Podcast – Episode 027 – How to Invest With No Money
Allen: I don’t know too many people that would not like to have more money, do you? But I do know a lot of people that want a lot more money, and even more people that don’t have much money.
Allen: When it comes to trading and investing, well, if you want to do it, you’ve got to have money, right? Well, kind of. There are ways to get into investing with no money, and that is what this episode is all about.
Allen: About a year ago at a dinner party, a friend of mine said that he had just sold his business, and that he was getting into flipping full-time, you know, house flipping. That’s where you buy a run down house, you fix it up, and then you try to sell it and make a decent profit.
Allen: You know, a lot of people were doing that back in the heyday of the financial mess, and then a lot of people lost money when the real estate market crashed. But since then things have stabilized, house prices have gone up, and so this friend, he’s been … you know, he’s been doing this for a few years now on the side, part-time.
Allen: And every once in a while he would be like, oh yeah, hey, I did this project and, you know, we made so much money, or, you know, oh, I’m not busy. You know, we would ask him hey, you want to hang out this weekend? He’d be like, no, we just bought another house and I’m going to be out there, you know, doing some of the stuff, because he likes to do it himself, some of the stuff, contracting … the carpentry work, and some painting, and this and that.
Allen: So, we knew that was … been doing it, so now he was going to do it full-time, right? The problem was that he didn’t have enough money to do multiple deals at a time. So he had sold his business, but he didn’t get a lot of money for it, and so he wanted to do, you know, three, four, five deals at a time, but, you know, we’re in the Houston area, so each house could be worth … and, you know, you could buy it for anywhere from, like, 150, up to 200, $250,000 dollars, average, and then you got to put money in to fix it up, and then you got to wait several months for all that to happen, and then to sell it and all that.
Allen: So, you know, you need a good, hunky … a good healthy chunk of change, right? To do that properly. And so … He didn’t have the money, so he was wondering what to do. He could do one or two houses at a time, maybe, you know … He’d been working with his relatives and stuff, so they would put up the money and he would do the work. And then he would also put up some money.
Allen: But he wanted to do more, right? Because now this is his full-time income. So I said hey, why don’t we, like, put a bunch of people together, you know, and we’ll give you the money, and you do it for us, and you keep … You know, you could put your money in the group, and you could charge us maybe a set fee, or a percentage of something.
Allen: He really liked that idea, and we talked to some of the other people at the party, and everybody was like yeah, yeah, that’s an awesome idea, let’s do it! Let’s do it! So we decided that we’re going to do it. We’re going to start a company, everybody’s going to put some money in, and then he’s just going to take it and do his thing with it, right? And then we said, you know, we’ll start with a few people, maybe like five or six people, put up some money and then he could do it.
Allen: But then, before we even got started we had this whole Hurricane Harvey thing, and I don’t know if you … what you know about Hurricane Harvey, but it destroyed, like, thousands of houses in the Houston area, literally. You know, everything was flooded, there was water. Roads were impassable for days and days.
Allen: Even me and my family, we had to evacuate our house. We had to go live with a … stay with a friend for, like, three days until the water subsided around our neighborhood and we can actually go back home.
Allen: Crazy thing, but … So now we have all these thousands of houses that are ready for rehabbing and fixing, right? So it would be a great opportunity for somebody like my friend to get out there, find a lot of deals, and make him a lot of money let and right.
Allen: So, you know, I came to him, I said, you know what? Why don’t we get more money, more people in the group, and more money? So, he was ready for it, so we did that, and we reached out to a couple people that I knew, and they wanted to do it. So, in the end we raised about $500,000 dollars, and he went to work.
Allen: You know, that was about … like I said, about a year ago. It was easy to get, you know, the few first people to join because most of them were his friends, and they had known that he was doing this part-time, and, you know, he was making money at it.
Allen: The other people that joined the group joined because I vouched for him. So I went out to people that I knew and said hey, you know, would you be interested in this? I got somebody who’s doing it, put up some money, and he’ll do it, and, you know, we’ll all benefit from it. So that’s how it worked, that’s how we got the people.
Allen: Now it’s been about a year so far and the results have been pretty good. I mean, they’ve been okay. We thought, actually, that we would have done more deals by now, but he is on his third house right now. The first house was already sold. It was bought, fixed, and sold, and the group made about $40,000 dollars on it, profit.
Allen: The second house that he’s done is up for sale right now, it’s on the market. And he just bought the third house, I believe, last week. So he’s doing the rehab on it right now. So, you know, that’s pretty good.
Allen: All told, for everybody, you know, it might … We might end up for the year … If the second house sells we might be up, you know, 15, 20% returns, or maybe, like, 15%. So, not bad for not doing anything.
Allen: But we wanted to create an even larger fund, you know, and do a lot more flips, because, you know, after Hurricane Harvey there’s so much stuff out there, you know, let’s move on this. Let’s get crackin’, right?
Allen: But the problem was that because of the Harvey, everybody and their brother started doing this. They started buying houses. And, you know, I believe there were a lot of cash buyers from other parts of the country, other parts of the world, hedge funds and whatnot, they all swooped into Houston and they started buying houses cash, and that really messed up the pricing.
Allen: So my friend, he could not find enough deals because all the houses were being sold way more than they should have been. You know, if you want to buy it, rehab it, and then sell it for a decent profit … You know, he kept telling me, I’m looking at deals all the time, but they’re too expensive. People … I’m … You know, if he would bid, like, $200,000 dollars on a house, it would actually sell for 230, $240,000 dollars. He’s like, I don’t understand what these people are doing.
Allen: Turns out that these cash buyers from other places are actually just buying these houses and sitting on them, hoping that the market will increase, and then they’ll sell them later on. Who knows how that will work out, but that’s what’s going on.
Allen: And so we couldn’t find enough deals. So that’s what we have right now, we have, you know, friend number one, who has experience, and he has some money, okay? He has … Well, he has some money for himself, but he has money that other people are willing to give him, but he doesn’t have enough deals to use the money. So if he had more deals, we have the people that are willing to give him money, but he can’t find the deals. So that’s his issue, right?
Allen: Then we have … About six months after this happened, after I put the group together, I ran into another friend at an event, and he said that his son wanted to talk to me. So I was like yeah, sure, why not? You know, I knew the kid. I knew him when he was in high school, and good kid. And he had just … He had graduated college, actually, so I hadn’t seen him in several years, but he graduated college, he was … From what I remember, he was working at some corporate job.
Allen: So, he wanted to talk to me, and he tells me that, you know, he quit the corporate job. You know, he was making good money, and he didn’t it for a little bit, but he quit it because it was … he was really being suffocated and he wanted to do his own thing, be his own boss, and that’s cool.
Allen: So he got his real estate license. You know, you have to get a … You have to go to class for, like, a month. I don’t know how long it is, but it’s different, it’s by every state, but you go to a class, you learn all the rules, you take the test and you become a real estate agent. So he did that, then he took classes on real estate investing and wholesaling, and now he was, you know, doing the real estate thing and wholesaling properties.
Allen: So, a wholesaler is kind of like a middle man for the flippers, right? So a wholesaler will find a homeowner that wants to sell their house, and then he’ll find a flipper that wants to do a deal, and then he puts them together.
Allen: And so he can … You know, he’s in the middle, so he’ll make anywhere from, let’s say, 1,000, $10,000 dollars per deal, and he has no real risk or money involved, right? Because all is he doing, he’s going to the guy who wants to sell the house, the homeowner, he’s getting a contract from that guy, and then he’s taking that contract and giving it to the flipper, and he’s saying here, here’s a contract, you can buy this house cheap, just give me, like, two grand, or three grand, or something, and you do the deal, or sometimes even more, 10, 15 grand, it could be.
Allen: It’s just a lot of work, so you don’t … It doesn’t take a lot of experience, it doesn’t take a lot of money, he’s just pounding the pavement, talking a lot of people, and, you know, just running … driving around all over town trying to do that.
Allen: So now we have him who … Let’s call him friend number two, okay? So he tells me he’s been doing this, but now he wants to start flipping himself, but he’s got no money, right? Just out of college, has no money, so he needs a lender, or a partner, with money.
Allen: So I’m like, hm, this is interesting. Here’s a guy, he has access to deals, friend number two, you know, because he’s … obviously, he’s wholesaling, so he has access to deals, but he has no experience or money. And then on the other side we have friend number one, who has experience and money, but he has no deals.
Allen: So I’m like, this is awesome, let me put these guys together. It’s like a match made in heaven, right? Let me put them together. So we had a little meeting, and they got together, everything seemed good. I brokered a deal between the two of them, both sides were happy with it, and I was like, all right, this is going to be great for our little group, you know? We’re going to have a lot of deals, we’ll be able to raise more money, do more stuff, and both sides will be happy, both of them will be happy, they’ll get what they want.
Allen: But then we ran into another problem. So, friend number one started rejecting all of the deals that friend number two sent him, and that caused a problem.
Allen: You know, I mean, friend number one was having a hard time finding deals anyway because he kept rejecting all the ones that he found, now friend number two is sending him deals that are being sold left and right, you know, these deals that he’s bringing are being snatched up by others, but friend number one is saying no, they don’t work for me, the numbers don’t work.
Allen: So eventually friend number two just got frustrated and stopped. He stopped sending him deals. So that’s when I got involved, and I wanted to evaluate the deals, and I wanted to figure out, where is the issue here? Is the problem with friend number one, or is the problem with friend number two’s deals? Is it, you know, the evaluation of the deal or is it the deal itself?
Allen: And to me, they did seem like good deals, and I’ve, in my past, you know, way back when, I was a real estate investor and I have some experience in that, so I know how to evaluate properties. So, I did my … what I know how to do, and I thought they were decent deals. I didn’t think they were that bad, that they should be rejected outright.
Allen: So, you know, I told him hey, you know, I’ll help you out. Let me see what I can do. Let me talk to maybe somebody else. And so I gave friend number two, like, this spark of hope, right? So, I’m personally involved now, right? I’ve spent time and energy into this. I told him I would help him.
Allen: So he kept sending me deals. He kept emailing me, he kept texting me, I mean, all hours of the day and night he kept contacting me and sending me, oh, look at this deal, and look at this deal. And I’m like, man, I don’t want to see all these deals.
Allen: But he kept following up with me, and he kept telling me how awesome they are, and some … not all of them, but some of them. And, you know … and he would rate them and say, oh, this one is really awesome, or this one is a good deal, or this one, you know, super, super awesome.
Allen: Until he got me to bite. So, I mean, he kept doing that. He kept up with me until I just, like, all right, you know what? Let’s just do this.
Allen: I told him that I would do a deal with him myself. So here’s how it worked, we … You know, we negotiated, and we said okay, he is going to do all the work. He’s going to find the deal. He’s going to find me a private money lender.
Allen: And a private money lender is somebody who gives … who lends money to investors to do these kind of deals, but at a much higher rate, a much higher interest rate, because you can’t go to the bank and say hey, I want to buy this run down house over here. The bank’s going to say no, no, no, we’re not going to give you money. But, the private money lender will actually give you money to buy the house, and will actually lend you money to make all the repairs as well.
Allen: So, the point being here that you pay a lot more in interest, and they give you a set number of months. So they might give you six months, or nine months, or a year, and if you don’t sell the house, or refinance the house within that time, then they will just take the house from you, and foreclose on you, and they’ll just take the house. So they won’t come after me, personally, but they’ll take the house and whatever money we’ve put into it, so we lose that.
Allen: So that’s how private money lending works. And maybe this is a little bit more of a real estate education than you bargained for, but stick with me, I’m getting to the point here.
Allen: So that’s what our deal with him was, that I would do … I would put up the money, you know? I told him I would put up X dollars for one deal, and he had to find a deal and a lender that would allow us to buy that house and fix it up with me not putting more money than X dollars. And we needed to have … We needed to make, you know, X dollars on this deal. So we couldn’t just do a deal and make, like, five grand. No, it had to be, you know, a certain … It had to be worth the risk.
Allen: And for doing that, I would get 75% of the profits, and he would get 25% of the profits. Now, for him that’s not a lot. And remember, he’s a realtor, so he’s going to list this property and sell it as a realtor. If he wasn’t a realtor we would have to pay a realtor the commission, right? For selling it. But he is not going to get the commission, he’s only going go get 25% of the profits, if there are any profits. So he’s not even going to get his commission.
Allen: So that’s what I negotiated with him, hopefully I’d make some money and he would get a deal done, under his belt, so that others would agree to work with him, right? Now, if he does a good job, obviously, I want to work with him in the future, and in future deals, you know, I’ll split more than, you know, 25/75, we’ll do a better split for him.
Allen: But the big thing is that other people would be willing to work with him and say hey, look, you know, I did a deal with Allen, you know, I can do a deal with you. He made good money, here’s all the numbers, here’s how it worked out. And, you know, once he has that proof then other people will definitely want to work with him.
Allen: So that was a thing, we went forward, he … So far he’s been doing it, you know, we have bought a house already. He’s in the process of getting it fixed up right now. He’s got contractors there today. He’s got the foundation guy out there today, and it should be done and on the market in about three weeks. So, pretty cool.
Allen: So what’s the lesson here? Why am I telling you all this? Well, you might identify as either friend number one or friend number two, right? Maybe you don’t have money to start trading right now. Well, maybe you’re either one or two.
Allen: Friend number one, remember, has experience, but no money. So what we did is we tapped into friends, and into friends of friends, to put together a pool of money that he could use.
Allen: Friend number two had no experience or money, but what he did was he asked, and he asked, and he asked for people to help him. I mean, I think I was, like, probably number 15. I was probably, like, the 15th person that he had approached to get him started, right?
Allen: And there were several reasons that I did agree to work with him. So, he had put in the time and the effort to get licensed as a realtor. He had taken courses in wholesaling and in flipping, and he was already wholesaling, so he had done deals in wholesaling, right? He had access to the deals, which he was showing me on a regular basis.
Allen: And he was willing to do all the work and make it brain dead simple for me to participate, you know? I mean, he was open, he’s like, Allen, if you want to see the house, you want to come with me to look at the house, come with me. You want to go and be at the house all day long while they’re fixing it? You can do that. You can do whatever you want.
Allen: I’m like no, man, I don’t want to do any of that, you know? You bring me the deal, you find me the lender, you tell me where to sign, who to make the check out to, and that’s it. That’s it, I don’t wan to … If I don’t have to, I don’t even want to see the house. So, that’s what I wanted.
Allen: And he was willing to do all the work for a small percentage of the profits, you know, a small percent. And then he also badgered me until I gave in. So even after all that I was still kind of hesitant, you know? I was like, man, he hasn’t done it before, I don’t want to take this risk. But he badgered me and badgered me until I gave in.
Allen: So I hope that you get what I’m trying to say here, that even with no money, you can still prosper. You can still get started in training, but you have to pay your dues first. You have to either be experience, or you have to show people that you are doing something, that you are taking classes, that you’re learning, you’re spending a lot of time on trading.
Allen: I mean, I was getting emails and texts from friend number two at all hours of the day and night, you know, that showed me that he was committed. He was putting in the time, he was putting in the hours, right? He was putting, like … He was into this all day, all night, that’s … He was committed.
Allen: And then, once you have something that can work, right? Once you have a trade, or once you have some results, then you approach people that can help you, and you ask, and you ask, and you ask. And if your family says no, okay, then you go ask your friends.
Allen: If they say no, then you ask their friends, and you keep asking until somebody eventually says yes, because all you need is that one person to say yes in the beginning. Just that one person that says yes and says, you know what? You have no money, but I trust you, I think you know what you’re doing. You know, you’ve shown me some results that you know how to trade, okay, let’s do it. Let me give you a little bit of money and let’s see how it goes.
Allen: And do not forget to appeal to peoples’ greed. That’s probably the most important thing here, because people are very, very greedy. Work for free in the beginning if you have to, you know, don’t even take a percentage, don’t even take a fee, a cut, nothing. Just say hey, I just want to prove to you that I can do it, you know? I’ll do it for three months, you know?
Allen: You open an account, put $10,000 dollars in it, put $20,000 dollars in it, whatever. Just open a small account, let me do it. You have full access to the account, I’ll just go in, and I’ll trade, and you can watch it every day and see how I’m doing. I’ll do it for free. I just want to show you that I can do … I know what I’m doing. I just want to show you that I can get you results.
Allen: That’s the offer, right? And then you develop your track record, develop your trading resume, if you will, and then show that you can get results. And then, once you do, oh, man, that’s completely life changing. People will be throwing money at you. Literally, they’ll be beginning you to take their money.
Allen: Trust me, more people today have … most people today have no idea how to make money. They don’t. Everybody wants to be rich, nobody knows how to do it. It’s crazy. Even with all the information out there, even with all the advertisements, everything everywhere, oh, we’ll make you rich, we’ll give you rich, people are very skeptical, and they want more money, and they don’t know what to do.
Allen: So if you’re somebody that people know, friends of yours, family of yours, and you can show that hey, look, I can make money, they will beg you to do it for them, okay? Especially if they can just give it to you and you can make it grow. They will beat a path down to your door, because that actually happened to me when I was creating this group for friend number one.
Allen: When I was creating the group, I approached a couple people that I knew. I approached a couple friends, and I told them hey, you know what, we’re doing this group, and this guy’s doing really good, so you want to give him some money and then he can do it for you.
Allen: So, they got in. Both of those people got in, and they told other people. They told their friends, and those people came to see me.
Allen: One couple came to the office, one couple came to the house, because they didn’t know me, they knew my wife, so they called my wife and they said, hey, we would like to come over. And my wife was like, okay, sure, you know?
Allen: The couple that came to the office, like, I didn’t even know why they were coming. They called me up and they were like hey, you know, we’re going to be in town, we’re going to be … Because they live, like, a half on hour away, so they’re like oh, we’re going to be in your part of the … of town, do you mind if we just stop by and talk to you? And I’m like yeah, sure, okay, come on by.
Allen: So they came by and, you know, the chit chat, how’s it going? How’s everything? How’s this and that? Oh, we heard that you were doing this real estate thing, and I was like ah, okay, that’s why you’re here. Okay, fine.
Allen: So, yeah, I explained to them, I told to them, and guess what they had with them? They had their checkbook. They came, checkbook in hand, ready to invest. You know, I didn’t have to do … I didn’t even have any paperwork for them to sign or nothing, you know? They just wrote me a check, and they’re like here, you know, we’re interested. All right, cool, that’s awesome, you know?
Allen: So yes, it can be easy if you have some proof, and sometimes you don’t even need proof. So don’t let not having money stop you. Paper trade, virtual trade, keep records, take courses, talk about trading to people. Show them that you’re into this. Show them that this is your world.
Allen: And when you are ready, ask people to take a chance on you by letting you trade a small amount for them, you know, maybe 10,000, maybe 20,000, and do it for free if you have to, just to prove yourself. And if you do it well, that person that you’re doing it for will not only give you more money to manage, but he will tell other people about you. They can’t help themselves. They’re going to tell others, you know, because they’re going to want to help you. You’re doing it for free, you’re helping him, they’re going to want to help you, they’ll tell other people about it.
Allen: And that is when you start charging a fee, plus a share of the profits, and that is how you can trade with no money. And come to think of it, that’s exactly how Warren Buffett got started. If you look at his history, that’s exactly how he got started, because his mentor, Graham, who was teaching him at Columbia University, was a money manager.
Allen: People had given him money, and then he decided to quit. So all the people that gave Graham money were like, what do we do with our money? So he said, I don’t know, go talk to this kid, you know, go talk to Warren, maybe he’ll manage it for you, so then they all went to him, and he was like okay, I’ll do it. And then those people told their friends, and their friends came and told warren, hey Warren, please, manage our money for us, and that’s how he got started.
Allen: And that’s how you can trade, also, with no money. But remember, whether you have money or whether you don’t have money, remember, always, trade with the odds in your favor.
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