So can I really buy a property with little or no money down?
I have people ask about this option or strategy very often and it’s something that YES you definitely can do.
There are quite a few number of ways that you can purchase or own a property with very little money of your own money down. There are multiple strategies you can use, I’m just going to give you a brief overview here of one way it might work, for example if a vendor/owner may be looking to sell their property.
At the end of this document I will give you a more technical explanation.
Traditionally as investors you may look for below market value purchase investment property. For example, you might be looking to purchase it at a 25% or 30% below market value. If the vendor has to sell the property at market value because they’re in a particular financial situation where the property will only just cover the mortgage and some expenses, they might have. Then they can’t sell it at market price and they’re definitely not going to be able to sell it to you for 25% or 30% below the asking price! This means that you won’t be able to purchase that property with the traditional buy to let methods used for investing.
However, if you were to offer the vendor the market value price (maybe adjusted slightly to take in consideration the works required on the property) then you might find they are more open and able to accepting your offer.
Now how would this work ?
Well, this would work like this. You would be purchasing the property later on in a period of 2, 3, 5 maybe even 10 years but what you do in between that time is you babysit the sellers/vendors mortgage and all these bills and costs.
Lets say the property is on the market for £100,000.
You’ve spoken with the vendor and the vendor needs £95,000 pounds to clear the mortgage and clear all his debts.
He may also probably not have money to spend on solicitors fees.
That’s something you might be able to cover as well.
So you could offer the vendor £95,000 to buy his property, however you wouldn’t buy that property today because, as they have found , it’s just not worth the price. You would offer to buy that property in 2, 3, 5 maybe even 10 years.
During that time you will pay the mortgage, you may contribute to any costs of renovation you might even pay and deal with any of the problems or tenant issues that you have to deal with.
This takes away all of the problems that he may have. He may, in the past, have rented the property out before and he may well hate the thought of somebody else renting the property and then not looking after it.
You might ask why would somebody do this?
There are lots of reasons why they might do it ,the way we think about things isn’t necessarily the way that he’s thinking or she’s thinking about things and they may be in a difficult situation where they need to move on, they may already have somewhere they want to move to or maybe they’ve already moved into a new property and this one is just causing them a lot of pain and a lot of financial stress. This is where you come in you take away all of that financial stress by offering to buy the property at the price that they need to purchase it or need to sell it for. WIN – WIN is always the best solution . They win and you win here . They get rid of any stress , financial pressure etc and you can make a bit of monthly profit .
Remember, you will actually give them the money needed in 2 to 10 years time.
During that time they have no worries, no bills, nothing to pay.
What you might do with that property is, you might well then rent it out. There may be a little bit of work to do to it. Either you or the vendor or both of you can contribute towards and then when it comes to the 5 year point or the 10 year point ,whatever was negotiated, you will purchase the property from them because you’ve had a chance to prove that property worked out well and does generate you a good profit.
You could rent it out as a straightforward buy to let or you could rent it out as a HMO after some conversion works required to convert it into a house of multiple occupancy property (HMO).
Here is a slightly more technical explanation of how no money down deals can be done.
“No money down” in the context of investment property refers to a real estate investment strategy where you acquire a property without making a substantial upfront cash payment or down payment. Instead of using your own money, you rely on creative financing techniques to fund the purchase. Here’s an overview of how the “no money down” strategy can work for investment properties:
- Seller Financing: In some cases, the property seller may be willing to finance part or all of the purchase price. This arrangement typically involves the seller acting as the lender, and you negotiate the terms of the loan, including the interest rate and repayment schedule. The seller may accept a down payment of a smaller amount or even none at all, allowing you to acquire the property with minimal cash upfront.
- Lease Option: Another approach is to negotiate a lease option agreement with the property owner. This allows you to lease the property for a specified period with an option to buy it at a predetermined price at the end of the lease term. You may be required to pay a small option fee, but it’s significantly lower than a traditional down payment.
- Partnering: You can partner with individuals or entities who have the capital to invest. In this scenario, your partner provides the necessary funds for the down payment and, in return, you share the profits or equity from the investment property. This arrangement allows you to access financing without using your own money.
- Creative Financing: Explore alternative financing options, such as private lenders, hard money loans, or lines of credit. These sources may be more flexible in terms of down payment requirements, and you can use these funds to cover the initial costs.
- Wholesaling: As a real estate wholesaler, you can identify attractive investment opportunities and assign the purchase contract to another investor for a fee. This way, you don’t need to buy the property yourself, eliminating the need for a down payment.
It’s important to note that “no money down” strategies require a high level of financial literacy, negotiation skills, and due diligence. They also carry certain risks:
- Financing Costs: Lower or no down payment typically means higher monthly mortgage payments and potentially higher interest rates, increasing your carrying costs.
- Cash Flow: You need to ensure that the property generates enough rental income to cover expenses, including the mortgage, property taxes, insurance, and maintenance.
- Market Risk: Real estate markets can fluctuate, and if property values decrease, it could impact your investment negatively.
- Legal and Financial Risks: Ensure all agreements are legally sound and consider seeking legal and financial advice to protect your interests.
“no money down” strategies can be very viable, it’s essential to conduct thorough research, have a solid investment plan, and be prepared for potential challenges to increase your chances of success in real estate investing.