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How to Invest With No Money

It's surprising how many people with very little cash to their name think they can get into property and become overnight millionaires.


So if this is you, I have some good and some bad news.


The good news is, yes it is possible.


The bad news (which puts most people off) is, it's actually going to take some graft and some time.


But let's actually focus on the core message here. It IS possible.


The thing we need to remember when it comes to investing is that money makes money. So we need some money to start.


BUT...


Nobody said it has to be our money.


The Two Ingredients Required For Successful Investing


‍Imagine two pots of money: Pot A and Pot B.

Pot A is made up of money we currently have. This could be money we've grafted for, saved over time or even money we've borrowed from somewhere – a bank, family or friends perhaps.


Pot B is where we put any proceeds - money that we make - after investing the money from pot A.


Simply put - if the amount we put into Pot B is greater than anything we take out, then we're in profit. Easy.


However in order to actually make this happen we need two key ingredients.


‍The first ingredient we need is Good Debt.


Good Debt is money borrowed that is invested in Assets. Preferably assets which grow in value over time. This is very different “Bad Debt”, which is money borrowed and then spent on liabilities.


The second ingredient we need is Compounding.


Compounding, or compound interest, is a technique of reinvesting earnings or profits.‍


‍Albert Einstein referred to Compounding as the 8th Wonder of The World and every investor since would agree. Get to grips with both Good Debt and Compounding and you’ll be financially wealthy beyond your means.


Let's run an example...


Mr Plucky might be skint but he's smart. He sets up his two pots - Pot A and Pot B.


He approaches a good friend and borrows £100,000 offering to pay them back a 5% interest every year. His friend is happy about this because up until Mr Plucky approached him, his money was sat in the bank doing nothing other than losing it's value through inflation.


But now the friend is going to earn £5,000 every year having lent it to Mr Plucky.


With £100,000 now in Pot A, Mr Plucky invests this wisely into assets (a Property) for which he achieves a 15% return (£15,000). 15% is a realistic goal when it comes to property.


At the end of the first year, because Mr Plucky is very ethical and does things in the right way, he gives his friend his £5,000 interest, keeping the £10,000 difference.


‍£100,000 x 15% - £5,000 = £10,000 (Original investment) x (return) - (interest on loan) = (earnings)


Remember, Mr Plucky was skint. He started out with nothing and has just made £10,000.


If he wished, he could spend that £10,000 on living expenses, and at the end of year 2 he would make yet another £10,000.


OR, he could put his money into his Pot B, and reinvest these profits.


This takes his capital investment in Year 2 up to £110,000. Assuming he makes his 15% return once again (to keep things simple) he will now get paid out £11,500 at the end of year 2.


£110,000 x 15% - £5,000 = £11,500

(reinvestment) x (return) - (interest on loan) = (earnings)


‍When he comes to review his portfolio at the end of year 2 he now has:


£110,000 + £16,500 - £5,000 = £121,500

(invested assets) + (income from assets over the year) - (interest payment) = (total)


‍Power of Compounding over time


Mr Plucky stays sharp and continues to reinvest. He knows he is earning higher interest on his investments than his cost of debt.


Over time, he starts to see the power of compounding.


‍After 20 years, assuming his debt levels do not change (still £100,000) and he continues to earn a stable 15% a year (unrealistic but let's keep it simple), then Mr Plucky’s total portfolio will be worth £1,288,101.

So, he pays back his friend the original £100,000 and sails off into the wind with a cool £1.1m.


‍Now this is a very simplified example of good debt and portfolio management.


Many financial experts advise people to pay off all their debts as quick as possible, and whilst this is of course never terrible advice, it can pay to utilise debt to your advantage. As long as you know what you are doing.


In our example, Mr Plucky is lucky to have a friend with deep pockets but it could just as well have been another investor or a financial institution like a mortgage company.


Of course, the more debt you have, the more exposed you are to changing interest rates but it can pay to borrow in order to grow in the early days.


That's why having a clear plan and exit strategy is very important to know and understand what stage of your investing career you are at and to know when to start paying down debt levels.


This simplified example proves two things:

  1. Money does make money

  2. You don’t necessarily need your own money to start. You just need a bit of knowledge, .

So can you invest with no money?


As shown, yes you can invest without any money.


With good financial education, a head for maths and the right people around you (to invest in you, to open doors for you and to help you get it right), anyone can.


One brilliant thing about property is that there are so many ways to manipulate the speed of growth by leveraging your portfolio – but that’s a story for another time.


In summary


  1. You don’t need money to start investing, all you need is knowledge and a willingness to take action.

  2. There are people out there who will happily lend you money for a fixed return, my question to you is “have you asked them?”

  3. Good Debt can be your friend.

  4. Compounding is life-changing, you just need to stay in the game for long enough.

  5. You can manipulate the rate of growth with property by leveraging the asset and borrowing more money against the portfolio.

If you'd like to learn more about how you could start or grow your portfolio, come and join us in the Property Entrepreneurs Club where you'll be given everything you need.

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