Invest in Real Estate: Three Ways to Get the Money

During recent economic conditions, where foreclosures were 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? That doesn't change the fact that you might not have the extra cash lying around to build your empire.

Regardless of the type of investment you are interested in (foreclosures, tax liens/deeds, options, land or any other opportunity) you still need the start up capital. Despite your current cash position, there is still real estate investment potential within your reach.

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

Want to get started but don't have a lot of money to invest? You are not alone in today's economy. Here are a few easy ways to get started building your real estate empire:

1) Visit your local bank

A tried and true lending source, local banks are not the viable option they once were because of recent economic turmoil. Consider whether you should be 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 you don't need it." There is a lot of truth to that, however some opportunities make sense to take on the additional burden.

The following example is the best way to illustrate the potential for bank issued loans in real estate. You have a Tax Lien/Deed investment opportunity for $4,000 with an 18% return. You could borrow the $4,000 from your bank at 9%, which means, after a year, you could have potentially earned $360 (not including taxes, fees and other costs). Not a bad return on your investment but doesn’t the full 18% return seem like a better choice?

2) Use money you didn't know you had

Did you know that you can use your IRA or 401(k) (and other self directed investment plans) for certain real estate investments? The IRS has rules that you must follow, but you can use your IRA account to invest how you choose. Big banks and investment firms don't want you to know, but you can access your retirement funds with a self-directed retirement account.

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-deferred. Depending on what type of IRA / 401(k) account you have (Traditional or Roth). Compared to the tax lien/deed investment example above, by not having to pay back a loan to a bank, the full 18% return could be yours.

The concept of investing by using your retirement funds is new to many.  At Equity Trust, we advise you to do your due diligence when researching custodians and investment options.

3) Have friends?

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. A private bank is similar to asking your friends for a loan. By using a self-directed IRA/401(k) you can team together with other self-directed IRA account owners to lend money.   Wouldn't you rather avoid the hassle, fees and high interest rates of big banks and help people you know grow their retirement accounts, possibly tax-free?

With a bit of research, you can unlock a few guarded wealth building secrets by using your retirement account, to avoid the high loan costs of banks to get started investing in real estate. Plus, there are real estate investments that don’t require a lot of money there are opportunities (i.e tax liens/deeds, options, and more) that suit different people's investment ability, knowledge, goals, and most importantly, their wallet.