|
The Truth About No Money Down
My goal here is to explain what exactly no money down real estate deals are and why: You as a real estate investor need to make no money down a part of your investing strategy. A big part of why I've been able to buy and sell over $100 million worth of real estate is because of learning how to structure no money down real estate deals, and do creative financing. I'm about to share my techniques with you. Some of these investment methods are common, others are less known. All these tips are useful, whether you're just starting out or you have all your money tied up in other investments. Not every deal can be done with no money down, but having knowledge of these techniques will help you analyze opportunities that come your way so you can identify the deals that can be successfully executed with no upfront money or none of your own funds. If you want to control as many properties as possible, these tips are essential. This page is a checklist for creating new wealth. When I first began investing in real estate I bought a few properties, then quickly ran out of money so if I wanted to continue investing in real estate I had to become very creative and fast. Buying no money down real estate became my goal and only focus until I was able to perfect my skills in no money down property investing. I was one of the many new real estate investors that has become frustrated because after several attempts and offers I was unsuccessful. Yet I kept hearing, meeting, and talking to numerous real estate investors that were successfully buying no money down real estate. Like many people new to real estate investing I was confused when more experienced investors where telling me that buying no money down real estate was something they did every day and that it is possible. In fact I was more than confused... ... I started thinking it was practically impossible to buy real estate with little or none of my own money in the deal because of all the rejection I was facing (this would all change)... After what seemed like years and speaking to hundreds of realtors I succeeded in buying my first no money down property! I paid very close attention to what I said and how people reacted, until I figured out a formula that worked not only once but dozens of times throughout my real estate career. I'm going to summarize the successful formula, and offer 22 strategies for no money down real estate investing. You can download a booklet containing all these techniques below. So What Are No Money Down Well, it's as it sounds. You control or buy a property where you have none of your own money tied up in the deal. Here's the first strategy for no money down real estate investing that I used: OWNER FINANCING It's a typical way to buy a property with no money down. An owner agrees to finance all or some part of the purchase price instead of getting the cash now. You'll be surprised how many people own their properties free and clear, and are willing to finance the entire amount or a good portion of the mortgage. Usually though, you will be getting secondary financing from the owner. That means you will get the majority of the money (the first mortgage) from another source, like a bank. The seller will give you the rest in the form of a second mortgage. There are four types of owner financing that you could ask for: • Type 1: Ask for the principal to be paid at a certain later date. If you notice, I didn't mention monthly payments for interest; only that the principal be paid at a later date. Why pay monthly payments or interest if you don't have to? Who would go for this? Most sellers won't... but some will. You only need one to get yourself a great deal, so ask for this each time. If they do insist on interest or payments, go to the next offer. • Type 2: Principal divided into monthly payments. Again no interest; you're paying off 100% principal. That's a great deal for you! Example: A seller agrees to finance $100,000 over 20 years. 20 years times 12 months per year is 240 payments. $100,000 divided by 240 equates to payments of $417 per month.• Type 3: Ask for interest-only payments, with the principal to be paid off with a "Balloon Payment" (also called "bullet") mortgage in 5 years. • Type 4: If the owner insists on getting principal and interest, then you would structure the deal accordingly. Example: Owner financing, $100,000, 8% interest, amortized over twenty years with a five-year balloon.Your principal and interest payment is amortized over a long period — twenty five years, because the longer you make the amortization period, the lower the monthly principal and interest payments will be. My first no money down real estate deal was also structured by dealing directly with the seller. * Dealing directly with the seller is very important. I figure this was an obstacle keeping me from buying no money down properties since a realtor would not agree to this because they are always concerned about how they get paid their commission if I don’t put any money down. Even if none of your money is paid upfront, the realtor will still get a piece of the pie, it just depends how you structure it. The realtor doesn’t need to worry, but if they don't have any personal experience with no money down real estate investing, they're concerned about being left out. By dealing with the seller, it doesn't mean there is no realtor involved as you will see. Here's a recount of how I secured a no money down real estate deal: A realtor asked me to come by his open house and I asked him how late he was going to be there. He said until 4pm and becuase I wanted to meet the home owner I showed up a few minutes before. As the realtor was showing me around, the home owner came home. We all went to the kitchen and sat at the kitchen table to talk. While the homeowner and I were speaking, I found out that he was selling because he was building a new house and needed to sell this house to get approved for his new construction loan. I also found out that he didn’t really need the money and when he said that, I asked him if he would be interested in earning a higher than average return on his money. As most people will agree, he said yes and that is where I proposed that he lend me his money for the down payment. How To Set Up Owner Financing: In this case, I registered a note and mortgage in his name on the property and I would pay him an interest rate of 8% for three years. We negotiated a few of the terms and within a few weeks I was the proud owner of my fist no money down property and with that I had my formula to buying no money down real estate. As a side note: not sure why, but this realtor never called me to show me another deal although he received both sides of his commission because he was the listing agent and the selling agent. By coincidence I ran into him a few years later so we arranged a time for a coffee to catch up. During our conversation I asked him why he had never called me to show me other deals and he didn’t give me a real answer... I figure he never called me again because I spoke with the seller directly. I asked him if he ever did other no money down property deals and his answer was NO. Sometimes having money can be much more of a hindrance to real estate investing than not having money!!! One of the main reasons for this is having money makes it very easy for you to just go out and buy real estate like I did with my first few deals because I had the money to put down as a deposit. Whereas if you don't have the money you have to go out and do research that you would normally not do. Because I had to get creative to buy no money down real estate, I had to look at a lot of properties and speak with a lot of realtors. Through this process I was forced to learn everything about the market to a point where it became easy to distinguish between a good deal and a bad one to find those properties that are really below market value. In no time at all I was an expert in my market allowing me to realize bigger profits long term. Learning to buy no money down properties and putting down none of your own money is perhaps the greatest skill you can master as a real estate investor. After you’ve learned how to buy no money down properties, money will never again be an issue for you when buying real estate. Let me repeat that - money will never again be an issue for you when buying real estate. How to Find & Negotiate No Money Down Real Estate • If you negotiate a great deal that you are buying and its well below its market value you can use a technique such as wholesaling so that you don’t actually have to buy it but assign your contract to another buyer making money between what you pay and what your buyer pays you. • You can bring in other people as investors and they put up the all the money for the down payment. This is another form of no money down real estate investing. • You can use a line of credit or a low interest credit card or personal loan for the down payment and repairs, so once the property is fixed you can refinance and with the money you get back, repay your loans. This is also a no money down real estate technique as none of your own money is now tied up in the deal. Now you can use this loan and go out and use the same technique all over again. • If you qualify you can get a Zero Down Mortgage from a bank which can be a 100% or $110% lone to value (LTV). • Refinance equity from existing property you already own and use this money for the down payment for your new property. This is also a no money down technique. Basically any method of buying property that doesn’t require you to have your own money tied up in the deal for an extended period of time can be classified as no money down real estate deal. A no money down property deal does not mean there is no money down…it means none of your money was used for the down payment and repairs. I am almost certain you will have a lot of questions come up as you try to do your first not money down property deal so if you need help send me your questions. In the truest sense of the word I believe a No Money Down Property deal is one where I have none of my money in the deal however if I use my money or my credit to buy a property and if in a short period of time I can get all my money back out of the deal by refinancing or bringing in money partners I still consider this No Money Down, because I own a piece of property with none of my money in the deal. If you enjoyed this no money down property article you might want to read some of my other articles, videos and audios. Go to the home page to view them. |
