10 WAYS TO BUY AN INVESTMENT PROPERTY WITH NO MONEY DOWN

[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.

[Aaron Mazzrillo]

Originally posted by @Trevor Rutherford:

@Aaron Mazzrillo what private lender will lend on such terms and won't give the, "you have to have skin in the game." Comment?  And will they lend on commercial property. 

 A private lender that trusts you and knows your word is more valuable than a bit of cash. Cash can always be replaced. A reputation can be ruined with just one simple screw up. 

I bought a house last month for $201K and one of my private lenders lent me $200K. He knows he'll get paid. My reputation with my lenders is my skin in the game.

[Cole McKeon]

I was wondering how to structure a partnership with an investor if you are an agent and will be receiving a commission on the property you are partnering up on. Lets say you are partnering on a $500,000 property and the investor is putting $100,000 down and you as an agent receive a $17,500 commission. You brought the deal and in return agreed to split 50/50 any profit. Would you put the $17,500 toward the property and if so how then would the split work? Would you only pay the investor back $82,500 then split profits equally from there (assuming 50/50 was agreed upon) ?

[Brandon Jones]

@Nicole A. How did you come up with the numbers? I understand what you are speaking of bc of my background in finance but am new to trying to invest. 

Thank you for your time!

[Sitaram Koppaka]

@Nicole,  I know it is an old post but wanted to check that your calculations also depends on the amount of down payment.  $100/mo may work out for say 20/25K but if we are looking at upwards of 50K, it may not really work that out. Thoughts??

[Jaclyn P.]

@Nicole A. I am thinking about borrowing the down payment from someone as well. How did you structure it exactly? Did you have a bank account under your LLC name, and then the individual deposited the money there, and also their $100/month was deposited into the same account to give back to them?

[Jaclyn P.]

@Aaron Mazzrillo when you say borrow 60% from a private lender, do you mean 60% of the ARV?

[Nicole A.]

@Sitaram Koppaka Honestly, that was one of my first deals, and I kinda came up with the $100 monthly payment arbitrarily. I picked that number of $100/month because it didn't hurt my cash flow but it still sounded appealing to the person lending me money.

@Jaclyn P. Yes, my LLC does have bank accounts. It must have those to be able to properly operate. If it did not have its own bank accounts, then the money would be coming from my personal bank accounts, and that would be commingling funds. Doing that basically voids all benefits of having a LLC.

The person lending my LLC the money wrote a check to my LLC. Each month, my LLC sent $100 to him, which he deposited into his own personal bank account. The deal was structured as follows:

My LLC offered him $100 per month for 3 years (if I'm remembering the length of time right...it's been a while now). At the end of those 3 years, my LLC owed him the original $20,000 back. This was basically an interest-only loan. The $100 each month paid to him was just interest. It was *not* reducing the principle amount of $20,000. There was no penalty for my LLC to decide to pay the $20K back before the end of the loan term. I think before that 6 months, there was some small fee to pay (to make it worth his while). That's basically all there was to it. I did show him the numbers of my deal, of course. I showed him the projected rental income, PITI, repairs, vacancy, PM fees, capex, etc. That then showed how I arrived at my projected cash flow per month. This was a person I know who had a bunch of cash on hand and wanted to make better interest off of it than it was currently doing (which was just sitting in a savings account). Hope this helps!

[Jacqueline Pelzer]

@Nicole A. did you own any of the properties prior to setting up your LLC?

I own a unit free and clear under my name. I did it using some creative financing. I used 75% cash from a retirement account and the seller financed the remaining 25%. I was wondering how to move it into an LLC.

Currently I am in a lease option unit. I negotiated to purchase it after renting it for 3 years with an additional amount paid to put toward the purchase price. At the end of the 3 years I will obtain a traditional mortgage with the needed down payment. So it's kinda a spin on the BRRR I think.

After that who knows. 

[Nicole A.]

@Jacqueline Pelzer I set up my LLC first and then began acquiring properties. From what I understand, it can be tough to do that because many banks might not want to work with a LLC, especially a new one, but your best bet is to talk to several small banks. That's how I got my foot in the door. I talked to about 4 or 5 small banks in person before finding one that was truly ready to work with my new LLC. I opened my LLC's bank accounts there too. But, do be ready to personally guarantee any bank loans so that if the LLC stops paying, the bank still has some recourse with you personally. Now, since it sounds like you do not have any traditional mortgages on your property, you wouldn't have to worry about things like due on sale clauses. You would basically reach out to a title company or real estate attorney to look into what steps to take to transfer a property from yourself to your LLC. There will be fees involved in that, which they should be able to give you a ballpark figure. You can find out that info first and see if you want to move forward, and if so, then go on to actually form your LLC.

[Jacqueline Pelzer]

@Nicole A. Thank you for the tips. I’ll do some more homework. 

[Aaron Mazzrillo]

Originally posted by @Jaclyn P.:

@Aaron Mazzrillo when you say borrow 60% from a private lender, do you mean 60% of the ARV?

 Yes.

[Shiloh Lundahl]

@Cole McKeon  my partner is a realtor and he often gets commissions when we buy properties. He puts those commissions back into the property and then we split the profits. I have done two deals with another realtor who took commissions on the front end and was planning on taking commissions on the backend when buying and selling the properties. I lost money on those two properties that he managed the rehab on. I learned never to do deals like that again. 

[Shiloh Lundahl]

I structure a lot of my deals like @Nicole A. mentioned.  But instead of borrowing money from the bank upfront, we use hard money loans to purchase the property quickly with cash. That gives me a better advantage when buying the property. 

Depending on the ARV, we have a few hard money lenders that will put up 100% of the financing to purchase the property because of our relationship with them and our track record. Then we partner with a new investor who wants to learn how to flip properties for a profit or who wants to learn how to do a lease option model and they come in with the rehab money. We give them 10% APR on their money while it is invested. They get to learn about the process and they earn interest on the money while they learn. Then, after the property is fully rehabbed, we get a bank loan for 75% of the ARV and we pay off the hard money lender and the private money lender. In many cases, we have no money into the properties after the refinance yet we still cash flow. This usually works better with properties under the $150,000 mark.

[Matthew McNeil]

@Nicole A. I think your $100/month x 36 months on a $20k loan (with the principal payable in full at 3 years) is both simple and brilliant!!

What an ingenious way to access money for a downpayment without needing to share equity using a JV or partner. I plan to buy my 5th SFH rental investment. I have the required $50k downpayment in the bank, but I'd much rather pay $30k myself and supplement the $20k balance, which leaves me with $20k in the bank to fund another house. I have enough cashflow from my other properties to prove my ability to pay off his $20k in full at 3 years.

[Jay Hinrichs]

Originally posted by @Matthew McNeil:

@Nicole A. I think your $100/month x 36 months on a $20k loan (with the principal payable in full at 3 years) is both simple and brilliant!!

What an ingenious way to access money for a downpayment without needing to share equity using a JV or partner. I plan to buy my 5th SFH rental investment. I have the required $50k downpayment in the bank, but I'd much rather pay $30k myself and supplement the $20k balance, which leaves me with $20k in the bank to fund another house. I have enough cashflow from my other properties to prove my ability to pay off his $20k in full at 3 years.

that would be usury in Oregon.. careful to check Oregon law before you launch into this one.. loans under 50k are highly regulated has to do with loan sharking..  

[Matthew McNeil]

@Jay Hinrichs:  "Usury?" Gosh, that word reminds me of an old testament biblical reference.  Interesting!  Had no idea how the law would apply to something like that.  The evolution of learning about this business.  I'll tuck that one in my cap.  Thanks for the heads up.

[Matthew McNeil]

@Jay Hinrichs:  Additional reply to your previous comment regarding usury.  

Usury Laws by State link;  

http://www.loanback.com/category/usury-laws-by-sta...

Thanks again for the advice. 

[Nicole A.]

Originally posted by @Jay Hinrichs:

Originally posted by @Matthew McNeil:

@Nicole A. I think your $100/month x 36 months on a $20k loan (with the principal payable in full at 3 years) is both simple and brilliant!!

What an ingenious way to access money for a downpayment without needing to share equity using a JV or partner. I plan to buy my 5th SFH rental investment. I have the required $50k downpayment in the bank, but I'd much rather pay $30k myself and supplement the $20k balance, which leaves me with $20k in the bank to fund another house. I have enough cashflow from my other properties to prove my ability to pay off his $20k in full at 3 years.

that would be usury in Oregon.. careful to check Oregon law before you launch into this one.. loans under 50k are highly regulated has to do with loan sharking..  

 To clarify, my loan wasn't regulated in the traditional sense because I simply loaned from a friend/business partner. This was not the same as loaning from an official lender or lending company. It was just a deal that I put together.

And my bank didn't require vested funds for the downpayment. They didn't seem to care when or where it came from. This was for my LLC back in 2012 or so.

[Jay Hinrichs]

Originally posted by @Nicole A.:

Originally posted by @Jay Hinrichs:

Originally posted by @Matthew McNeil:

@Nicole A. I think your $100/month x 36 months on a $20k loan (with the principal payable in full at 3 years) is both simple and brilliant!!

What an ingenious way to access money for a downpayment without needing to share equity using a JV or partner. I plan to buy my 5th SFH rental investment. I have the required $50k downpayment in the bank, but I'd much rather pay $30k myself and supplement the $20k balance, which leaves me with $20k in the bank to fund another house. I have enough cashflow from my other properties to prove my ability to pay off his $20k in full at 3 years.

that would be usury in Oregon.. careful to check Oregon law before you launch into this one.. loans under 50k are highly regulated has to do with loan sharking..  

 To clarify, my loan wasn't regulated in the traditional sense because I simply loaned from a friend/business partner. This was not the same as loaning from an official lender or lending company. It was just a deal that I put together.

And my bank didn't require vested funds for the downpayment. They didn't seem to care when or where it came from. This was for my LLC back in 2012 or so.

 I was not insinuating that your loan was illegal... I was just letting the other person know who is an Oregon resident.. that any loan of any kind regulated or not under 50k there is statuary rules and one of them is Usury and you cannot charge that high of interest.. even if its not couched as interest a regulator will look at any payment above principal as interest..   all states have different rules.. that's what makes BP a fun place.. what works for one maybe totally illegal in another state..  

[Cynthia Jordan]

As it relates to item #9.  So who does the equity belong to in this scenario?  "During this time, you should have enough equity to qualify for a standard bank loan."  I'm still thinking the seller still holds title.

[Bo Kim]

Originally posted by @Dale Osborn:

Here are some more compilations:

Deal Structures:
1. Delay the down payment.
2. Wholesale the deal
3. Pre-sell the property to a retail buyer
4. Joint Venture with the Seller.
5. Use a Hybrid Equity Split to make more on every deal.
6. Use Hard Money.
7. Use Private Money.
8. Use graduated payments to protect cash flow in the early years.
9. Use graduated prices to get a longer term.
10. Use a reverse credit for Seller to carry negative cash flow.
11. Turn the Seller into your Bank.
12. Combine subject to and Owner Carry financing.
13. Zero interest – zero payments loan.
14. If have to make payments – pay pure principal.
15. Call the payment a thank-you payment not an interest payment.
16. Let the interest accrue.
17. Ask for interest only payments.
18. Roll up monthly into quarterly, semi-annual or annual payments.
19. Pre-negotiate an extension or renewal of the loan.
20. Offer to cross collateralize.
21. Ask for seller subordination – pay Seller with borrowed money.

Nothing Down Techniques:
1. Seller as a Partner: Partners is a very last resort!
a. Raise the price – lower the terms.
b. Using talents (sweat equity), not money.
2. Realtor as a Partner: Raise the commission, reduce the cash.
3. Creditor as a Partner: Assume the Seller’s Obligations.
4. Renter as a Partner:
a. Use the rents and deposits.
b. Lease/Option:
5. Hard Money Lenders as a Partner: At all costs.
6. Mortgage Holder as a Partner: Discount yourself rich.
7. Property as a Partner: Split yourself rich using hidden assets.
8. Private Individual Partner: Pool their strengths with yours.
9. Buyers as a Partner: Flip yourself rich.

1. Have Realtor take commission over time.
2. Assume Seller’s obligations.
3. Prepaid rent as part of down payment.
4. Satisfaction of Seller’s needs.
5. First, Second, Third, Fourth, etc loans = All Paper.
6. Balloon down pmnt = some now, some x 6 mos, & Bal in 12 mos.
7. Use your talents – not your cash.
8. High monthly down payment.
9. Raise the sale price, but lower the terms.
0. Split the property. Sell part.
1. Defer the down payment with no mortgage payments.

 Thanks

[Takeshia Martin]

@Dale Osborn@John Stevenson thanks for the tips.

[Vincent Ludegna]

Total newb here, just trying to gain some knowledge. Looking forward to everyones feedback! 

How can I execute the BRRRR strategy with no money or very little money down? I know this has been asked plenty of times, but I was hoping someone could help clarify some solid strategies. At first a standard FHA loan or a FHA 203K loan seemed plausible/ideal but from what I've researched neither of these are allowed for an investment property; nor do I want to live on the property for a year.

Would a hard money loan or partnership be my next best strategy?

[Henry M.]

I have used all of OP's list (or a variation of them), except #4 & #10 (in the future I will)... Even some that most investors have not done or used (to my knowledge).

[Albert Brown]

This is evergreen content. Is this on a webpage of its own?