No Money Real Estate Investing
Many people shy away from investing in real estate because they believe it requires large amounts of money, credit and knowledge to get started.
While that may be true for traditional methods of investing, such as buy and hold or flipping, there are other techniques that require little to no money at all.
Knowing what we know today, if we were starting all over again and had no money, credit, knowledge, experience, or investor contacts, we would use the following approach:
- Network with local investors
- Learn basic principles of investing
- Learn about the local market and view a lot of properties
- Talk to real estate professionals
- Refer deals to active investors
- Assign deals to active investors
Why? Because it starts small and builds up knowledge and experience to take you to the next level. But the best part is that it costs almost nothing...
Network with local investors
How do you find these investors? By far the best way is by finding an investment club in your area. Here are some ideas on how to find one...
- Search online - many clubs have websites to promote themselves, offer special member services, etc.
- Talk to real estate professionals - Realtors that specialize in investment properties will likely be well known in the area, and will probably know about local investment clubs
- Look in the newspaper for investors selling properties - offer to take them out for lunch, ask them what they look for in a deal, and if they belong to any investment clubs
When we first started investing, we found a local club that was just beginning by searching online. Today, we are long-standing members of the Ottawa Real Estate Investors Organization, as well as members of its executive team. If you live in Ottawa or the surrounding region, we highly recommend you check out a meeting. Your first time is free!
Once you've found a club, be sure to attend all the events. Talk to experienced investors and learn from them. Find out what they look for in a good deal. You'll be surprised how helpful people can be.
Learn basic principles of investing
Even if you find out what a successful investor considers a good deal, you may struggle if you lack general knowledge of real estate investing.
What's a mortgage? How do I place an offer? Why do I need a property inspection? You need to understand the answers to these questions before you take your first steps.
We recommend using a variety of methods to develop your knowledge, including reading books, learning from other investors, and taking courses or seminars. However, don't think you education is over after doing this for just a few months.
Consider a doctor... Are they ready to perform surgery after they've read a few medical books or bought a home study course from a late night infomercial? Of course not. But that's precisely the thinking that most people have regarding real estate investing. Dedicate yourself to constant learning and you will soon have the knowledge and confidence to invest on your own.
Learn about the local market and view a lot of properties
Start learning about your local real estate market by driving around the neighbourhood, visiting open houses, and talking to people selling their homes privately (called For Sale By Owners or FSBOs). Do this even if you plan to invest in another city.
Why?
It gives you experience in seeing property, dealing with people, identifying good and bad neighbourhoods, analyzing deals, and much more.
We can't emphasize enough the importance of this step! In fact, we feel so strongly about it that we offer live field trips in the Ottawa area.
We get people off the couch and out in the field, talking to realtors and home inspectors, walking through properties, and driving through neighbourhoods. It's how we got started many years ago, and we strongly believe it was the main reason we took action and bought our first deal. It's simply too easy for people to sit at home, read books and courses, and yet not actually DO anything. Do yourself a favour and get out there.
Talk to real estate professionals
This is by far one of the most important steps to ensure your success. If you are a person who doesn't like talking with people or doesn't get along with anybody, then perhaps you should consider another business...
Real estate is a people business, no matter what any of the gurus say. You have to talk to lawyers, accountants, property inspectors, appraisers, bankers, and most importantly, realtors.
Realtors will be your main source of deals. It's their job to know what's going on in the real estate market, and they will hear about properties for sale before they ever hit the market. They won't ever know about ALL the deals (some sellers will never use a realtor to sell their property) but they know about the majority of them, especially for areas in which they specialize. And if they don't know an area, one of their colleagues will. Talk to people, tell them what you're trying to do, and good results will follow.
Refer deals to active investors
The previous steps were just education and preparation. Now it's time to take action and turn that action into income.
First step... You must learn exactly what it is that investors are looking for. "That's easy" you say... "Good deals, right?"
But what exactly is a good deal? You need to know the investor's criteria. And each investor is different. Some people think a property that is 10% below market value is an awesome deal, while others won't even bother looking at it.
You need to talk to investors and dig out the answers. Once you know what they want, you can find it and give it to them. Agree up front how you will be compensated for your efforts. Referral fees are negotiable, but between $500 and $1000 is reasonable if the property meets the investor's criteria.
So what exactly do you do for this fee?
- search newspaper listings for properties
- walk or drive neighbourhoods looking for property for sale
- call sellers to determine if their property is suitable for your investor
- collect the seller's name, address and phone number to give to the investor
You do not have to fill out any forms or present an offer to the seller. You simply connect the investor and the property seller and get paid. Normally, the investor would be doing this themselves, but by leveraging your time and effort, the investor more effectively manages their own time.
You must ensure that you are dealing with honest, ethical, and experienced investors who will actually close on the deals you bring them and pay you. This is very important, otherwise you will be wasting your efforts. And be sure to work with multiple investors just in case one can't close on a deal for whatever reason - you can always offer it to someone else.
Assign deals to active investors
Once you have acquired extensive knowledge of a real estate market, have found active investors, and can find great deals, you can move to the next level by assigning deals.
What is an assignment?
It's basically the transfer of legal rights with respect to a contract, in this case, an offer to purchase property.
Assignments require basic knowledge of real estate contract law because instead of just connecting the property seller and the investor, you are actually placing an offer to purchase the property with the seller.
This obviously carries some level of risk, so it requires you know how to:
- properly fill out an Agreement of Purchase and Sale
- protect yourself with the proper escape clauses, and
- ensure the ability to assign the contract to someone else
In addition, due to short timelines involved, it requires having a ready supply of investor buyers ready for your deals. That means providing them exactly what they are looking for, with terms and conditions acceptable to them.
Why are short timelines involved?
Because most investors will want sufficient time to inspect the property, arrange financing, etc. Since most offers are placed with only 7 to 14 days of time for these types of conditions, the person assigning the deal must find a buyer for the assignment very early in this process. The clock is ticking!
So exactly do you get paid?
You offer to assign (or sell) the contract to an investor for a fee. This fee is determined by you and is usually much higher than a simple referral fee because you have done a lot of the work up front and have actually tied up the property under contract.
How much should you charge? It depends, but generally it should vary based on the amount of profit the investor will make on the deal. If the investor will make $50,000 on the deal, an assignment fee of $5000 would not be unreasonable. However, most investors would not pay $5000 for the chance to make $10,000. The reward doesn't justify the risk.
Assignments are covered in detail in 'Don't Buy Real Estate! (How To Assign Deals)' seminar where we show you exactly how to fill out the paperwork and manage the deal.
Conclusion
When it comes to money, many people are fearful and have a 'scarcity' mentality. They believe there isn't enough to go around, and they should keep whatever they can for themselves.
This same idea permeates their thinking when it comes to real estate deals -- they believe there are a limited number of good deals, and they should do whatever they can to keep a deal for themselves.
This is the wrong attitude! If you always think there isn't enough to go around, there never will be. As Henry Ford said,
If you think you can do a thing or think you can't do a thing, you're right.
Remember what Dr. Dolf de Roos says...
The deal of the decade comes along every week
Besides... what good is a deal $75,000 below market value if you can't close on it yourself and keep the profit? You might as well make some money on it until you can invest on your own.
Keep this in mind the next time you find a great deal and let it slip through your fingers because you didn't have the money, credit or knowledge. By using referral fees and assignments, you can earn while you learn.
This article is copyright © 2004-2010 Spirepoint Properties. All rights reserved.
Paul Blacquiere and Joanne Beehler are full time real estate investors and have been investing in Ottawa, Ontario, Canada since 2002. They are owners of Spirepoint Properties, a Canadian real estate investing company dedicated to making real estate investing easy.
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