No Down Payment -
Buying Real Estate Without Cash or Credit
PLEASE NOTE: Unless you are an experienced investor, the following strategies should not be attempted without specialized contracts and an experienced mentor like those that come with "The Simple Man's Guide to Real Estate" .
If there is one common question that a lot of our visitors ask, it is, "Can you buy a house with no down payment, as advertised on your site?" Excellent question.
Not all of the 22 methods of real estate investing lend themselves to a no down payment transaction, but several do. And not every property can be purchased this way. Furthermore, the following strategies cannot always be accomplished without cash or credit, but most can, and normally do. You do not need to buy every property, and you do not need to do it every day. All you need is a few each year.
Here are just a few of the common methods that can be consummated without cash or credit - at least, not your cash and credit - along with a basic understanding of how and why buying a house with no down payment is not a big issue, and how and why it works (as a side note, Robert Allen's bestseller "Nothing Down" listed 100 different methods of buying without cash down):
The Simultaneous Close, aka the "double escrow". This is the perfect no down payment strategy for investors (we will highlight methods for Joe Homebuyer, below). I perfected this no down payment strategy nearly 40 years ago when I was broke and had no money for a down payment on a bicycle, let alone a house. My students still use it today (yes, it is legal everywhere - for a dissertation on the "facts vs fiction" of the double escrow, see my article on "flipping" on our FREE BOOKS page). Many people, including some Realtors who should know better, believe the double escrow was made illegal by a policy set forth by HUD which requires in many instances that a property be owned at least 6 months before being re-sold. First, that is only a policy of HUD, not a law. HUD cannot make law. Second, HUD can only require that it be applied to properties being purchased via a government insured program such as HUD, FHA or VA. And third, waivers are available as long as you can show the property is worth what you are selling it for. So, the double escrow is far from being illegal. The only thing HUD made illegal is the fraud that some banks, appraisers and investors participated in.
The double escrow is a powerful "no down payment" strategy - the same one used by the homeless man cited in the courthouse documents we have posted. The heart of the "double" lies in the law - that both transactions occur simultaneously - neither is first. So you can use your buyer's money to buy the property from your seller. The deed is turned over to your buyer and you get the profits. Not a dime of your own cash would be used - a true "no down payment" transaction. Our real estate investing course details all aspects of this strategy (and all other strategies) in great detail and the many different ways in which it can be used. NOTE: As mentioned, a double cannot normally be done if the end buyer utilizes HUD/FHA or VA insurance when buying. Also, some lenders may require "transactional funding", which actually serves to subvert the law of double escrow, that neither is first nor last. So the double has its limitations.
Then there is the now-famous "wholesaling", which is actually Assigning. Most Real Estate Purchase agreements include some sort of "or assigns" clause (or it can be added). This gives you the right to sell (assign) that contract to another qualified buyer, who takes your place as buyer. If you have negotiated a good deal on the property, another buyer will gladly pay you an assignment fee for the right to take your place as buyer. You never have to apply for a loan or mortgage and never have to go to a closing. See a lengthier discussion on wholsaling/assigning here .
Another method for buying a house with no down payment, and one that works for either investors or someone just looking for a home of their own is the Lease Option (rent to own). Attorney Bill Bronchik has made a good living teaching this strategy to others. Simply put, you get a lease with an option to buy within a specified period of time. You are not obligated to buy. A portion of your lease payment (often 25%) is applied toward the stated purchase price. If you exercise your option to buy at some point during the option period, those applied funds become your down payment. Now consider this - your lease option could include the right to sublet. You find a tenant, and he is paying your lease, and a portion of his rent money is being applied to your down payment. Get it? Someone else is paying your down payment for you. Cool, huh? You just managed to buy a house with no down payment.
A prime example of buying a home with no down payment is to "equity share" the property with the seller. HUD created this strategy and calls this "equity participation", and it reached its heyday in the late '70's, but is just as viable today. The seller will be the investor who puts up the down payment (actually, he only leaves in enough of his equity to act as the down payment) in return for a tidy profit in 5 years. Sweet and simple, you get into the home without a down payment. NOTE: You would need to qualify for the mortgage you would need, but since you are "partners" with the seller, his credit can be used to soften the need for credit. (See Equity Sharing in "The Simple Man's Guide to Real Estate" for full details)
The Triple-Net Lease (aka "nnn"), with or without an option to buy is another no down payment method used to obtain multi-unit apartment buildings, as well as other commercial properties. It is similar to the lease option, except that it usually involves a multi-unit. The seller still owns it, but you take over all responsibility (including all service debt such as the mortgage, taxes and insurance), for which a portion of the rents go to you. In other words, the seller still gets the bulk of the income without having to lift a finger. You can upgrade the units and raise the rents and make manangement more efficient to increase your monthly take. You might add a laundry and vending machines for added profit. Since you are not buying anything, neither cash nor credit is necessary. And if you include an option to buy, a chunk of the income that you are paying to the seller will grow to be your down payment when you buy. The end result is that you could buy the building with no down payment, at least not in a lump sum.
These are not the only No Down Payment strategies that result in no cash out of your pocket. Others include "seller financing", where you negotiate to have the seller finance part or all of the purchase. Why would he do that? Some sellers would get badly burned by the IRS if they get the entire amount all at once. Other sellers may be retired and in need of a steady income flow to supplement their Social (in)Security. There are numerous reasons a seller might finance for you, providing you with methods of buying a house with no down payment.
A "contract for deed" can be a no down payment deal. It is a type of seller financing detailed in "The Simple Man's Guide to Real Estate". Basically, the seller is the "bank" - you make payments to him directly. He keeps the deed until he gets paid off. Once you have made enough payments to act as your down payment, you would then get a mortgage from a bank to pay the seller off and get the deed. NOTE: A Contract for Deed cannot be done if the current owner's mortgage has a "due-on-sale" clause UNLESS you get the lender's permission.
Or you could use barter to buy a house with no down payment - I recall making a down payment by building a new deck on the seller's new home. And I once traded equity in one small property for an equal amount as down payment on a much larger property. I still owned the smaller property - I simply gave up the equity in it in order to buy the bigger property with no down payment out of pocket.
You can sometimes buy a home with no down payment by getting the property, itself, to make the down payment. Here is but one example: the property you want has a lot of standing pine. Contract with a tree harvesting company to cut enough to equal your down payment. You put the contract (subject to closing) into escrow and the lumber company puts a certified check into the same escrow. At closing, he gets the contract to cut, and you get the check, which is your down payment. Or maybe the property has an old barn you do not want - it has valuable old beams and barnboard. Contract out the sale of that barn to a salvage company. The possibilities are endless.
And then there is the "sweat option", where the value of your labor in fixing up a place becomes your down payment, while also increasing the value of the property.
The point is that investing in real estate, or buying a home with no down payment can easily be done. Our course teaches all these methods and more, and having a personal mentor makes it easy. When you come right down to it, it is not really a "no cash" deal, because obviously the property is not free. When the phrase "no cash" is used, it simply means none of your cash. It's all about OPM - Other People's Money.
I could go on, but I think you get the point.
Hey! Wait a moment...did you forget to SHARE this with others? It's pretty neat stuff, and deserves to be shared.
-- Bill Vaughn
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