a normal mortgage, you make monthly payments until you’ve paid back the principal plus interest.
- Partnership: You may be able to find someone else interested in investing in real estate and partner with them.
- Saving: The tried and true method is to save for the down payment yourself. It may take longer, but you will also be able to gauge how committed you are to achieving your goal of real estate investing.
- Home Equity Loan: If you currently own your home, you may be able to borrow on that equity to purchase an investment property.
- Hard Lenders: Higher cost of capital, but good for those looking to flip a residence in the short-term.
Investing is All About Time
While real estate investing can be time consuming, it doesn’t have to be. You have the freedom to be as active or as passive as you want. There are strategies, like investing in REITs, that require only a few hours per year. You don’t have to give up your day job. In fact, maintaining a full-time job can be beneficial since you won’t have to rely on your initial investments to get off the ground.
Your time horizon is also important. Real estate can make you wealthy quickly, however it’s unlikely. Having a longer time horizon reduces risk by mitigating market volatility, thereby allowing you to avoid down markets and take advantage of up markets.
Adversity Breeds Strength
Roadblocks exist in almost every aspect of life, but there are always solutions. Some of them require more dedication and creativity than others, but the payoff can make all of it worth it. Many of these roadblocks are only temporary, and once you’ve gotten off the ground it gets easier. You’ll have navigated a gauntlet of roadblocks to get started and you’ll have gained valuable experience that will benefit you for the rest of your investing career.
In the next section we will go over the various asset classes within real estate and the variety of strategies you can employ based on your individual situation.