May 03

7 Ways to Purchase Real Estate with No Money Down

Here are 7 great ways to purchase real estate with no money down:
1. Purchase a Property with No Money Down Using Borrowed Money.
Perhaps the simplest way and the first that comes to mind for any real estate investor is to use borrowed money to purchase a property with no money down. This includes borrowing money from any source, which is especially effective if you manage to find a lender who is willing to lend you the money with no interest rate or with a low-interest rate. These are relationship based and once nurtured, can even allow for borrowing well over purchase price for value add properties.
Borrowed money can be obtained from hard money lender, lines of credit, credit cards, or a home equity loan, each of which has its own advantages and disadvantages. However, the best source for borrowed money would be from someone whom you know personally, like a friend or a family member, as it is easier to come to an agreement with someone you personally know on the terms of the loan that you’re obtaining. Keep these lenders as simple mortgage holders with lien positions, not partners within an LLC. This is how I’ve built my portfolio. We talk partnerships further down the article.
2. Purchase a Property with No Money Down Using a Lease-Option
A lease-option is an aspect that isn’t very common among real estate investors looking to purchase a property with no money down. The lease-option allows you to purchase a property with no money down by leasing the property and paying off its price through the lease payments. The benefit is in the sellers corner though. There are a litany of stories with sellers milking a lease option all the way down to the last months, then refinancing the property and leaving the buyer high and dry. As a buyer you do not control the deed in this situation and thus, is my least favorite approach and is filled with pitfalls. Tread lightly..
3. Purchase a Property with No Money Down by Assuming an Existing Mortgage
The buyer of a real estate property could negotiate a deal with the seller to assume the seller’s existing mortgage and pay it off instead of a down payment. This method can be very successful and advantageous for the buyer, especially if the mortgage has a low-interest rate. Keep in mind, however, that not all loan types can be assumed by someone else. Make sure to research the types of loans and mortgages before using this method to make sure that it is viable.
4. Purchase a Property with No Money Down by Swapping Hard Assets.
It is also possible to come to an agreement with the seller to purchase a property with no money down by offering the seller something in return other than cash. This could be an asset that you own and don’t need and that you believe might be of greater value to the seller of the property.
5. Purchase a Property with No Money Down by Offering a Skill or a Service
If you’re a real estate investor or a homebuyer who also possesses a certain skill that could prove to be useful for the seller, it is possible to negotiate purchasing the property in exchange for providing the seller with a free but very valuable service. If you’re a property manager, for example, it is possible to offer the seller free property management for a time a replacement for the down payment. Or you could also add your own significant improvements to a property to buy good faith in your commitment to the project. For example: by purchasing an end of life property, you could tell the seller that you will give them a low to no down payment but plan on putting on a new roof, windows, kitchen, baths, etc.. that are high ticket items which will give them security knowing that if you default, they get a better product back then it was originally.
6. Purchase a Property with No Money Down by Getting the Seller to Finance the Purchase also known as “Seller Financing.”
This method is especially effective when dealing with a seller who is desperate to sell the property AND who has significant equity or owns the property outright. The less amount of debt they have on the property the better position they are in to offer more financing. This relies heavily on building trust with the seller to ensure that you can and will pay the amount back.
For example, you could secure 75% bank financing and 25% seller financing, meaning you simply have to come to the closing with bank fees. The bank would hold 1st position and the seller would hold 2nd position. I did this recently with a $400k acquisition. Another example is where I bought a stagnant 4 unit for an inflated asking price of $59,900 with only $2000 down and owner financing the rest at 5% for 20years! Read my journal entry “$2000 4-Units, gypsies, guns, and pitbulls” here about that circus:…/2000-4-units…/
I have friends that have had sellers bring significant amount of money to closing just to rid themselves of their property, basically paying someone to take it off their plate.
7. Purchase a Property with No Money Down by Finding a Partner
Partnerships are very common in real estate investing. A real estate investor might not have the necessary funds to purchase a property with no money down, but he/she might possess the skills necessary to manage the investment and make it succeed. In this case, it is possible to find a real estate partner who has sufficient funds to finance the purchase of the property while you manage the different aspects of the investment.
Make sure that the real estate partnership terms are set and agreed upon, and that the allocation of the profits and the responsibilities are fair to all the partners who are involved in the purchase. These are commonly formed in LLCs or through larger syndications.
Bottom Line
It is absolutely possible in real estate to purchase a property with no money down. But just because it is possible, it doesn’t necessarily mean it is a good idea. Make sure that you assess the situation and that your choice of the property is worth the risk that you’re taking. If the property you’re investing in does not generate a positive cash flow or enough profits to cover for its costs and expenses, then you might find yourself in a tough financial situation and struggle to pay your dues.
Disclaimer: Ive modified this article originally from mashvisor

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