Back in the nineties, self-proclaimed real estate experts were crisscrossing the country to give seminars to unsuspecting investors. They were teaching said investors how they could allegedly get rich in real estate without any money to put down. They were essentially promising people they could make money without spending a dime. But were they telling the truth?
Everything we know about how life works says they were lying through their teeth. Well, guess what? That is exactly what they were doing. There may have been lenders willing to finance 100% of a residential buyer’s primary residence back then, but no lender would finance 100% of an investment property. That still holds true today.
Still Pushing the Scam
Unfortunately, there are hucksters still pushing that same scam today. They change it up a little bit so as to not run afoul of banking laws that went into place after the housing crash, but they are still asserting that it is possible to make big money in real estate without spending your own cash. It’s not any truer today than it was back in the nineties.
The fact is that the money to acquire property has to come from somewhere. You either have to borrow it or bootstrap your acquisition. And if you choose to borrow, good luck finding a lender that won’t require you to put a significant amount down. You’d better get to work right now because it is going to take you a long time to find that kind of lender – if one even exists.
Hard Money Isn’t Free Money
As long as we are on the topic of borrowing to acquire investment property, understand that hard money isn’t free money. Hard money lenders are private lenders with a lot more flexibility than banks and credit. Yet they are not any more likely to finance 100% of a real estate acquisition. Hard money lenders want to see you put some skin in the game.
Actium Partners is a Utah hard money lender that specializes in real estate deals. They explain that most private lenders in the hard money space offer LTVs between 50% and 75%. They expect borrowers to cover the rest out of pocket or find another source of funding. Either way, they almost always insist on being in the first lien position.
Here’s the point: don’t believe anyone who tells you that you can invest in real estate using only money from hard money lenders. It is just not true. Any hard money lender willing offer 100% financing would automatically be suspect of not operating on the up-and-up.
Making Money Requires Spending It
There is a hard and fast rule in the business world that says you have to spend money to make money. That rule holds up in the investing world as well. No matter the investment asset you choose, you have to spend money to obtain that asset. Until you do, there is no way to make money on it.
There are a limited number of exceptions to the rule, like buying stocks on margin, but real estate investments are not among them. Do not fall for the ruse of making big money in real estate without spending a dime of your own. It doesn’t work that way.
On the other hand, you can do quite well if you have enough money to get started with one or two properties. Every property you can build equity with can then fuel the next acquisition. That is how you make money in the real estate game. You invest, build equity, and invest again.
