Real Estate No Money Down

I myself would love that. And on one hand, investors should always try to keep their cash as much as possible.

Remember cash is king!!!

I always like to use other people's money instead of my own, but there comes a point where buying real estate no money down doesn't make sense.

Some people are the complete opposite and hate debt. So they put tons of money down and try to pay their properties off as quickly as possible. There is nothing wrong with that either. I personally believe that to achieve the greatest return on your money and to ultimately build the most wealth you should use debt to your benefit.

Think about this, if you can borrow money for 8% (interest) and get a return of 10% on your investment, then borrowing money makes sense. This is where I have a little problem with purchasing real estate no money down. Sometimes you will have to pay way too much in interest for it to make sense.

However, there are times when it can work to your benefit. Let's explore some ways you can purchase real estate no money down.

Lease to own option- Sometimes a seller will lease the property with option to purchase at some point, usually 1-5 years. You will agree to pay a monthly lease and if you exercise your right to buy a certain portion of what you have been paying will go towards the purchase.

Owner finance- Often you can find an owner willing to carry the note on a property. They like the idea of making money off of interest and it lowers their tax burden by not selling a property all at once. In most cases owners will want something put down but even so it could only be 5% which is much lower than the 20% a bank will want.

Using equity in another property- Let's say you already own a property and have a lot of equity in it or you have a lot of equity in your personal home. You can get a loan or line of credit with the equity. Typically, a bank will loan you the difference between 80% of the appraised value and what you owe. So for example, you owe $100,000 and the appraised value is $150,000. You can get a line of credit for $20,000 (80% of $150,000 minus $100,000). This is a great way to get a property without using any cash.

Using an investor- If you know someone who has some cash and is willing to loan you money, you might be able to borrow the down payment. If the person trusts you and feels like you know what you are doing that is.

Using a construction loan - This is my favorite way to buy property no money down. It is also one of the best kept secrets. You don't hear many of the guru's talk about using construction loans to buy real estate no money down. Before I explain, let me first be totally realistic and honest with you, since the market crash of 2008 this method of buying real estate no money down is difficult. But you need to know it and understand it for when banks do start loosening their grip again. Here's an example of how it works: You find a foreclosure for $70,000 that is worth $100,000 on the market. You come up with a list of things you can do to improve the property. You present the list to your banker and he or she will get an appraiser to appraise the finished product. Let's say it will cost you $5,000 to do the improvements and the house will be worth $110,000 after improvements. The banker will give you a $88,000 construction loan (80% of $110,000). You purchase the property with your construction loan for $70,000. You then make improvements that cost you $5,000. The banker will then have a final appraisal done. As long as the property appraises for 20% more then what you have in it, you will get the property no money down. I have another page dedicated to construction loans.

Hard Money Loan- If you find a property with at least 35% equity in it, you may be able to get a hard money loan. A hard money loan is an asset based loan. In other words, the loan is based upon the property and not the borrower's credit. That's why they require more equity. Go to www.linkfinancial.org if you need a hard money loan.

Here is a danger of buying real estate no money down... Say you have 5 properties that you have purchased with very little cash. Let's say you used home equity lines of credit or borrowed from some individual. Now here's the danger of being in this position- when the market takes a turn for the worse or if you get in a position where you need to sell, you don't have much equity to provide a cushion for you to liquidate.

You see if you own a property that you can reasonably sell for $100,000, but you owe $95,000 then it will be difficult for you to come out without owing additional money. Especially if you hire a broker to sell it for you. With the broker's fees and closing costs, you will probably have to kick in a few thousand dollars.

Now you might be saying "but what's the difference between putting more money in when I sell versus putting more down when I buy?".

That's a good question, but here's the difference. If you are in a position of needing to sell it is more than likely because you are having a financial hardship. If you must kick in more money at closing, that could be difficult for you. The difference would be getting money back at closing that you had already put into the property as a down payment.

The other problem with buying real estate no money down is if you are doing a commercial loan and the market declines and then your loan balloons, you could be faced with a difficult time getting refinanced unless you can put down more cash. However, no money down real estate is fine under two circumstances:

• You are buying it no money down through a construction loan and you will have at least 20% equity in the property.

• It is a great, cash flowing property in a hot area and you know it is a great investment but you are just low on cash at the moment.

If it is a great property and an even greater investment or if you can purchase it with a lot of equity in it, then buying real estate no money down is okay.

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