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10 WAYS TO BUY AN INVESTMENT PROPERTY WITH NO MONEY DOWN
Many people would like to invest in real estate but either they do not have enough money for a down payment or they do not want to lock their cash into a property purchase. It is possible to buy property with no money down.
1. Roll the down payment into the purchase price. Depending on your credit rating and lending history, some lenders will allow you to finance 100% of the purchase price. This will cause the interest rate and your payments to much higher than if you put money down. But, if you intend to sell the property quickly, it shouldn’t have much of an effect on your profit margin.
2. Negotiate a separate installment plan for the down payment. Negotiate a separate installment plan for the down payment. Sometimes the seller will allow you to pay the down payment on a monthly basis.
3. Trade something other than cash. This could include land, a car, a boat, jewelry or valuable collectibles. Find out what they want and need. Maybe you have, or can get, just what they are looking for. You could also trade services such as carpentry, auto mechanics, painting, dental work and other services that you can do for the seller over time.
4. Trade houses with the seller. Many professional investors acquire homes with no money down by trading one property for another. In some cases, they trade one large property for several smaller rentals. Property trading is also a legal way to avoid the capital gains associated with selling a property.
5. Get the seller to transfer their mortgage to you. This is a common occurrence in foreclosures where the homeowner is eager to sell and is willing to work with the buyer. You can do the deal as an assignment of contract and efficiently close the sale.
6. Apply for a loan assistance program. Talk to your bank, many lending institutions offer programs that allow buyers to put little to no money down on real estate purchases.
7. Find an investment partner. Look for an investment partner who will put up some or all of the cash in an equity-sharing partnership. You make the monthly payments and the two of you split the eventual resale profits.
8. Find a property to rent-to-own or lease with an option to buy. If you have a lease-option for 5 years, at the end of that time, you will need to purchase the house and can get a bank loan then. Meanwhile, you can use the time to fix your credit and/or save for a down payment. Some contracts may put some or all of the rental amount towards the down payment.
9. Get owner financing or a land contract. Another option is to have the seller act as the bank. You make your payments, including interest, directly to the seller. Then after usually 3 to 5 years you make a lump sum payment to the seller. During this time, you should have enough equity to qualify for a standard bank loan.
10. Use a home equity line of credit from another property. If you have equity in another property, you could use that equity as a down payment on purchasing another investment property.
My primary residence is paid off so I'm considering taking a mortgage on it to use as the down for an investment property in another state. I've not done this before so I'm not sure how it's looked upon by the lender. Would you expect terms (i.e. interest rate, points, etc) to be higher than if I were using it for improvements to the property I'm borrowing against? Does the lender care that it's going to an investment? Also would the lender for the new property have a problem with the source of the down?
Here is a list of ways to raise odds of seller getting property to find a buyer:
What would seller to do to move property?
1. Discount and Buy Back
2. Lease Back
3. Lend Back
4. JV forfeiting cash flow
5. Partition the cash flow and provide high rate of return
6. Give “soft” option to purchase
7. JV and provide a safety first position
8. Take a low interest carry back note
9. Make a geographical move(relocate)
10. Take back a “soft”land lease
11. Take on reverse cash flow
12. Use financial strength
13. Accept personal property
14. Move the debt
15. Sell below appraisal
16. Add cash (amount)
17. Provide management
18. Take a risk
19. Take property anywhere
20. Client will remain responsible on the existing debt
21. Client will guarantee the NOI
22. Client will “Take” a problem property for equity. Identify what kind of “problem”
23. Client will guarantee cost of renovation or completion of project
24. Client will offset mortgage payments
25. Client will add services
26. Client will accept unsecured note
27. Client will obtain entitlement for the property
28. Client will mitigate wetlands or other environmental
restraints on the property
29. Client will pay all closing costs
30. Other
Jason - That is an awesome list!
Even though Jason said: "Take property anywhere" I would specifically add "Accept a recreational lot as a down payment". Everybody has a recreational lot somewhere!"
This list opens my eyes to other opportunities to purchase my first multifamily. Thanks
Thanks for sharing these ideas! I have heard of some of these ideas but it doesn't hurt to hear of them again.
Originally posted by @John Stevenson:
Many people would like to invest in real estate but either they do not have enough money for a down payment or they do not want to lock their cash into a property purchase. It is possible to buy property with no money down.
1. Roll the down payment into the purchase price. Depending on your credit rating and lending history, some lenders will allow you to finance 100% of the purchase price. This will cause the interest rate and your payments to much higher than if you put money down. But, if you intend to sell the property quickly, it shouldn’t have much of an effect on your profit margin.
2. Negotiate a separate installment plan for the down payment. Negotiate a separate installment plan for the down payment. Sometimes the seller will allow you to pay the down payment on a monthly basis.
3. Trade something other than cash. This could include land, a car, a boat, jewelry or valuable collectibles. Find out what they want and need. Maybe you have, or can get, just what they are looking for. You could also trade services such as carpentry, auto mechanics, painting, dental work and other services that you can do for the seller over time.
4. Trade houses with the seller. Many professional investors acquire homes with no money down by trading one property for another. In some cases, they trade one large property for several smaller rentals. Property trading is also a legal way to avoid the capital gains associated with selling a property.
5. Get the seller to transfer their mortgage to you. This is a common occurrence in foreclosures where the homeowner is eager to sell and is willing to work with the buyer. You can do the deal as an assignment of contract and efficiently close the sale.
6. Apply for a loan assistance program. Talk to your bank, many lending institutions offer programs that allow buyers to put little to no money down on real estate purchases.
7. Find an investment partner. Look for an investment partner who will put up some or all of the cash in an equity-sharing partnership. You make the monthly payments and the two of you split the eventual resale profits.
8. Find a property to rent-to-own or lease with an option to buy. If you have a lease-option for 5 years, at the end of that time, you will need to purchase the house and can get a bank loan then. Meanwhile, you can use the time to fix your credit and/or save for a down payment. Some contracts may put some or all of the rental amount towards the down payment.
9. Get owner financing or a land contract. Another option is to have the seller act as the bank. You make your payments, including interest, directly to the seller. Then after usually 3 to 5 years you make a lump sum payment to the seller. During this time, you should have enough equity to qualify for a standard bank loan.
10. Use a home equity line of credit from another property. If you have equity in another property, you could use that equity as a down payment on purchasing another investment property.
What about Airbnb properties? Especially the arbitrage model.
@Ryan Deasy I'd love to connect with that hard money lender
@Aaron Mazzrillo
Great idea. Do you have an actual example of one you done with numbers?
using a personal loan to invest in the rust belt areas
Thanks for sharing guys!
The first house we bought we had the seller take back a second mortgage on the 15% downpayment. Used a personal loan from the local bank to fund our rehab. Refinanced a year later and paid both of them off.
We are currently looking at a property to flip. Its a vacant home with the mortgage wrapped up into the current owners new home (didn't want to get rid of it originally for sentimental reasons). We are working with our local bank to split out the mortgage (purchase price) and then assume it (local bank allows mortgage assumptions). We will then ask the bank for a construction loan to fund the rehab based on the ARV.
Both of these cost very little money down.
Thanks a lot for all the information!
Hi John,
I would love to hear more about your ideas on non conventional lending. I recently moved to Fort Myers, Fl and am looking to get into a commercial property (4 units or larger) and I am exploring all lending options right now to find the one which would be a good fit!
I would like to be able to make the deal without outside investors, however, non-traditional financing (from what I have found so far) often comes with higher interest rates and terms which, in the event of some catastrophic event, would have the property over leveraged.
Would love to hear more of your ideas!
Which bank is this?
The easiest way for veterans to get in with no money down is with the VA loan. True, only active duty service members and veterans can use this option, but not many do! Get started by buying a small multifamily or even house hacking a single family home!
Great way to get your foot in the door!
Cheers!
John Paul Williams, Realtor/Investor
Clarksville, TN. -"A growing city where appreciation meets cash flow"
Great advice 👌
Has anyone done a deal with #5 "Getting the seller to transfer their mortgage to you?" If so, what kind of deal is the owner expecting to get out of it? Transfer their mortgage, and some cash to level it out?
@Ryan B. How did you search this local bank out? What were the questions you asked? What did you bring to show your qualifications? Was this for investment rental or owner occ?
Here is a list to buy a property with no money down...
Be careful to take the time and see the risks involved in buying a property with no money down.
Essentially, you're taking ownership of a property for zero money, there must be a catch to it. And there is, it's the contingency with potential consequences if you're not repaying it on time or as much as required.
I've seen a few clients get properties with no money down, never looked back and they lost their pants.
Just establish a clear plan with a thorough risk analysis when going ahead with this. If done well, your business can skyrocket.
@Aaron Klein I agree with you, having a clear plan of action with THOROUGH RISK ANALYSIS is critical!
I was just able to purchase my first duplex with little to no money down. Its a fixed rate a 5.25% amortized over 30 years. It's a "loan assistance" program where the loan provider will bring a 5% down payment to the table on my behalf, with the stipulation that if I sell or refinance the loan within the first 7 years that I have to repay this 5% down payment to them. However, I don't see this as a big issue because it is near downtown Cincinnati and I don't plan on selling anytime soon. I am also going to be living in the property as a house hack to reduce my monthly expenses! I have the money to deploy for the 5% down payment in the bank, but I would prefer to hold onto my cash for the time being so I can have it available to start up my Wholesaling business as soon as possible.
The only check I wrote during the deal is the $1000 earnest deposit when we signed the purchase agreement (which I got back) and then a few hundred bucks for an inspection since this is my first deal and I want to verify the condition of the home. I've done my homework, set my criteria, and connected with an agent that kicks butt, so we were able to find a "unicorn" in my market (found a duplex under $200K in a market where you see generally high 2s and low 3s) which helps hedge my bet. We also negotiated that the seller professionally clean the house as well as paint all interior walls. Not a bad bonus!
This first deal has gotten me some hungry to continue learning and developing myself and my business and I look forward to continuing to post and connecting with the Bigger Pockets community!
@Chase Clemens can you share the loan program you are using? Is it a national program, or a local community bank?
I am feeling a bit like there is a chicken vs egg situation here, with regards to approaching community banks for structuring creative no money deals. Do you:
1. Find a deal and bring it to the local bank, then talk about financing creatively, or;
2. Do you approach local banks with a plan of what you want to accomplish and establish the relationship prior to bringing them a deal?
Logic tells me option 2 is more desirable, but what steps do folks take to show credibility to the bank as a relatively new investor? I have my first deal under my belt (a househacked SFH that I have since moved out of), but am not sure how much credibility this will build when speaking with banks on the topic of more creative financing.
Thank you, @John Stevenson for starting this conversation. There is a lot of talk on this subject on BP. For a newbie, it is difficult to find out what is really possible, and what is possible only in certain situations for certain people. Thanks, @Trevon Peracca for the question. It was mine, too.
Certainly, a very interesting list.
