Every “green behind the ears” real estate investor in America dreams of fat investing portfolios, bank accounts swelling with cash, and having the time to devote to family, civic activities, or to simply sit and watch the clouds pass by.
For most real estate investors, they give up on the dream and go back to their day jobs – and put their dreams on a shelf – not because of a lack of knowledge or self-limiting negative thoughts. For most, it’s a lack of money. Let me rephrase that: It’s a perceived lack of money.
Because so many wannabe real estate investors have been conditioned to believe that the only way of acquiring real estate is to pay cash for their real estate or to utilize traditional bank financing, they run into a brick wall of doubt and negativity that stops their real estate investing career from even getting off the ground.
The reason? Investors overlook creative investing strategies and no money down real estate investing.
It’s too bad, too, because for example there’s a little-known real estate niche market – Abandoned Property Owners- that not only has an abundance of motivated sellers who are anxious to unload their properties, but are willing to do so on a no money down basis. And many of these sellers are willing to participate in financing their properties just to sell/get rid of them.
No Money Down Real Estate Investing Strategies
Here are a few strategies you can implement today that will allow you to dive into the real estate investing pool on a no money down basis – or a none of your money down basis.
Owner Financing Strategies
Owner financing is generally understood to be any real estate transaction that is funded by the owner who accepts payments over a period of time as payment for a property. This is not a brand-new method of funding real estate transactions. It has been around for many, many years. Here are just a few of them:
Lease options – The lease option deal is an extremely lucrative and very popular way of funding a real estate transaction because very little cash – if any – is required to get started. While you don’t actually take ownership when you sign a lease-option agreement, this financing strategy gives you control over the property. Just as ball control is critical to your success in the games of basketball and football, control of real estate is imperative if you’re going to make money.
With a lease option agreement, when the agreement is signed you agree to pay a specific price for a property and you are given a pre-determined length of time in which to follow through with a purchase or walk away from the agreement. During the lease option period, you are required to make monthly lease payments (as you would from a standard rental agreement).
While you are paying the seller each month, you may not be the one actually making the lease payments, because once you have control over the property, you can sub-lease the property to another party that will actually be responsible for making the monthly payments.
In order for a lease option agreement to be valid, the seller must receive option consideration –which is simply a legal term for “something of monetary value”. It could be as little as $100 or even an IOU. Keep in mind, if you walk away from the deal without exercising your option to purchase the property, you will lose your option money. Would you risk $100 in order to control a property? I would – any day of the week.
Contracts for Deed – A popular way of financing a property, this method is particularly effective when the seller wants to retain title of the property until a certain milestone has been reached, or it has been completely paid for. You simply convince the seller to sell the property to you using this creative financing strategy.
Sometimes called a land contract, you make monthly rental payments for the term of the contract. The seller is able to unload their property, and in many cases, you can acquire it for no money down (or very little money down).
Subject To Deals – Real estate investors sometimes discover highly motivated sellers of abandoned and/or distressed real estate who still owe the bank money for their property. These owners are – in many cases – between a rock and a hard place, because they have no equity that they can tap for a home equity loan, market prices are lower then their loan balance or their credit isn’t good enough to allow them to gain refinance loan approval.
This is where you come in. You agree to purchase the property “subject to” the existing financing. For instance, pretend that you locate a property worth $125,000 that has an existing loan on it with a balance owing of $105,000. While the owner actually has $20,000 in equity, there are several factors that make it impossible for him to get a loan: his credit stinks, he has lost his job, or the property needs some repairs in order to bring it into a sellable condition.
He’s willing to sell the property to you for what he owes, but he’s one mortgage payment behind and he has no cash. Without your help, the bank will foreclose, his credit will be damaged, and he’ll be forced to move. Since he’s going to have to move anyway, he agrees to sell the property to you for what he owes the bank. You make the payments, the seller exits stage left, and you have control over a property that you can resell for a good return (or can be held as a long-term rental).
Other Peoples Money Financing
There are other ways you can purchase the property as well. For instance, pretend for a moment that you have a seller willing to sell a property to you using owner financing, but the seller has determined that he must have $5,000 in order to take care of moving expenses.
This would ordinarily be a deal breaker, wouldn’t it, if you didn’t have $5,000 sitting in the bank? By locating private money – another party willing to lend you $5,000, you will have the cash you need to get into the property.
While not technically a “no money down” deal, it is a “none of your money down” deal. The way you handle repayment of the down payment money depends upon the source of the funds. Some investors will want to lend you money for a short period of time – for instance three to six months. If you know that you can re-sell the property for much more than you have agreed to pay for it, you can pay the source of your down payment a very attractive rate of return on their money – and still get a highly profitable property in the bargain.
How you choose to fund no money down deals is your business. There are literally dozens of ways you can do it. And you can almost always locate a source of down payment funding that will easily satisfy your need for down payment money, even though none of the cash is yours.
These sources of cash – other people’s money (OPM) – is an ideal investment tool that will enable you to grow your real estate investing portfolio quickly and efficiently. Your level of investing expertise right now may leave something to be desired, but there is good news.
