Blog | Personal Finance

6 Ways to Find Investing Money for Beginners

When you’re first starting out as an investor, one of the hardest things to do is figure out where you’re going to get the money to invest! Unfortunately, many people end up quitting before they even start, throwing their hands up in the air and saying, “I can’t afford it!”

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Ready to purchase a rental property but wondering how to find money? Use this expert’s guide.

If 2020 is the year you’ve decided you’re finally going to make your first real estate investment, congratulations! That’s very exciting and I’m so proud of your decision to take an important step toward achieving financial independence. Of course, once you find the right rental property and are ready to take action, you may be left wondering one very important question: Where are you going to find the money to invest? Ahhh yes, how to find money is the million-dollar question!

Change your attitude, find the money

Don’t worry! Figuring out where to find investing money for beginners is one of my specialties. Even for investors with a little experience under their belts, this is still a part of the equation they are trying to figure out how to master. Unfortunately, many people end up quitting before they even start, throwing their hands up in the air and saying, “I can’t afford to invest!”

But as Robert’s rich dad taught him, “Whenever you say the words, ‘I can’t afford it,’ your mind automatically shuts down. That’s because poor families have a mindset of scarcity. Whenever his poor dad wanted something that wasn't part of the budget, he would deny himself that item, saying, "We can't afford that." When Robert wanted a special toy or his mother wanted a new dress, his poor dad would say, you guessed it, "We can't afford that." What a stifling mentality to be surrounded by your whole life!

On the other hand, his rich dad taught him that rich families have a mindset of abundance. Instead of saying they can’t afford something, they ask themselves, “How can I afford it?” They look at the things they want to buy as motivation to help them put their money to work so that they can afford to buy the things they want. Rather than letting their finances defeat them, they look at their finances as a game that they would win. Isn’t it time you start thinking like the rich?

A reality check on finding investing money for beginners

More often than not, the reason people get discouraged when starting to invest is because they think they have to use their own money to do so. Nothing could be further from the truth!

In fact, I’d argue that using your own money to invest can be a sign of low financial intelligence. That’s right, it’s not a very creative solution to the problem, nor is it the most financially savvy option available to you. So, if you’re wondering how to find money, then just do what the investment experts do: use OPM, or Other People’s Money. That’s what you want to be investing with.

Seem too good to be true? It’s not. There are countless people with money ready to invest, just waiting to find a good deal to do so. Your job? To bring them that deal.

How to find money

Most people’s first stop for a loan or additional funds is at a traditional bank. But when the bank turns them down because of their debt-to-income ratio, credit history or lack of collateral, they feel discouraged. But it’s important to realize that banks often don’t loan money for the types of properties or businesses that many investors pursue.

As such, it’s important to find alternative sources of financing. The following are a few suggestions to locate OPM:

  1. Family and friends

    Now that you know that using other people’s money to invest in real estate is a viable path, you may want to approach family or friends and ask them to invest with you. This is often people’s first avenue to get funding outside of traditional banks. The agreement goes a little something like this: You put up the time and effort, and they’ll put up the money.

    If you choose to go down this path, however, let me offer you two words of caution:

    A. Treat your friends and family like investors, not people who love you and want to help you out. Be professional, use agreements, and do your best to give them a stellar return. In fact, before you get too far in your discussions, I’d recommend reading this Entrepreneur article on how to keep family and friends loans strictly business.

    B. Because there are so many emotions involved with family and friends, I don’t always recommend this route. A strong relationship is not worth risking over an investment that may not perform — and, as you can see below, investing money for beginners can come from several other places with fewer personal ramifications.

  2. Seller financing (also called owner financing)

    As with a rental property, the seller acts as the bank. You have a loan agreement with the seller that specifies the amount of the loan, the interest rate you will pay the seller, and the length or term of the loan. There are a number of reasons why a seller might choose this route — maybe they are tired of the work required to operate the property, or perhaps they are looking for a steady return by collecting set interest on their money rather than rely on the fluctuations of rental income. It never hurts to ask if the seller is interested in this arrangement, and then the negotiations begin.

  3. Finance out of cash flow

    For example, you buy a business and you have an agreement with the seller, lender, or investor to pay them back through the cash flow that the business generates. This means you’re essentially borrowing from the cash flow you expect to receive in the future.

  4. Lender financing

    There are many types of lenders available. This is where a mortgage or business broker can be a valuable member of your team. The brokers know what lenders lend for which investments. And best of all, the lender pays the fees of the broker, not you!

  5. Assumable loans

    In real estate, a property may have a loan attached to the property, which means you can “assume” the existing loan — just as if you’d taken out the original loan yourself — with little qualifying effort on your part. You must also assume the existing terms of the loan, which includes the interest rate, the term of the loan, and any other specifics. You’ll likely have lower closing costs as an added bonus.

  6. Other investors

    There are many people with money but no interest, time, or expertise in finding and managing certain investments. If you can prove that your investments will give the investor a good return and your team is set up, they may be willing to invest with you. Let’s say you are buying a property and the bank requires you to put down 25% — you would use private lenders to raise most or all of the equity money needed for that 25%. How do you get them to invest? You’ll need to put together a solid investment prospectus that shows the potential of return for the investors.

Bottom line: There’s always money

It will take some time for you to figure out how to find money in a way that works best for your particular situation, so do some more research on these aforementioned options. But the main point I wanted to deliver today is this: Remove the words, “I can’t afford it” from your vocabulary. There is always money to be had and it doesn’t need to come from your own pocket. As the old saying goes, “Where there’s a will, there’s a way!” Get creative and figure out how to solve the problem in your favor.

Original publish date: July 31, 2014

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