Invest in Real Estate: 3 Ways to Get the Money

During these current economic conditions, with foreclosures at an all-time high, I'm sure you have heard people say "now is a great time to buy real estate!" The "buy low, sell high"' commentary is driving home the fact that right now, real estate prices are lower than they have been in years. Get in while the getting is good, right? Well, that doesn't change the fact that you might not have the extra scratch laying around to build your empire.

Regardless of the type of investment you’re interested in (foreclosures, tax liens/deeds, options, land or any other opportunity) you still need the start up capital. Don’t fret though, despite your current cash position, there is still real estate investment potential within your reach.

In fact, experienced investors out there know that many investments only require a few thousand dollars, not tens of thousands, to start you in the right direction.

Want to get started but don't have tons of cash to invest? You are not alone in today's economy, but here's a few easy ways to get started building that real estate empire:

1) Visit your local bank

A tried and true lending source, the local bank is not the viable option it once was because of recent economic turmoil. And I do not recommend anyone taking on additional, high-interest debt. According to the late, great Bob Hope "A bank is a place that will lend you money if you can prove that you don't need it." There is a lot of truth to that, but some opportunities make sense to take on the additional burden.

The best way to illustrate the potential for bank issued loans in real estate, is through an example. You have a Tax Lien/Deed investment opportunity for $4,000 with an 18% return that you feel confident about. So you borrow the $4,000 from your bank at 9% (your credit score is good, right?). That means, after a year in a perfect world, you could have potentially earned $360 (not including taxes, fees and other costs). Not a bad return on your investment (check www.bankrate.com to review all loan options), but wouldn’t the full 18% return seems like a better choice?

2) Use money you didn't know you had

Not the change in your couch. Did you know that you can use your IRA or 401(k) (and other self directed investment plans) for certain real estate investments? There are rules set up by the IRS (www.irs.gov) that you have to follow, but you can use that currently lackluster IRA account to invest how you chose. The big banks don't want you to know this - you can access your retirement account funds through what is called a custodian (example www.trustetc.com) to self-direct your investments. And all this time your future retirement has been trapped by Putnam, Putnam or Putnam mutual funds...

Not only does this give you the money you need to make that investment without high interest loans, you can possibly grow your earnings tax-free or tax-differed. That's right - tax-free or tax-differed, depending on what IRA / 401(k) account type you have (Traditional or Roth). Going back to the tax lien/deed investment example above, by not having to pay back a loan to a bank, the full 18% return is yours.

This isn't the stuff that is in the main stream media, so it is new to a lot of people that they can have the power to invest their own retirement accounts into real estate opportunities. So, you will want to do some research, look into custodians, and get started investing for your future (http://en.wikipedia.org/wiki/Self-Directed_IRA).

3) Have friends? See what they can do for you, for once.

Everyone can get by with a little help from their friends. Much like self-directed IRAs / 401(k)s, there is an underutilized investment technique that allows people to form a private bank. What I mean by a private bank is similar to asking your friends for a loan. A group of people can get together and pool self-directed IRA / 401(k) assets to lend money out to good friends like you at an interest rate lower than a bank. Wouldn't you rather avoid the hassle, fees and high interest rates of a big bank and help people you know grow their retirement accounts, possibly, tax-free? Seems like an easy choice to me.

With a bit of research, you can unlock a few guarded wealth building secrets by using your retirement account, or from a pool of retirement accounts, to avoid the high loan costs of banks to get started investing in real estate. Plus, not all real estate investors are into investments that require lots cash, like buying and selling homes, there are opportunities (i.e tax liens/deeds, options, and more) that suit different people's investment ability, knowledge, goals, and most importantly, there wallet.

Disclaimer: Equity Trust is a passive custodian and does not provide tax, legal, or investment advice. It does not endorse or recommend any contributor, company, or specific investments. Any information communicated by Equity Trust Company is for educational purposes only and should not be construed as tax, legal, or investment advice. Whenever making an investment decision, please consult with your legal, tax, and accounting professionals.