No Money Down Real Estate Investing: Is It For Real?
by Steve Cook
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.
Bio:
Since 1998 Steve Cook has flipped many hundreds of houses as an active
Baltimore-area real estate investor. Steve's unique specialty is the "flipping
homes 1-2 punch", a proven system of real estate investing that powerfully
combines wholesaling and rehabbing houses. Steve Cook is dedicated to helping
others succeed through understanding and aggressively applying his time-tested,
step-by-step approach to flipping real estate.