How to invest in real estate without interest, this is a question that I get asked constantly. Now I understand why that may be a concern for some, especially for religious reasons. There is a very simple answer: invest the way we did back home in the Middle East.
So How Did Investments Work In The Middle East?
In Dubai, people buy real estate with 100% cash. Cash is k
ing in a large part of the world, more specifically in the MENA area. In fact, when I left Dubai in 2013, 80% of all transactions were all cash. If a developer didn’t have all the cash needed then he/she would use a method called “investor pooling” which is basically bringing together several friends or family and pooling their cash togethe
r. This is how real estate works in the Middle East, and is fairly common. However, when looking at the United States, interest is ingrained in the way people do business here, and unfortunately, it is hard to do real estate without it. However, it is still possible.
Investing In Real Estate Without Interest In The United States
I would recommend the same strategy as I mentioned earlier, here in the US. Similar to syndicating but without getting into interest based loans, pull together a bunch of investors, and buy real estate all cash. In my last blog, How Much Money Do I Need To Build Flex Space Real Estate, I talked about how much money you need to invest in flex space real estate. In that blog I discussed two ways to finance your development: self- investment, or syndications. The same concept applies here, but you need to self-invest or syndicate the entire project and avoid getting any loans from the bank.
Now Here Is Where You Can Take Advantage
Since you will be avoiding a mortgage, you can take advantage of the cash flows that will come from your properties. If you invest in a large real estate property, you could even live off of that income. I usually prefer selling my developments once completed, or even earlier, but in this case, I would recommend holding on and using the properties for cash flow.
So What Are The Downfalls Of Investing With This Strategy?
Unfortunately there are a few downsides to investing in real estate without getting a mortgage from the bank and dealing with interest.
- You make less money. Let’s say you have a development that cost 1 million to develop and you sold it for 1.3 million dollars. If you put in 300,000 of your own money and financed 700,000, you made 300K off of 300K. Whereas, if you put in all cash, you only make 300K off of 1 million invested. If you were to take the 1 million and invest it in 3 properties, you would be getting a much larger return on investment. The power of leverage is important.
- There is a large amount of risk involved. When you invest such a large amount of money into a single property, all of your money is at risk. Whereas, if you diversify and have 3-4 properties, if let’s say one property caught fire, you would lose only a portion of your money, not all.
If your interest has peaked, and you’re ready to go to the next level with flex space, check out my mastermind program, Flex Space Untapped.