Real Estate… Answered

Popularized by guys like Carleton Sheets and Robert Allen, nothing down is one of the hottest topics in real estate financing. The idea is that you can finance a real estate investment without using any of your own money. You just go to the closing, sign a few papers, and walk away with a real estate investment that will make you thousands of dollars. No wonder nothing down is so popular.

But is it really possible? Technically… yes. If you have a good deal, it’s possible to convince other people to loan you the money for the down payment. You don’t get the property for free; you just find a way to finance the entire purchase, instead of just a portion. Here are some specific strategies you can use to finance real estate with nothing down:

1) Ask the Seller for Owner Financing

The first place you should look for the down payment is, surprisingly, the seller. Put yourself in their shoes. If you were facing foreclosure or some other catastrophic event and you had a buyer to bail you out, would you be willing to provide some financing? Or, let’s say you’re not particularly motivated but you’re going to make a bundle from the sale of your property. Making 8% or so is a lot better than stuffing the money into a CD that will earn you 3% or less.

So, ask them to carry a second mortgage for the down payment amount. Most sellers aren’t aware that they can do this, so you may have to explain the process to them. Any closing attorney or title company should be able to help you create the necessary paperwork. When it’s time to close, you’ll give a first mortgage for 80% to your lender and a second mortgage of 20% to the seller. Your own the property for no money down!

2) Ask Friends and Family to Finance Your Real Estate Investment

Networking experts guess that every adult in America knows at least 500 people. That includes you. Think through your friends, family, schoolmates, teachers, coworkers, and even distant acquaintances. Between all of those people, someone has the cash you need. Who is it?

If you’re having trouble identifying someone, imagine who might know that person you need. Do you have a cousin that interns with a financial planning company? Is your uncle broke but well-connected? Would your pastor know someone in the congregation that could help you? Even if everyone you know is broke, one of them knows someone that can help you.

Once you find them, you’ll have some explaining to do. Show them:

• Why your investment is a smart one and how you’ll make money
• How you’ll keep their money safe
• The amount of money they will make

For more information, check out:

How can I raise private money for my real estate
investments?

3) Borrow from a Hard Money Lender

Warning: I do NOT recommend beginners use this strategy. You need to have a clear understanding of real estate investing and your exit strategy before using a hard money lender.

Hard money lenders are people that specialize in financing real estate investors. Unlike conventional lenders, they base their loans off of the expected sales price, not the purchase price. They’re also much more educated about the local market and what’s a good deal. So, if you’ve found a great deal, you can probably get them to finance the real estate investment at 100% of the purchase price.

The downside is you’ll pay a much higher interest rate (13-25%), plus upfront points. Hard money lenders also usually want their money and profits back in less than a year, giving you less time to fix up the property and sell it. They’re also typically very fast to foreclose on you if you violate any of the terms of your agreement, so proceed with caution before borrowing from one.

4) Partner with Another Investor

Think about this for a moment. You have a great real estate investment but not enough money to take advantage of it. Right now, there are thousands of investors around the country in the opposite situation; they have money but can’t find any good investments. If you can find one of those people, chances are they’ll be thrilled to partner with you.

Of course, it comes at a cost. Unlike friends and family, real estate investors are motivated by profit. You can get the cash from them, but you’ll probably have to give up a piece of your deal. Usually half. You’ll also give up some of your decision-making authority. For example, the investor might have their own ideas about when to sell and for how much.

Working with other real estate investors also has its benefits. You’ll have access to their network and experience. When you run into a roadblock (every project has one), you’ll have another person that is financially motivated to help you get past it. Sometimes that’s priceless. Working with a smart, well-connected partner can make the difference between riches and bankruptcy. Few things are accomplished alone in this world, and that’s especially true for real estate investing.