Zero Down Real Estate Investing

Zero down? Why would a seller want to walk away from closing with nothing? Well, they wouldn’t, and that brings up the most important point about real estate investing with no downpayment: The seller almost always needs cash at closing, but it doesn’t have to be your cash if you know what you’re doing and feels confident in your finances and yourself. 

A Zero Down Example

Let’s say that we are selling a small rental property right now, with payments of $400/month. The buyer has a good credit report, and the $5,000 down payment covers closing costs and even a foreclosure, if necessary. So at this point, we don’t care where he gets the down payment. A $6,000 cash advance on a low-interest credit card, for example, would cost him about $135 per month and give him enough for the down payment and his closing costs.

In this case, with rent around $600 per month, he would be okay. In some cases, however, that extra $135 might cause negative cash-flow. So be sure that however you do it, the numbers work. It’s important to make sure your finances allow for such an option and give you a bit of leeway if necessary. 

Other Zero Down Payment Methods

While there are sellers that can offer terms and low down payments, usually you have to find a way to get at least 70% of the price to them in cash. Think in terms of how to get a primary loan, then how to raise the money for the remainder. A couple of examples follow.

Some banks still do “no-doc” loans, meaning they don’t require verification of income, source of downpayment, etc. They generally loan only 70% to 80% of the property value, but if the seller is willing to take a second mortgage from you for the other 20% to 30%, you are in with no money down. The seller gets 70% or 80% in cash, plus payments for years to come. You’ll have two payments, of course, so be sure the numbers work. This is the most important thing of all to emphasize. If your finances don’t allow it, don’t take the risk. It’s always better to be safe than sorry. 

An example: A seller prices his property at $195,000, and expects to sell it for $180,000. You offer $205,000 in the form of a mortgage for $160,000, and another for $50,000. You have arranged for the sale of the first mortgage at closing for $136,000 to a note buyer. The seller gets that cash now, plus payments from you on the second loan for $50,000. Notice that this adds up to $186,000, which is more than he expected to get out of the deal.

These are just some 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 big cash on hand.

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