Zero Down

Real Estate Investing Course - Lesson Three

Zero down? Why would a seller walk away from closing with nothing? They won't, and that brings up the most important point about real estate investing when you don't have money: The seller almost always needs some cash at closing, but it doesn't have to be yours.

An Example

I just sold a small rental property, for $5,000 down, and $400 per month. The buyer had a good credit report, and the $5,000 more than covered my closing costs. I didn't really care where he got the money. A $6000 advance on a low-interest credit card, for example, would cost about $135 per month, and give him enough for the downstroke and his closing costs. Voila! No money of his own.

With the rent around $600 per month, he's 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 overall return that were important to me.

Other Methods

While there are sellers (like myself) that are able to offer terms, usually you have to find a way to raise at least 70% of the price to in cash. Think in terms of how to get that, then how to raise the money for the remainder. A couple examples follow

Some banks do "no doc" loans, which don't require verification of income, source of down payment, etc. They generally loan only 70% to 80% of the property value, but if the seller will take payments on the other 20% to 30%, you are in with none of your own money. The seller gets 70% or 80% in cash, plus payments from you for years to come.

Example:

A house costs $125,000. You borrow $100,000 (80%) from a no-doc lender, with payments of $540 per month. The seller gets the $100,000 at closing, and payments from you for the other $25,000, on which you pay $200 per month. No money down, but you'll have two payments, so be sure you can rent it for enough, or fix it up and sell it.

Use Your Home

Borrow against your home or other property to come up with down payment 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 down payment. Borrow 80% from one source, and use your home to get the other 20%.

Note Buyers

Even if you live in a small town, there are usually a few "note buyers." These are investors that buy land contracts, seller loans and other "notes" at a discount. If a seller takes a promissory note from you for $100,000, for example, a note buyer might pay him $85,000 cash for it. So how does that help you or him?

Example:

A seller wants $195,000, and expects to sell for $180,000, and net $170,000 after a sales commission. He'll save the $10,000 commission by selling to you before he lists the property, but you have no money. What do you do?

Offer $200,000 in the form of one note for $160,000, and another for $40,000. Arrange for the sale of the first at closing for $136,000 to a note buyer. The seller gets that cash now, plus payments from you on the second for $40,000. This adds up to $176,000, even more than he expected to get after paying a sales commission.

Lease Options

Sellers may consider a lease-option. If you're in an area of fast appreciation, and there are things you can do to quickly increase the value of the home, lease it with an option to buy it within two years. Pay higher than normal rent to keep the seller happy, with part of it applying to the purchase price.

Example:

The home could be worth $160,000 with a thousand dollars worth of clean up and repairs. Houses are going up at about 10% annually in the area. The seller wants $145,000, but doesn't really need the money now. He doesn't want the usual rent of $1200 per month, though.

You offer to lease the home for $1500 per month, with an option to buy it for the full price of $145,000 in the next year. The seller saves the sales commission he might otherwise pay, so he likes the idea. In a year, with repairs and inflation, the house is worth $176,000, leaving you a good profit if exercise your option to buy it and then immediately sell it.

These are just 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 a big bank account.

Steve

There is some more information on selling real estate notes on the site. Use this link:
http://www.MakeThatOffer.com/selling-real-estate-notes.html

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