Zero down? Why would a seller desire to walk off from finishing with nothing? Well, they wouldn’t, and that put forward the most crucial point about real estate investing with no downpayment: The vendor almost always needs money at closing, but it doesn’t have to be YOUR money.
A Zero Down Example
I’m advertising a small rental property right now, with costs of $300/month. The buyer has a high credit report, and the $4,000 downpayment covers closing costs and even a foreclosure, if indispensable. So at this position, I don’t care where he gets the downpayment. A $5000 cash advance on a low-interest credit card, for example, would cost him about $130 per month and give him sufficient for the downpayment and his closing costs.
In this case, with rent around $500 per month, he would be okay. In some cases, however, that extra $130 might cause negative cash flow. So be convinced that however you do it, the numbers work. Parenthetically, I would have set the payments at $300 if he had asked for the reason that it’s the price and the interest rate that are significant to me.
Other Zero Downpayment Methods
While there are vendors (like myself), that can propose terms and low down payments. By and large, you have to find a way to get at least 70% of the price to them in cash. Think about how to get a primary loan, then how to raise the money for the remainder. A couple of examples follow.
Some banks still do “no-doc” loans, meaning they don’t require income verification, source of downpayment, etc. They usually loan only 70% to 80% of the property worth, but if the vendor is keen to take a second mortgage from you for the other 20% to 30%, you are in with no money down. The vendor gets 70% or 80% in cash, plus payments for years to come. You’ll have two fees, of course, so be sure the numbers work.
You can have a loan against your home or other property to come up with downpayment cash. If you obtain a loan for a “vacation” and leave whatsoever, you don’t squander in your checking account for a short time, and you can use it without going against bankers regulations about borrowing for a downpayment.
Even if you reside in a small town, there are generally a few “note buyers.” These are investors that purchase land contracts, mortgage loans and other “notes” at a price cut. If a vendor takes a purchase money mortgage from you for $90,000, for example, a note buyer might pay him $75,000 for it. So how does that be of assistance to you or him?
An instance: A vendor prices his property at $195,000 and expects to sell it for $180,000. You propose $205,000 in the form of a mortgage for $160,000 and another for $50,000. You have arranged for the first mortgage sale at closing for $136,000 to a note buyer. The merchant gets that cash now, plus payments from you on the second loan for $50,000. Note that this adds up to $186,000, which is more than he estimated to get out of the deal.
These are a few 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.