If you are slipping further and further into debt each month and you think real estate investing is going to save you, I have bad news for you. It won’t. Let me tell you first hand that if those testimonials on late night t.v. for no money down courses are even real, those people are the exception, not the rule. That’s the bad news – the good news is that there are lower risk ways to buy real estate and you don’t have to have money to do it.
From too many bad experiences doing no money down deals, I’ve come to the conclusion that beginner real estate investors should avoid 100% financing on property purchases. They are very risky and while there are people who’ve gotten very rich doing them, there are probably more that lose a lot of money. That’s what happened to me. And, no money deals still cost money! It just means you don’t have to spend money on a down payment.
In my view, there are only 3 ways you should consider coming up with a down payment to get started real estate investing, but the good news is that only one of them requires that you to use your own money:
1. Your own savings (cash out stocks, GIC’s, and even retirement savings in some cases)
2. Equity in your home
3. A partner with cash.
Notice credit cards and lines of credit are not on that list?! DO NOT USE YOUR CREDIT CARD TO FINANCE YOUR REAL ESTATE INVESTMENTS!! Just the other day my wife Julie reminded me of one of the first things we did at a “Get Rich Quick” real estate course we took many years ago. During our break the real estate guru told us to call our credit card company and get our credit card limit raised and a percentage knocked off the interest rate!
The room was buzzing with excitement after the break. Everyone proudly told stories of getting credit of $5,000, $10,000 and even $20,000 added to the limits on their cards! And some even excitedly reported that they now would only be paying 18% interest instead of 21%.
What if something goes wrong with your investment and you end up paying that 18% interest on that $20,000 for years to come? Do you want me to do the math on that?
So, if you’re a renter and don’t have any home equity and you don’t have any savings, the only option left on our list to get started is finding a partner. Finding a partner will be next to impossible if your own finances are ugly. If you have no experience investing in real estate, you are deep in debt and you are trying to get rich on someone else’s money, what exactly is in it for them, as your potential partner? It just sounds risky to me.
If you were to approach me with an investment opportunity and you said “Dave, I have found this property that I think is a great investment. I don’t have any money because when I graduated from University two years ago, I had $30,000 in student loans. I only have $5,000 left to pay off, but I really want to get started real estate investing and I think this deal will be great,” I, personally, would be more interested in working with you.
See what I am saying? This person has no money, but they have the right mindset about money. They are in debt for a good reason AND have been diligent about debt repayment.
So, if you want to become a real estate investor, but your up to your ears in debt and have a negative net worth, get focused on fixing your money mess at the same time as you start learning about real estate. By the time you have a better grip on your money, you can be educated and ready to make your first purchase too!