No Money Down Real Estate: What You Should Know
No money down real estate is one of the most controversial topics in the investment and property industry. Some snub it as a pipe dream, or too easy. Others swear it continues to make them millions. So what’s the real deal? What is it that you need to know about no money down real estate?
No down payment and no money down real estate investing is common practice. In fact, the best known names in investing and real estate like Warren Buffett and Donald Trump stick to this strategy, even when they have tens of billions of dollars in the bank. It’s simply the low risk, highest return way to go. It’s also the only way to go for many of those that really need to get into real estate investing to get back on track. So what’s the catch?
“It Takes Money to Make Money”
While no down payment real estate investing is done every day, not every property can be bought this way. Not every real estate worker loves it, and it can certainly take money to make money. Even though they may be minor, there can be ‘hidden’ costs. Extra costs can include real estate education, getting setup, and minor upfront property acquisition costs. Some can be avoided, however. Others are certainly best not skipped. The beautiful thing is that it rarely has to be your money that covers them. So what are these expenses, and where to you find the cash?
Investing in Real Estate Education
Some have certainly patch-worked their learning to buy properties and make money from investing in real estate. Some have still ended up making great money. Many have lost hundreds of properties and millions of dollars. If you are going to spend anything getting into real estate, it should be on real estate education. Every minute and penny you invest in your real estate education upfront will yield many times that in the future.
If you are tight on funds, start where you can. Get the materials you can, and attend the events you can. This is an ongoing process of constant lifelong learning.
These expenses and investments are notoriously overlooked. Some may not apply to you, or can be put off, but they can also creep up on you quick and sap your savings and investment dollars if you aren’t careful. They might include getting a laptop computer, a mobile phone, new outfits, and setting up an LLC. You might already have many of these items. Others might want to borrow or invest in them, but this is still a lot cheaper than the setup expenses to become a Realtor salesperson.
Upfront Property Acquisition Costs
Note that while ‘no down payment’ and ‘no money down’ real estate are terms often used interchangeably, they are different. Just because you don’t have to make a down payment doesn’t mean that there aren’t any costs to buying a house at all. Some of these are traditionally paid up front, outside of any financing. These can include:
- Appraisal fees
- Home inspections
- Home insurance
- Earnest money deposits
This might total a few hundred or few thousand dollars, depending on what you are buying and where. They can also be negotiated out, or rolled into the closing. Just make sure you are aware of them.
Funding Your Real Estate Deals
The biggest money demand when investing in real estate is for the purchase price of the property. Fortunately, there are many more financing options than most new investors realize. They include:
- Seller financing
- 100% transactional funding
- Hard money lending
- Low and no down payment government home loans
- Commercial mortgages and lines of credit
- Business loans and credit lines
- Combinations of the above
- Grant money
Finding the Change for the Small Costs
What many struggle with more than the mortgage financing is the little costs. The appraisal fees, the real estate education courses, and the hundred or so dollars to setup an LLC. Be resourceful, and consider the following:
- Refinancing existing loans and debts to lower rates and payments
- Temporarily cutting back on luxury spending
- Borrow from friends or family
- Asking for this instead of birthday and holiday gifts
- Partnering with others that have money, but no time
- Getting rid of unused vehicles
- Personal loans
Everyone can get into real estate investing with very little, or none of their own money down. It makes a lot of sense. It may take a little creativity and resourcefulness, but it is worth it.