Buy Real Estate with Zero Down
How do you buy real estate with zero down? Offer a high enough
price and make sure the seller gets some cash at closing (not
yours, of course). Repeat this process enough and someone will
say yes to your offer eventually. But just getting real estate
without spending your own cash isn't all you want to accomplish.
It's also important to have a deal that makes sense.
That part is often glossed over by many who promote zero-down
ways to buy real estate. For example, if you are buying a home
for yourself, who cares if you get in with zero down if you pay
too much or can't afford the payments? And when investing in
real estate, you want something with cash flow or that can be
sold for a profit soon. Now, with those criteria in mind,
here are a few ways to buy real estate without using your own
cash.
Zero Down - Starting with Land
The easiest type of real estate to buy with none of your own
cash is small lots or raw land. It's common for sellers to sell
these properties with a small down payment, which you can borrow,
making these zero-down deals. However, be aware that one of the
reasons they sell this way is to get more for the land. For example,
I once bought a piece of land for cash and resold it in weeks
for 30% more, because many buyers could afford my terms: $250
down and $100 per month. Be sure that you're not paying too much
for the property.
On the other hand, "too much" isn't necessarily
determined by market value. What you will do with the property
is what matters. Suppose, for example, you have no other way
to buy a small lot, and as a result of the easy terms offered
by the seller you pay $13,000 for a lot worth just $10,000. Is
it too much? It isn't if you'll later put a modular on it and
make a $22,000 profit selling the home and land.
Sellers usually want something at closing, even if it's only
$2,000 down on that $13,000 lot. As mentioned above, you can
still make these zero-down deals by borrowing for the down payment.
You can also borrow the whole amount. Suppose in the deal above
you got the lot for $10,000 by paying cash, which you borrowed
on your credit cards. You would own the lot without a lien, so
you might be able to finance 100% of the other costs. Even if
you paid 18% on the cards and it took a year to complete the
deal, the extra interest ($1,800) would still only reduce your
profit to $20,200.
100% Financing
With a good credit score, you might still be able to get a
100% mortgage loan. Although they're getting less common now
(late 2007), I still see them occasionally advertised. Otherwise,
you might find a lender who will loan 90% and still let the seller
finance the other 10% on a second mortgage, again meaning none
of your own cash is needed.
When investing in real estate, you can get 100% financing
from a "hard money" lender. They charge high fees and
high interest, but the idea is that you use them for high-profit
deals that make it worthwhile. You can find other investors to
put up the money for the down payment and repair costs on a fixer
upper project, if you have a deal that makes sense. Pay them
a high interest rate or a share of the profits.
Buy Real Estate from Motivated Sellers
Stick to properties that have highly motivated sellers, and
you can get more creative. A seller might sell his $90,000 house
for only $3,000 down if you offer him $95,000 and a good interest
rate, for example. Borrow the $3,000 - or even a little more
to cover closing costs - to make this a zero-down deal.
Owners have taken cars or other pieces of property as a down
payment on their properties. Some may let you buy with two mortgage
notes, one for 20% and the other for 80%, one of which they'll
immediately sell to get the cash they want. (This technique is
not as complicated as it might sound.) The bottom line is that
to buy real estate with zero down, you have to find a way to
get the seller (and possibly the lender) what he needs - without
using your own money. Get creative!
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