Investing with No Money Down
Many people are shocked by the idea of making money in real estate without using any of their own cash savings. The truth is that not having money can quickly turn you into an expert investor by forcing you to use your imagination, practice good negotiation and avoid deals with marginal potential.
You'll never regret learning to buy with no money. It will better prepare you to evaluate deals when it is possible to use your own money or conventional financing. Always keep in mind that if the deal is right, it won't be hard to find the money. A good deal can mean different things to different people, but a good rule of thumb is that the price shouldn't exceed 70% of the conservative "as is" value. The key is that the deal will be profitable by conservative estimates and will make money even if you make a few mistakes estimating repairs and the like. Attempting to get this type of a discount kills many deals but those that do work under this criterion will be the cream of the crop.
Once you identify an investment opportunity, you'll need to obtain the funding. Here are a few ideas:
- Utilize the owner's existing financing in negotiating the purchase price. This should be subject to you only covering the equity left after the mortgage.
- Sell your contract to another investor for a cash assignment fee.
- Borrow the money from a private party and have it secured by a first mortgage.
- Borrow the money from a hard money lender.
- Use your home equity via a loan or line of credit.
- Find other investors to fund the deal.
These are just a few examples, but hopefully they illustrate the idea that there are many alternatives to simply dumping your cash into an investment. Fear and lack of knowledge are the two things that keep people from making money this way in real estate; take the time to educate yourself and think creatively to overcome these barriers!
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*Please bear in mind that the information supplied in our articles is not engaged in rendering legal, financial, or any other professional services. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.
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