The one question which always amazes people is how to buy real estate with no money and no credit.
And, this blog is all about finding correct answers to this question.
Though, I must assure you in this blog. The particular advice mentioned by me is not something that I endorse, to successfully pull this you would require a combination of planning and local real estate knowledge.
TIP 1 – WHOLESALING
Moving on, when people mention that you can invest in real estate with no money down and no credit usually they’re referring to wholesaling.
Now, this is slightly misleading because wholesaling isn’t really like investing, if anything it’s like an active job flipping contracts just like you would getting a commission selling a car or getting a commission by selling real estate.
It’s more of an active job compared to investing.
To understand wholesaling better, consider if you found a distressed seller willing to sell their home under market value then you as a wholesaler get that property under contract but it is written.
So, you assign it to somebody else and you then go and find somebody else to buy that property from you for more than the amount mentioned in the contract and then go and assign that contract to somebody else for a higher price.
Though, you get the difference.
To have a more clear grasp on the matter, let’s take an example that you find a property that’s worth $100,000 and the seller is willing to sell it to you for $75,000.
So, you get that property under an assignable contract and find somebody willing to pay $85,000 for the same property.
You then assign and transfer that contract to somebody else and you profit from the difference between what that new person is paying and what you’re buying a property for.
In this case that would be $10,000.
This particularly is the summary of ‘what is wholesaling business’.
This is potentially a way that you can buy real estate without using any of your own money and then flip it to someone else for a profit without needing any credit.
But, I must also warn you this is far from passive as it requires a lot of upfront work to find ‘the ideal candidate’ for the sale.
You shouldn’t rule out the possibility that there can be a lot of sketchy people in this business simply because it’s largely unregulated so do research on this at your discretion.
However, it’s also the most common technique used by people while investing in real estate with no money down and no credit.
Now the second way that people buy with no money down is a lot more common and doable.
TIP 2 – SELLER FINANCING
And, from my personal experience, I think we’re gonna see this happening a lot more over the next decade and it is ‘seller financing’.
When the seller loans you their property and instead of paying your mortgage to the bank you’re paying your mortgage directly to the seller.
Let’s understand it with another example, I own a property and it’s $100,000.
You as the buyer, maybe don’t have the down payment or credit, and even can’t get a loan from the bank but you still want to buy it.
I, the seller can go to you and say you know what, it’s no problem I will finance the deal for you, no need for either down-payment or credit check.
And in return, all I want is a 7% interest rate and the full amount due within seven years.
If you don’t pay I will simply foreclose on you and get my property back and with this, you as the buyer get the property and I as the seller get a relatively risk-free return on the value of the house.
Now obviously that is a very simplified explanation just to prove a
point but realistically most sellers will want to receive some sort of down-payment or deposit to cover their risk.
If you move and somehow damage the property and also stop paying for the property then it costs money to foreclose and gets difficult for you to leave.
From what I’ve read, in certain situations, sellers finance the entire deal with no money down for credit.
Worthy buyers or buyers, willing to put down collateral
just as security against the loan or maybe just delusional sellers who simply don’t give it.
However, typically this will only work with sellers who own the
property outright, who don’t need the money, and who are comfortable with simply collecting their money every single month.
Now the positive for the seller is, that they can typically get a higher rate of return for the value of their property and if they just kept it they’re not
responsible for any management or repairs on the property since
technically they don’t own it and their entire investment is backed by the collateral and value of the property.
So, if the buyer doesn’t keep up their end of the bargain and pay, the seller simply forecloses and gets their property back.
This is a textbook case of ‘Seller Financing 101’.
However, the drawback here is that if it were that easy everybody would be doing it, and finding a seller who’s amenable to something like this is more of a unicorn of a deal and it’s very difficult to find.
A seller who’s in that position, who’s willing to do it, and also where you and the seller are willing to work out terms that you both agree on will be a perfect scenario.
But, if you find a seller who’s willing to do this at terms that are
beneficial to you and the seller by all means go for it.
It could be a great way to buy a property with no money down.
ALSO READ: What is Down Payment Assistance and How do you qualify?
TIP 3 – Bring on a PARTNER or INVESTOR!
Now, the third way to invest in real estate with no money down is to bring in a partner or investor.
This is something I see happening quite a bit and no joke this happens every few weeks.
Someone is willing to invest and give me money, sometimes up to hundreds of thousands of dollars simply to go and invest in whatever I feel like.
This step or method could be a very viable option for people to purchase property with no money down.
Now, this is something you can typically do once you’re more experienced in real estate.
Someone else will provide the cushion of money and finance the deal. In exchange, you do all the necessary work of renovation, repairs, location, rent, and so on.
For a percentage of the ownership, the other person just brings in the
money invested passively and that is it.
However, doing something like that comes with a lot of risks and you better know what you’re doing.
Anytime someone gives you money, better treat that money as your own.
As it’s someone else’s and partnerships alone could be extremely risky and real estate is a business where you can easily lose money if you don’t know what you’re doing and getting into.
I would personally reserve this method for experienced real estate
investors who simply are maxed out on what they can qualify for or maybe have invested all of their money in real estate and bringing on
more partners allow them to continue expanding beyond what a bank is willing to do for them.
I would never recommend someone ever doing this on a
first deal especially taking out money from partners, family, or anyone of acquaintance.
As the chances of losing money are at their zenith.
But I think in the right situations, where everything lines up, a partner can be a good option.
The same also applies when borrowing money from friends or family, my advice is that in 99% of situations you should stay away from it as it’s not worth it.
TIP 4 – Option of LEASE
The fourth way to buy a property with no money down is a lease option.
This is something I’ve been approached to do quite a bit.
I’ve always turned it down but on the other hand, this would have been very advantageous to a buyer.
Now lease options work like this: let’s say that I have a home that’s worth $100,000 and you want to buy it but you don’t have the money.
So I might suggest to you (the buyer), that the market value of my property for rent is $1,000 per month but pay me $1200 per month and you have the right to buy this property within 24 months for $110,000.
Now that extra $200, you pay me every single month above the base rent will be applied to the purchase price in the event you buy the property.
So this means that after 24 months of paying $200 per month extra you have applied $4,800 towards the purchase price meaning the final price of the property after 24 months will be $105,200.
If you don’t end up buying it that’s fine with me you can walk away and I as the seller just received an extra $200 per month.
Now, if you do end up buying it that’s fine I get my price that was agreed upon.
This works especially well in an appreciating market because this is just an option contract to buy a property for a specified price with very little risk to the buyer.
So, let’s say it’s 2-years from now, and the value of that property went up to $130,000.
This means you’ve essentially made about $20,000 in profit and found a way to buy it, given there’s instant equity in the property.
Also, you can always renegotiate with the seller at that time given the values are a lot higher for the seller to then buy you out of that deal.
Typically these situations favor the buyer the most because if the market goes down the buyer simply walks away or tries to renegotiate the contract again with the seller but this time for a lower value.
Finding sellers like this is not unusual, especially for sellers who don’t need the money right away.
You don’t need to sell or maybe just want a little bit of extra cash flow every single month.
Even better for you, if you can find a property that cash flows allow
subletting and is in an appreciating market.
You may be thinking, I am talking about finding a needle in a haystack. But, you also must be optimistic, a deal like such does exist.
WHAT’S FURTHER DOWN THE ROAD?
I have just discussed the four ways to buy real estate with no money down and no credit but I do have to mention these tactics are not easy to do.
There is a reason why you don’t see people doing this all the time there’s a lot of work involved there’s a lot of
planning involved there’s a lot of patience that goes into finding the
right deal and finding a seller who’s completely fine with this.
Also, you will find a seller who doesn’t need the money right now who owns the property outright, and is agreeable to all the terms that work
with you, it’s all doable.
But by no means, it is the best option to chase as I believe your time and resources are best spent earning money, saving as much as you can, and living frugally.
Simply having the patience to wait for the right deal to come up.
By this, you will open up the options to choose from and increase the chances of getting a good deal.
ALSO READ: How to Get Investment Property Loan with NO Money Down?