How To Purchase An Investment Property When You Don’t Have The Cash

Real Estate

Canadian Entrepreneur with Global Invest, on a mission to help people invest in real estate to create generational wealth.

When you want to invest in real estate, it is possible to buy a property even if you don’t have the cash. Bank loans are the most recognized method to cover the cost of buying a property, however, these transactions can be complicated to process as banks require that you already have a certain amount of money available, which you may not always have. So how can you buy a property with no money in your pockets? By knowing how to use creative financing techniques, such as the following:

1. Turn to private lenders.

There are several reasons why you might want to turn to a private lender today. For example, you might not have enough cash in your bank account, or you might have an unattractive credit history. Typically, private lenders’ criteria are not as rigid as those of traditional banks. 

• Corporate private lenders: Banks do not like poor credit records. If this is your situation, you may be able to bypass the traditional bank and use other people’s money. Private lenders can be very useful allies when you want to buy a property but do not have the cash or credit score. Additionally, their processing periods are often much faster than that of banks. I experienced this myself when I bought my investment property, for which I borrowed $47,000 from three different lenders to increase my personal contribution to $72,000.

• Personal private lenders: Aside from corporate private lenders, you may have the option of getting a loan from a personal lender. This can be a good friend of yours, a relative or a long-time colleague. In short, anyone you know who might have the cash to complete your purchase. You may even be able to win them over by offering them an attractive interest rate. Extra money is always welcome.

2. Use your credit cards.

Using credit cards may be another good way to buy a property without cash. Having a good credit score when you are a real estate entrepreneur in Canada is very important. Borrowing on my credit cards earned me an extra $25,000 to scale down my payment. However, I recommend that you carefully negotiate the interest rate on your loan to ensure that you can pay it off quickly. 

3. Use “love money.”

“Love money” refers to seed capital from family and friends that can help you start your business. Involving one’s relatives is another form of crowdfunding or participatory financing.

“Love money” enables you to increase your capital with the help of relatives or friends, but it is not free because they will have a share in your investment. Their share should be calculated according to the amount of their investment. In other words, they become shareholders in your property investment. Once the investment becomes profitable, they will also benefit. Love money has many advantages for its generators.

The main advantage of love money is that it creates a close relationship between the entrepreneur and the investors. It enables you to replenish the fund. Also, some will find this avenue to carry less pressure, as you will be working together with those who are close to you. Thus, there is trust between the initiator of the investment project and its investors. This initiative is a good creative financing technique if you are financially limited.

4. Partner up.

Partnering is also a creative way of raising funds to buy a building without money. It is a good way to bridge the monetary gap. Combining your talents with those of others can help you find a solution more quickly. This requires a lot of ingenuity.

• Select the right allies: To establish an effective partnership, you need to surround yourself with people who are as smart and ambitious as you are. They could be real estate brokers, accountants or renovation contractors. Surrounding yourself with these types of people will make you better equipped for your real estate transactions. It is therefore important to work with people who complement you.

• Play your role in the process: Establishing partnerships with all of these people also means you need to get on board. To become a successful real estate entrepreneur, you need to surround yourself with the right people. Keeping good business contacts will help you expand your professional circle. In order to achieve this, attend conferences and networking events. This is the reason why I regularly organize real estate trainings.

5. Tap into your home equity.

Whether you own an existing rental property or not, you have another financing capacity: your net worth. Also called equity, it is the difference between your home’s market value and your mortgage balance. Equity can also allow you to buy a property with no money in hand.

Equity is a creative form of financing that allows the homeowner to finance the purchase at a lower interest rate. Unlike other types of loans, the interest percentages of equity are reduced. As you pay off your mortgage, you build up equity which can be used for a second mortgage. This equity then enables you to obtain a new bank loan in order to finance the purchase of another property to make a profit.

There are several ways to access your equity:

• A home equity loan: This is a loan against the value of your home. You will be able to borrow a sum of money based on the value of your home or rental property. The lender will usually allow you to borrow up to 80% of the value of the mortgaged property. 

• Refinancing your mortgage: To obtain a down payment, it is also possible to refinance your mortgage. Refinancing your mortgage simply means renegotiating your mortgage contract. If you decide to do this, you may have to pay a penalty for breaking your first contract.

Using these strategies, you can get started on the path toward investing in real estate, even with no cash on hand.

The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


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