‘No Money Down Investment Property’
It’s a very attractive phrase! Isn’t it?
But it’s certainly not an easy business model. However, the real estate investors and experienced landlords choose 3 different options to acquire property without investing anything at that point of sale.
Read the following 3 statements carefully.
A. Have you ever seen any business that starts without any kind of investments or engagement from the owner? I have not seen.
B. Meaning if you don’t have down payment, you have to have some kind of skill or ability to undertake the operational responsibility or something else that contributes in running of the business.
C. If you neither have down payment nor anything thing else, the business is not happening. Period.
The idea of ‘no money down investment property’ is based on the fact that if you don’t have an initial investment, you have some other crucial ingredient that you’d leverage to make the deal for the business to happen.
Other important considerations
When it comes to purchasing an investment property in the US or Canada, one has to come up with a minimum 20% down payment whether it’s bought by an individual or in partnership. However, if it is a private sale between buyer and seller without a mortgage being taken, the sale is not governed by the regulation. That opens up the different opportunity for no money down real estate.
4 Most Popular ‘No Money Down Investment Property’ Business Models
We’d check different scenario to understand how these business models work.
- You have an expert landlording Skill because you are in the landlord business for several years.
- A friend of yours is very eager to enter into investment property or landlording business.
- He does not have any skills required for landlord business.
- He has down payment money required for buying a good rental property and eligible for getting a suitable mortgage.
In the above circumstances, if you make a partnership of some kind with your friend where you’d not have to contribute to the initial down payment, it’s ‘no money down investment property’ for you!
There are 4 factors in-play here.
- Down payment,
- Financial credential required the mortgage,
- Experience and expertize to handle,
- Participation and engagement in the handling of the rental property after the purchase
There can be different options with regards to the partnership depending upon a different mixture of above 4 factors.
1. You’ll look after the landlord responsibility and your partner would use his money for the down payment and his credentials to get the property mortgaged. He’d become a dormant partner activity wise.
2. You would bring in your experience and expertize and he’d bring down payment and his financial credentials required for the mortgage to the partnership. You and him both share landlording responsibility time-wise.
3. You may bring your expertize plus your financial credential to get the mortgage. He’d bring down payment and his financial credential. He’d also contribute to the time and energy required to manage the property because he wants to learn landlording skills from you.
In all the 3 different scenarios, this is a ‘no money down investment property’ for you.
If you have excellent financial credentials, there may be a possibility where the lender would allow you to fetch a part of equity from your existing appreciated property to pay for the down payment of your next property. Or you may be allowed to use the money from your line of credit or other unsecured credit to use for the down payment. In which case, you don’t have to bring up any cash amount from your own pocket to pay for the down payment of the new property. Which is, for you, buying an investment property without any down payment.
The idea is to not let go a good rental property when it has come in the market for sale, even if you don’t have your own down payment money of your own. This is a riskier option and usually used by the experienced landlords who have huge equity accumulated in their previously acquired properties to cover the risk.
You have 4 things available to you –
- Several years of experience
- Private funds available to borrow for the down payment
- Confidence to take the risk of borrowing a short-term loan for the down payment
- Credentials to get the new mortgage for the subject investment property (not buying all cash property)
In the above scenario, you’d borrow private funds from your friends or relatives to pay for the down payment. In addition. you should have the experience to feel confident to take such a plunge. And the credential to independently carry the mortgage. You should pay back the borrowed fund as soon as possible to reduce your risk.
The landlords do come across the situation where a fellow landlord has to sell his or her rental. The motivation for such a private deal can be anything like –
- More than the market price sale
- Good friendship
- Quick sale
In such a scenario, part of the mortgage can be arranged as to hold back mortgage (or vendor take back) by the seller and can be treated as the down payment. The important caveat is that the mortgagee’s consent is required in this scenario.
There are many other ways ‘no money down investment property’ purchase can happen. But other options are generally a rare occurrence because of their feasibility.
So you can see, you can buy a rental property without any down payment. However, this is a very difficult option for the new entrant into the business.
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