When I got my start in the real estate investing game, it seemed very hard to learn any actual way to buy properties without any money out of my pocket. To say the least, I was discouraged. To save some of our newer members the same frustration, here are 5 tried and true "no money down" real estate investing methods.
The Owner Finance
Quite simply put, this is what happens when the owner owns the property free and clear and extends credit to you in the form of a note and mortgage. If you negotiate the owner finance correctly, you can get into the property with no money down. What's more, if you're really sharp in your negotiations, you can get a pretty nice interest rate as well. The downside of this method is that most owners simply won't do it. There are those who will, but they are a tiny minority among motivated sellers, and even a smaller minority among sellers in general. If you can negotiate an owner finance, good for you! If not, maybe one of these other methods will work better for you.
The "Blanket" Mortgage
The blanket mortgage is one of my least favorite methods, for one simple reason: benefit. The seller gets the tax benefits while the investor pays down the mortgage. In a blanket mortgage deal, you (the investor) makes payments to the property owner which exactly match the owner's mortgage/insurance payments. The owner then pays his mortgage & insurance in kind, getting all the benefits of ownership without paying in a dime. Another pitfall of this method is the possibility of a dishonest seller taking an investor's money for 3-4 months until the bank forecloses, then filing bankruptcy, thereby keeping the house and the investor's money and leaving the bank and the investor in a lurch. You can use this method, but be very careful!
The Partner / Backer
This method can be very lucrative for you and for your partner/backer. Simply, you find someone who wants to invest their cash into your deal, while you invest your time, knowledge, negotiating skills and other efforts. You can split the profit any way you like, and none of the money for a deal comes from you!
The Assumption
Some day people will write songs praising assumable real estate loans. Until then, let me give you a short background on them. An assumable loan is a loan anyone may assume as long as they meet the lender's qualifications for credit score, employment history, etc. Once upon a time the FHA and VA both offered assumable loans with NO qualifying. All you had to do to assume one of these loans was fill out a form and send the agency around $50. There are still some FHA/VA assumable loans out there, but not many. On December 1, 1986, the FHA stopped allowing non-qualifying assumptions and on February 29, 1988, the VA did the same. If you can find an FHA or VA loan issued before these dates, chances are it is still fully assumable without qualifying.
The Lease/Option
My favorite method of property acquisition, the lease/option is both wickedly simple and highly profitable - a combination most investors truly love. In a lease/option, you enter into what is basically a normal lease agreement. The only difference is in the option. An option is just what it sounds like - it's an option to buy a property at an agreed-upon price within a certain span of time. When you put them together, you end up with a rent-to-own scenario. You pay rent each month, the seller credits a certain amount of the rent toward your purchase price. If you decide to buy the property within the option period, you just give the seller a check and get the deed. If you decide not to buy the property, you've still controlled the property for that period of time. Controlling is sometimes better than owning. If you control the property, you don't pay the property taxes. You also don't pay homeowner's insurance. You don't pay renter's insurance, either - your tenant/buyer does. You collect a check once a month, send the seller his share and keep the difference. And each time you put a new tenant/buyer into your property, you collect another option consideration (which is similar to a down payment but usually smaller and 100% non-refundable). The benefits of lease/options are various and sundry, but for this article, suffice it to say it's a great way to acquire/manage real estate.
Keep in mind that this list is by no means all inclusive. There are literally hundreds of ways to buy or control real estate with none of your own money. These methods should get your creative juices flowing and help you to come up with others on your own.
Source: http://www.articlestree.com/The Owner Finance
Quite simply put, this is what happens when the owner owns the property free and clear and extends credit to you in the form of a note and mortgage. If you negotiate the owner finance correctly, you can get into the property with no money down. What's more, if you're really sharp in your negotiations, you can get a pretty nice interest rate as well. The downside of this method is that most owners simply won't do it. There are those who will, but they are a tiny minority among motivated sellers, and even a smaller minority among sellers in general. If you can negotiate an owner finance, good for you! If not, maybe one of these other methods will work better for you.
The "Blanket" Mortgage
The blanket mortgage is one of my least favorite methods, for one simple reason: benefit. The seller gets the tax benefits while the investor pays down the mortgage. In a blanket mortgage deal, you (the investor) makes payments to the property owner which exactly match the owner's mortgage/insurance payments. The owner then pays his mortgage & insurance in kind, getting all the benefits of ownership without paying in a dime. Another pitfall of this method is the possibility of a dishonest seller taking an investor's money for 3-4 months until the bank forecloses, then filing bankruptcy, thereby keeping the house and the investor's money and leaving the bank and the investor in a lurch. You can use this method, but be very careful!
The Partner / Backer
This method can be very lucrative for you and for your partner/backer. Simply, you find someone who wants to invest their cash into your deal, while you invest your time, knowledge, negotiating skills and other efforts. You can split the profit any way you like, and none of the money for a deal comes from you!
The Assumption
Some day people will write songs praising assumable real estate loans. Until then, let me give you a short background on them. An assumable loan is a loan anyone may assume as long as they meet the lender's qualifications for credit score, employment history, etc. Once upon a time the FHA and VA both offered assumable loans with NO qualifying. All you had to do to assume one of these loans was fill out a form and send the agency around $50. There are still some FHA/VA assumable loans out there, but not many. On December 1, 1986, the FHA stopped allowing non-qualifying assumptions and on February 29, 1988, the VA did the same. If you can find an FHA or VA loan issued before these dates, chances are it is still fully assumable without qualifying.
The Lease/Option
My favorite method of property acquisition, the lease/option is both wickedly simple and highly profitable - a combination most investors truly love. In a lease/option, you enter into what is basically a normal lease agreement. The only difference is in the option. An option is just what it sounds like - it's an option to buy a property at an agreed-upon price within a certain span of time. When you put them together, you end up with a rent-to-own scenario. You pay rent each month, the seller credits a certain amount of the rent toward your purchase price. If you decide to buy the property within the option period, you just give the seller a check and get the deed. If you decide not to buy the property, you've still controlled the property for that period of time. Controlling is sometimes better than owning. If you control the property, you don't pay the property taxes. You also don't pay homeowner's insurance. You don't pay renter's insurance, either - your tenant/buyer does. You collect a check once a month, send the seller his share and keep the difference. And each time you put a new tenant/buyer into your property, you collect another option consideration (which is similar to a down payment but usually smaller and 100% non-refundable). The benefits of lease/options are various and sundry, but for this article, suffice it to say it's a great way to acquire/manage real estate.
Keep in mind that this list is by no means all inclusive. There are literally hundreds of ways to buy or control real estate with none of your own money. These methods should get your creative juices flowing and help you to come up with others on your own.
Autor: David Jaymes.
