Zero Down Real Estate Investing

By Steve Gillman - 2007 - 2015

Buy real estate with zero down? Why would a seller walk away from closing with nothing? They wouldn't, and that brings us to an important point about real estate investing with no down payment: The seller almost always needs to get cash at closing, but it doesn't have to be your cash.

Here's a Zero Down Example

I'm selling a rental property right now, with payments of $400/month. The buyer has good credit, and his $5,000 down payment covers closing costs and even a foreclosure, if necessary. At this point, I don't care where he gets the down payment. A $6000 cash advance on a credit card for example, would cost him about $135 per month, and provide enough for the down payment and his closing costs.

In this case, with rent around $600 per month, he'd be okay. In many cases, however, the extra $135 would cause negative cash-flow. However you do it, just be sure the numbers work. By the way, I would have accepted payments of $350, if he had asked, because it's the price and the interest rate that are important to me.

More Zero Down Payment Methods

While some sellers (like myself) are able to offer terms and low down payments, most need or want at least 70% of the price in cash. This means you need to think in terms of how to get a primary loan, then how to raise the money for the remainder. Some examples follow.

Some banks do "no doc" loans, meaning they don't require verification of your income, source of down payment, etc. They'll generally loan 70% to 80% of the property value, so if the seller is willing to take a second mortgage from you for the other 20% to 30%, you're in with no money down. The seller gets 70% or 80% now in cash, plus payments for years to come. You'll have two payments, of course, so be sure that the numbers work.

You can borrow against your home or other property you own to come up with down payment money. You can borrow from friends and family. You can borrow against your car if you owe nothing on it. If you borrow for a "vacation," and leave whatever you don't spend in your checking account for a while, you may be able to use it without violating bankers rules about borrowing for a down payment. (but check with your lender).

There are usually a few "note buyers" around, even in smaller towns. These investors buy land contracts, mortgage loans and other "notes" at a discount. Say a seller takes a purchase money mortgage from you for $100,000, for example. A note buyer might pay him $85,000 for it. How does that help you or him?

Here's an en example...

A seller prices his property at $194,000, but expects to sell it for about $180,000. You offer $205,000 (making sure you'll still get cash flow) in the form of a mortgage for $160,000, and another for $50,000. You arrange for the sale of the first mortgage at closing for $136,000 to a note buyer. The seller gets $136,000 cash, plus payments from you on the second loan for $50,000.

Notice this adds up to $186,000, which is more than he expected to get out of the deal.

These are some of the ways you can buy with zero down. Real estate investing is about making a deal work for all parties. Find ways to get what you want, and get the seller what he wants. That's more important than having large amounts of cash on hand.

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