Updated: Jan 9
Most people think they need to invest money to become a real estate investor. But in reality, there are many creative ways to own real estate. Whether you are a season investor, who either ran out of cash or want to diversify the risk, or if you want to get in the real estate game, but simply have no money to invest – this article will show you how to own real estate as a passive investor without investing cash.
A word of caution – nothing in life is free and there are no quick ways to become rich; if you don’t pay cash, you must bring something else to the table, whether it’s your time, connections or other equity that is tighed up on another deal.
Option #1 - Help a Syndicator Find a Deal (“Sweat Equity”)
If you have free time to dedicate to deal sourcing, then it could be a great way to own a property without paying cash for it. Many syndicators will be willing to give deal seekers equity (a percentage of the general partnership) if they find an off-market deal that will be sold to them. Finding off-market deals requires dedication, good interpersonal relationships with property owners and creativity. You’ll need to network with syndicators and understand their investment criteria pretty well (so you won’t waste your time bringing them deals that they’ll never buy), as well as the equity portion they are willing to give you. Next, as the deal finder, you’ll need to reach out to property owners, find those who are willing to sell and connect then to the syndicator. Finding off-market deals takes time, but it’s a great way to get equity without paying cash.
Option # 2 - Help a Syndicator Raise Capital
I know very few syndicators who don’t need help raising capital; as their investor pipeline increases, so does the size of the deals they can pursue. Helping syndicators provide investors relationship services is the most common way for new investors to get in the game. You reach out to family and friends (or network with investors) and go over the investment in details with them. In exchange for your hard work, you get a portion of the general partnership. Besides getting equity in a real estate deal, you’ll learn the business inside out. Many syndicators will guide you through the process and prepare you to answer any question that the other investors you recruit will. It’s a great way to learn about real estate investing in real time.
Option # 3 – Provide Syndicators Investing-Related Services
Another great way to receive equity is to help syndicators close the deal by providing different services; deal underwriting, legal services, accounting, etc. This is another way of bringing value to investors and receiving equity in return. Even if you are unsure of how you can bring value, simply ask the syndicator “how can I help?”. Keep an open mind and try to be creative, and you will be rewarded for bringing value.
Option # 4 – Signing on a Loan As a KP (Key Principal)
When it comes to commercial real estate, lenders require that the person who signs on the loan have a net worth equal to the loan amount and liquid assets that are enough to cover 12 months of loan payments. Net worth is basically a person’s property owned minus debt. Some syndicators have enough net worth to sign on the loans, but if they don’t –