Buying Real Estate Without Cash or Credit
If there is one common question that a lot of our visitors ask, it is, "Can you really invest in real estate with no down payment, and even without credit as advertised on your site?" Excellent question. And the short answer is "yes".
Not all of the 22 methods of real estate investing lend themselves to a no down payment or no credit transaction, but several do. And not every property can be purchased this way. Furthermore, the following strategies cannot always be accomplished without cash or credit, but most can, and normally do. You do not need to buy every property, and you do not need to do it every day. All you need is a few each year.
Here are just a few of the common methods that can be consummated without cash or credit - at least, not your cash and credit - along with a basic understanding of how and why buying a house with no down payment is not a big issue, and how and why it works:
The Simultaneous Close, aka the "double escrow". This is the perfect no down payment strategy for investors. My students still use it today (A lot of misinformed people believe it was made illegal by HUD, but the only thing HUD made illegal is the fraud that some banks, appraisers and investors participated in.)
The double escrow is a powerful "no down payment" strategy - the same one used by the homeless man cited in the courthouse documents we have posted. The heart of the "double" lies in the law - that both transactions occur simultaneously - neither is first. So you can use your buyer's money to buy the property from your seller and the deed is turned over to your buyer and you get the profits. Not a dime of your own cash would be used - a true "no down payment" transaction, and you do not have to apply for any mortgage . "The Simple Man's Guide to Real Estate" details all aspects of this strategy (and all other strategies) in great detail and the many different ways in which it can be used, and includes the special agreements you will need. NOTE: Some lenders and escrow companies now require "transactional funding", but we show you an easy workaround for that, too.
Then there is the now-famous "wholesaling", which is actually Assigning. Most Real Estate Purchase agreements include some sort of "or assigns" clause (or it can be added). This gives you the right to sell (assign) that contract to another qualified buyer, who takes your place as buyer. If you have negotiated a good deal on the property, another buyer will likely be happy to pay you an assignment fee for the right to take your place as buyer. You never have to apply for a loan or mortgage and never have to go to a closing. "The Simple Man';s Guide to Real Estate provides everything you need, including the assignment forms.
Another method for buying a house with no down payment, and one that works for either investors or someone just looking for a home of their own is the Lease Option (rent to own). Attorney Bill Bronchik has made a good living teaching this strategy to others. Simply put, you get a lease with an option to buy within a specified period of time. You are not obligated to buy. A portion of your lease payment is applied toward the stated purchase price. If you exercise your option to buy at some point during the option period, those applied funds become your down payment. "The Simple Man's Guide to Real Estate" takes it even further by showing you how to get the lease payments from someone else.
A prime example of buying a home with no down payment is to "equity share" the property with the seller. HUD created this strategy and calls this "equity participation", and it reached its heyday in the late '70's, but is just as viable today. The seller will be the investor who puts up the down payment (actually, he only leaves in enough of his equity to act as the down payment) in return for a tidy profit in 5 years. Sweet and simple, you get into the home without a down payment. NOTE: You would need to qualify for the mortgage you would need to get, but since you are "partners" with the seller, his credit can be used to soften the need for credit. (See Equity Sharing in "The Simple Man's Guide to Real Estate" for full details)
The Triple-Net Lease (aka "nnn"), with or without an option to buy is another no down payment method. It is similar to the lease option, except that it usually involves a multi-unit or commercial property. The seller still owns it, but you take over all responsibility (including all service debt such as the mortgage, taxes and insurance), for which a portion of the rents go to you. In other words, the seller still gets the bulk of the income without having to lift a finger. You can upgrade the units and raise the rents and make manangement more efficient to increase your monthly take. You might add a laundry and vending machines for added profit. Since you are not buying anything, neither cash nor credit is necessary. And if you include an option to buy, a chunk of the income that you are paying to the seller will grow to be your down payment when you buy. The end result is that you could buy the building with no down payment, at least not in a lump sum.
These are not the only No Down Payment strategies that result in no cash out of your pocket. Others include "seller financing", where you negotiate to have the seller finance part or all of the purchase. Why would he do that? Some sellers would get badly burned by the IRS if they get the entire amount all at once. Other sellers may be retired and in need of a steady income flow to supplement their Social (in)Security. There are numerous reasons a seller might finance for you, providing you with methods of buying a house with no down payment.
A "contract for deed" can be a no down payment deal. It is a special type of seller financing detailed in "The Simple Man's Guide to Real Estate". Basically, the seller is the "bank" - you make payments to him directly. Hence, no need to obtain financing, or even make a down payment. NOTE: A Contract for Deed cannot be done if the current owner's mortgage has a "due-on-sale" clause UNLESS you get the lender's permission.
Or you could use barter to buy a house with no down payment - I recall making a down payment by building a new deck on the seller's new home. And I once traded equity in one small property for an equal amount as down payment on a much larger property. I still owned the smaller property - I simply gave up the equity in it in order to buy the bigger property with no down payment out of pocket.
You can sometimes buy a home with no down payment by getting the property, itself, to make the down payment. Here is but one example: the property you want has a lot of standing pine. Contract with a tree harvesting company to cut enough to equal your down payment after closing. You put the contract (subject to closing) into escrow and the lumber company puts a certified check into the same escrow. At closing, he gets the contract to cut, and you get the check, which is your down payment. Or maybe the property has an old barn you do not want - it has valuable old beams and barnboard. Contract out the sale of that barn to a salvage company. The possibilities are endless.
And then there is the "sweat option", where the value of your labor in fixing up a place becomes your down payment, while also increasing the value of the property.
The point is that investing in real estate, or buying a home with no down payment can easily be done. Our course teaches all these methods and more, and having a personal mentor makes it pretty simple. When you come right down to it, it is not really a "no cash" deal, because obviously the property is not free. When the phrase "no cash" is used, it simply means none of your cash. It's all about OPM - Other People's Money.
I could go on, but I think you get the point.
Hey! Wait a moment...did you forget to SHARE this with others? It's pretty neat stuff, and deserves to be shared.
-- Bill Vaughn