If you are entrepreneurial and want to make money in the real estate field, you can do so without using your own money. While ‘no money down real estate investing’ concept may seem unattainable, it can be done with the proper know-how. When you invest in real estate, you are traveling an open road – one that seems, at times, to be free of rules, speed limits, and regulations.
Before giving you some ideas on how to get into real estate investing with no money down, I will try to list advantages and disadvantages of no money down real estate investments.
You Have to Have a Sharp Eye
Although you have to be aware of “advisory” speed limits, these “guidelines” have been established for those investors who cannot afford to lay a sizable amount down for a property. Therefore, to find no-money down deals, you have to have a sharp eye. You also have to understand a little bit about the seller. For example, is he retiring soon. Why does he want to sell the property? What type of property is for sale? All these questions should be asked when you are buying real estate. The answers of those questions will give you an idea, which of the ‘no money down’ options are available to you for that specific case.
Taking the Conventional Route Versus Creative Financing
For instance, suppose a home is valued at $100,000. A conventional investor might pay 40% down, or $40,000, on the property. In turn, he would receive a good return on the cash flow, or the money that remains after the costs are paid. However, you can also take some extra steps and buy the house for $60,000. In this case, you would be in the better position because you would also have acquired equity. Therefore, your potential for profit is greater.
No Money Down Deals Are Not Good Deals if You Don’t Consider the Expenses!
Creative investing then means investing in one-of-a-kind deals and foregoing the traditional methods of financing. When investing with no money down then, you need to practice some conservatism. That means assuming the worst when making a purchase. For example, you have to consider the following possible expenses:
- A possible increase in property taxes
- The property may sit vacant for part of year
- Repairs may be expensive as well as numerous
- The need to evict deadbeat tenants may be a possibility
If you plan for the above costs and only purchase real estate that still proves to be a good deal, you will eventually prevail in seeing good returns.
Switching Cash for Brainstorming Activities
Analyzing a no-money down real estate is important too. Therefore, make use of the real estate calculators and tools that are available online. When you use these tools, you will see that creative financing necessitates a sacrifice. You must possess the capacity to switch the use of cash for creativity. Therefore, you have to be willing to jump through mental hoops and ask for help when you need it.
Taking an Easier Financial Path
If you want the process to go easier then, you need to focus on making money on your job so you can put a sizable amount of money down. In turn, you will receive average or mediocre returns. While there is nothing wrong with this approach, you might be someone who has no choice but to choose the no money-down approach.
Maintain a Financial Cushion
While creativity is definitely a component of no-money down financing, you also have to be realistic in your pursuit. Therefore, maintaining a financial cushion to deal with possible issues is imperative. While you probably don’t need $30,000 in your bank account to purchase a small rental property, you do need to be able to weather the storms in relation to your property’s potential for loss.
For instance, if you need to evict a tenant, you have to be able to manage several months of lost rent, several thousands of dollars in repairs, and over $2,000 in eviction costs. You might also have to perform this activity twice during the year. This possible outlay of cash, as well as other expenses, should be considered when you are investing in real estate.
Make Sure You Have Money On-hand for the Unexpected
The amount of money you need to have on hand then depends on a number of criterion, namely the following:
- The strength of the market you are targeting
- Your ability to efficiently manage a property
- Your ability to repair things yourself, if required
- The length and difficulty of making evictions in your state
- You credit score
- The amount of cash flow a property offers
- The average buying price of the properties you are targeting
- The kind of niche in which you are interested
- The type of strategy you employ
In other words, you need to be conservative when buying no-down real estate. This approach involves finding and purchasing better-than-average deals and having a back-up plan to cover unexpected financial issues.
Saving for Unexpected Expenses
In other words, you need to have money in the bank to cover unanticipated costs or events. If you need to spend six months working part-time at a second job then, you need to start looking for your “moonlighting” assignment now. Maybe you will need to ask your boss for a raise or will need to lower your own expenses in the process.
12 Ways You Can Buy Real Estate with No Money Down
To buy real estate with no money down, you can choose from one of the following methods:
1 – Borrow the Money
The simplest way to buy real estate is to borrow the down payment. You can use a home equity or line-of-credit loan, or borrow from your real estate broker. Arrange to borrow the broker’s commission for a short time and use those funds as a down payment.
2 – Assume an Existing Mortgage
Some purchasers use the seller’s current financing for a portion of the purchase price. Using the seller’s existing financing is a great plan if the current loan features a low rate of interest. The buyer obtains the title to the property in return for making payments on the mortgage. You need to do some research however as some loans include a due-on-sale clause, which prohibits a mortgage assumption.
3 – Lease with an Option to Purchase
You can also rent a property with an option to buy it. Under the terms of the lease/option-to-buy agreement, the purchaser and seller negotiate a sum that is paid at regular intervals. The contract permits the lessor to buy the real estate at a pre-determined price during the lease term. Typically, a portion or all of the lease payments are credited toward the purchase price.
4 – Seller Financing
Another simpler way to obtain real estate with no money down is through the seller. For instance, a seller may opt for higher monthly payments if you cannot afford a down payment. A seller may also pay the down payment to sell the real estate faster.
5 – Negotiation
Remember, the amount of a down payment and who makes the payment is open to negotiation. A purchaser can elect that a seller make the payment, or give credit, during the closing, for the down payment. A purchaser can also request to pay the down payment in installments, whether they consist of a balloon payment at the end of the year or installments each month.
6 – Making a Swap
Anything you may own can be used as a cash substitute in the no-money-down exchange. For instance, if the seller of the real estate is retiring, he may want your unused motor home over a down payment. Autos, boats, furniture, campers, and appliances are all acceptable substitutes for a cash down payment.
7 – Exchanging Skills
A real estate purchaser may also provide skills instead of cash. For example, contractors, plumbers, mechanics, accountants, lawyers, and doctors all possess tradable skills that they can use instead of cash.
8 – Take on a Seller’s Debts
If you locate a seller who needs cash to pay off debts, you may offer to assume the debts instead of making the down payment.
9 – Partner with Someone Else
You can also look for cash buyers to purchase real estate. In return for the other person’s financing, you can offer to take on the task of managing the investment. You may also work out a similar deal, in some cases, with the seller.
10 – Offer Better Terms or a Higher Price
Some owners may accept a higher price for the real estate, even if it is paid in installments, instead of accepting a down payment.
11 – Exchange Real Estate
If you already own real estate, you can always exchange it for other real estate. You can either exchange a property with a buyer or use it, in combination with a small cash outlay, to attain a property you want.
12 – Combine Mortgages
If you already own real estate, you might combine mortgages to give the seller cash at the closing without using any of you own money. You can also suggest that the seller add a second mortgage and keep the cash while you, the purchaser, assumes the loans.
Some sellers are more receptive to no-down-payment deals that others. If a seller has been advertising his property for a while or is advertising his real estate a “must-sell” property, then he may be more open to negotiation.