Zero down? Why would a seller want to walk away from closing
with nothing? Well, they wouldn't, and that brings up the most
important point about real estate investing with no downpayment:
The seller almost always needs cash at closing, but it doesn't
have to be YOUR cash.
A Zero Down Example
I'm selling a small rental property right now, with payments of
$400/month. The buyer has a good credit report, and the $5,000
downpayment covers closing costs and even a foreclosure, if
necessary. So at this point, I don't care where he gets the
downpayment. A $6000 cash advance on a low-interest credit card
for example, would cost him about $135 per month, and give him
enough for the downpayment and his closing costs.
In this case, with rent around $600 per month, he would be okay.
In some cases, however, that extra $135 might cause negative
cash-flow. So be sure that however you do it, the numbers work.
By the way, I would have set the payments at $350, if he had
asked, because it's the price and the interest rate that are
important to me.
Other Zero Downpayment Methods
While there are sellers (like myself) that are able to offer
terms and low downpayments, usually you have to find a way to
get at least 70% of the price to them in cash. Think in terms of
how to get a primary loan, then how to raise the money for the
remainder. A couple examples follow.
Some banks still do "no doc" loans, meaning they don't require
verification of income, source of downpayment, etc. They
generally loan only 70% to 80% of the property value, but if the
seller is willing to take a second mortgage from you for the
other 20% to 30%, you are in with no money down. The seller gets
70% or 80% in cash, plus payments for years to come. You'll have
two payments, of course, so be sure the numbers work.
You can borrow against your home or other property to come up
with downpayment money. If you borrow for a "vacation," and
leave whatever you don't spend in your checking account for a
while, you can use it without violating bankers rules about
borrowing for a downpayment.
Even if you live in a small town, there are usually a few "note
buyers." These are investors that buy land contracts, mortgage
loans and other "notes" at a discount. If a seller takes a
purchase money mortgage from you for $100,000, for example, a
note buyer might pay him $85,000 for it. So how does that help
you or him?
An example: A seller prices his property at $195,000, and
expects to sell it for $180,000. You offer $205,000 in the form
of a mortgage for $160,000, and another for $50,000. You have
arranged for the sale of the first mortgage at closing for
$136,000 to a note buyer. The seller gets that cash now, plus
payments from you on the second loan for $50,000. Notice that
this adds up to $186,000, which is more than he expected to get
out of the deal.
These are just some of the ways you can buy with zero down. Real
estate investing is about making the deal work for all parties.
Find a way to get what you want, and get the seller what he
wants. That is more important than having big cash on hand.
About the author:
Steve Gillman has invested real estate for years. To learn more,
and to see a photo of a beautiful house he and his wife bought
for $17,500, visit http://www.HousesU
nderFiftyThousand.com
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