You see it bookstores, read about it in newspapers and magazines and hear about it on late night TV. But many people are still begging the question, “Is no money down real estate investing really possible?” The short answer to this question is, “Yes”. I've done it. But to understand how this is done, you must first have the proper mindset. Regardless of how much cash you may have, if you think like an investor without any money, then you'll be forced to either admit defeat or be creative. And if you choose the latter route, you'll almost always be able to find a way to buy properties without any of your own money.
Now notice that I said, “without any of your own money.” The term “no money down real estate investing” can be a little misleading. It's really better stated in saying “none of your own money down” – but someone's money is still likely going to be involved in most cases. Interestingly enough, I actually have new investors frequently come to me who are fortunate enough to have a large nest egg which they can use to get started in the business. Many people have approached me and said, “I have $100,000 in the bank. How should I invest it?”
I always advise them to put their money aside and learn how to do deals without money. Money can kill your creativity, and creativity is essential in this business in my opinion. Even $100,000 doesn't go very far when buying homes, and if you always rely upon the cash that you have, you will often find yourself without any cash and unable to do more deals until you sell something. So even if you have access to some of your own money, my advice is to first cultivate your ability to do deals without use of your own money. Not only will this help keep you creative, but it allows the cash you do have to act as a safety net, making you even stronger. Never underestimate the value of a BBC (Big Bag of Cash).
Now lets go back to my earlier statement that “no money down real estate investing” should really be better phrased as none of YOUR money. Their bears further explanation. Here's a quick list of a few ways to invest in real estate with none of your own money:
Use OPM (Other People's Money)
I'm referring to such things as a hard money lender or private lender to purchase and rehab a property. Make sure you're getting a good enough deal so that your lender can safely loan you enough money to cover your purchase price, closing costs, holding costs and rehab costs. I do it all the time. Then you can either refinance or just sell. None of your money was ever used.
Use Owner Financing
Many individual sellers will be open to this scenario – especially if you're offering it on the short term and they can make a little more money because of it. (I will often pay a little more for a house if owner financing is involved because of what I save in closing costs.)
Purchase “Subject To” Existing Loans
Many people will get into arguments with on this one about the “due on sale” clause. I won't go into that here – that's another article (or an entire course) entirely. But suffice it to say that it's another variation of owner financing, and can be a powerful way to get into a deal with no money down.
There Are Other Ways – These Are Just A Few Of Them
Make Sure You Have All Bases Covered
Keep in mind that even though it may not be coming out of your own pocket, you must have a source for the working capital needed to hold and possibly renovate a property. This source can be your own bank account if it must, but if you want your deal to truly be “no money down real estate investing,” consider finding someone else (a friend or colleague) who is willing to make an investment in you and fund these holding costs. This can be much easier than you may think, trust me. Whichever you choose, you should be sure of your source for working capital before you buy an investment property.
Is No Money Down Investing Ethical?
Can you invest in real estate with no money down and keep your ethics intact? The answer to this question is a 100%, absolute, unequivocal “yes!” Many people find this difficult to believe because they feel that we are taking advantage of someone when we buy homes really cheap. In fact I struggled with this issue myself when I first started, especially when it came to offering less than what a seller was asking. If they were asking $80,000, then offering $60,000 made me feel uneasy. But after getting a few of these offers accepted I realized that I wasn't such the bad guy after all. The sellers were just happy to have someone willing to buy the home, and I was solving their problem in a big way.
Another example involves a woman who sold me two homes which had appraised for $100,000 (combined) for $29,000. She was crying when she sold them to me because – not because she was so upset, but because she was so happy that I had taken these “house problems” off of her hands. I realized at that moment exactly what a motivated seller was, and what kind of valuable role I had to provide them. I was truly providing a desperately needed service.
Am I A Home Stealer?
As a result of my experience, I have but one comment to make with regard to the sentiment that we are somehow stealing houses. IF THE SELLER COULD GET MORE MONEY OR A BETTER DEAL FROM SOMEONE ELSE, THEN THEY WOULD TAKE IT! Get over it! The reason the seller is willing to sell you their home really cheap is because no one else is willing to buy it or give them more for it. Most of the properties that I buy really cheap are from banks or government agencies. Do you think they don't know what they're doing? Wouldn't they get more for their homes if they could? Would you feel bad if a bank sold you their home for 50% of fair market value?
If so, relax! It's all part of the business of finance and real estate. You are going to get paid for knowing how to buy and flip houses. You will be helping not only the sellers by buying their “problem properties” (something which few are qualified or willing to do), but you will help other investors by providing them with a profitable opportunity, the local community by doing something productive with an otherwise vacant home, and eventually a family by providing them with a nice place to live. So all things considered, I would submit that not only is no money down real estate investing possible and ethical, but when properly practiced, it provides the community at large with a number of benefits and a much needed service.