Buy & Hold With No Money Down?

Question

Is it possible to purchase a rental property with no money down? I have been concentrating mostly on looking for properties that I can either wholesale or fix and flip to bring in some cash first, but finding any of these consistently, or at all, is proving to be difficult.

Most of the properties where I'm looking are being picked up by investors that are doing a quick fix on them instead of a total rehab so they can get them back out on the market as a rental property. I can't compete with what they're paying for them when I'm figuring the MAO where a major rehab is in the equation.

I have plenty of cash to purchase a property to buy & hold, but don't want to tie up the funds if another deal comes along. I had planned to use hard money to acquire properties to flip in order to keep my cash reserves in place, but this strategy wouldn't work for rental properties that I planned to hold on to.

Conventional financing is not an option, either, at this time due to some credit issues from the past. So how do I acquire rental properties to create some cash flow in the mean time while I'm still searching for fix & flips?

Darrell Shepherd · Answer

There are ways to do it, but its creative stuff, which is hard to establish a stable business around.  I'm not a big fan of Sub2 for long term holds, but it can get you started.  I'm also not a fan of L/O's to buy since you have so little control, but you can do sandwich lease options if you thought it made sense.

I did one where the owner bought the house for his son and financed it at 5% I/O, that thing cash flowed pretty well, but I stumbled into it and pitched it because the guy was loaded and had bought the house for his son who was a drug addict and trashed the place and he wanted the headache gone more than the money.  Those situations aren't exactly in the MLS, you just pitch them when you find the right situation.

I would imagine if you sent out a letter campaign to free and clear houses with some motivator (past due taxes for example) you'd find some O/F opportunities.  Maybe even lead in with "Full Appraised price for your house, close at the date of your choice, no agent fees", then have a good transition to financing when you talk to them.  NOT "will you consider owner financing?".  It needs to be "Do you need the entire sum right away?"  "is this money for you or your heirs?"  "do you need this money for living expenses or are you looking to grow it through investments?" type of stuff.  If you have some money that pitch is WAY easier.  "How about if I give you the $10,000 you need now and I'll pay you $xxxx (amount with interest) over the next few years?"

Brian Gibbons · Answer

@Clint Weir

I find if you want to make some money quickly on minor rehabs you can do a joint venture with the seller if the seller does not have the ability to do the repairs before they sell

The wholesaling equation .65 times ARV does not make the seller any money on most cases of minor rehabs

How it works is you find a seller that can't so because of a minor rehab issue with the $10,000 on $100,000 house

In their view  they have $90,000 asset

The public doesn't want to spend money in general on rehabs and re investors don't want to give full value

A technique I have used in the past with success is bringing in a quote from the wholesaling investor at .65 times ARV or 65,000 minus 10,000 equals 55,000 net to seller

Usually that's a crappy offer in the sellers's eyes

I then off for a joint venture with the seller where I buy it and give them a note for let's say 70,000 and then pay the 10,000 with private money, fix the property up, pay 10% or so to sell, and make 10,000 on the JV fee

For mild rehabs only

P.m. me if I can help you

Darrell Shepherd · Answer

There are also some long term hold investor products coming on line.   I dont have them yet, but it appears the Wall St. investors are opening some stuff up since several HM lenders are coming out with something similar at about the same time.  They look to serve a pretty big hole in the market.  Might want to check with a commercial broker too.  If you can establish income in an LLC, it can borrow at about 1% more than residential if you have the money to put down.

Joe Villeneuve · Answer

Yes.

Lease Option Purchase

Land Contract

Use Partners

Use any or all of the above to accumulate cash, then use that cash to go in.

Rob Beland · Answer

You could look for a seller that will take back a first mortgage. Give a small deposit and try for a 30 year amort. with a balloon in 3,5, or 10 years depending on the seller's interest in holding the mortgage long-term or not. You could also research master lease options though that's not something I'm too familiar with. You could look at private financing which will likely be a higher interest rate but higher interest is better than no deal at all I guess. You may want to see about doing a couple flips and put away some more cash for a future investment.

Clint Weir · Answer

@Rob Beland

@Joe Villeneuve

@Brian Gibbons

@Darrell Shepherd

Thanks for the suggestions guys.

Sandwich lease options aren't really an option here in Texas. I know some people have ways of getting around it, but I don't really know enough to keep from getting into trouble and I don't really want to spend $900 to learn how.

Buy & Hold With No Money Down?

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