No Money Down Real Estate Investing
By Charles Hopkins
Published 04/21/2006 | Real Estate
You want to get into real estate - either for your personal use or for investment purposes - but you just don't have the cash to get started? What are you going to do?
There is at least one technique that virtually anyone can use as long as the property seller is willing to negotiate with you. To be fair, not every seller will be interested (or even understand) the concept outlined. Your best bet is to find a property that the owner has great interest in selling, whether because of moving, divorce or frustration with tenants.
In fact, if you are currently renting and thinking about using this technique perhaps your landlord would be happy to help you out!
HOW TO BUY WITH NO MONEY DOWN
There are a few variations that can be used depending on you and your seller. Do they want the market price or are they just eager to get out from the monthly payments - perhaps facing foreclosure?
The simplest method is to take over their mortgage payments - called 'assuming' the mortgage. You will need to be approved by the original lender to assume the mortgage. If you cannot get approved for an assumable mortgage you may also try a 'subject to' assumption where you merely make payments while the property remains in the seller's name.
WHAT IF THEY WANT A HIGHER PRICE?
You take over the original mortgage AND create a second mortgage on the remaining cost of the house with the seller. Offer a high, interest-only payment for a short period of time - 2 or 3 years. Instead of having the money sit in a bank they can be collecting a high interest over 2 or 3 years with the remainder due in full at the end of the term.
When the term ends you should be able to refinance the cost, or you can sell. Unless you hit a real bad market the value of the property should have risen in that time.
WHAT IF THERE'S NO MORTGAGE TO ASSUME?
Easy. Most mortgage lenders merely want to make a good investment. While your local bank may still shy away there are plenty of financial lenders that would love to make a deal.
Financiers like real estate. The mortgage is usually based on 60-70% of the VALUE of the property, so as long as they know they get their money back in the value of the property if you default, they don't care what kind of money you make. Complete the deal with a second mortgage created with the seller. If you default they can still foreclose on the property and sell it, paying off the existing mortgage with the proceeds.
As you can see, it can be in the favor of a buyer and seller to work together - especially if the seller is motivated. If they can't wait for a sale, you can still give them their asking price with a little flexibility on their part.