« How to Sell Gold for Profit Getting Hold Of The Best Dropshipper List »
People often ask me how they should obtain the money for their real estate investments and are sometimes not happy with my response. That’s because many are hoping to find easy solutions that don’t require much work on their part and are therefore disappointed with my advice.
So when people ask me:
– “Should I find other investors to partner with if I have no money of my own? This seems like a daunting task and I’m not sure how to go about it. But, I really want to get started investing in real estate as I’ve recently seen several nice investment properties.”
– “Would you suggest I use owner financing, home equity line or credit cards for a down payment on a new investment property? And if so, what is the time line to see a positive return on investment to reimburse funds?”
– “How can I do what Robert Allen does- you know, those “no money down, cash back on closing” deals?”
I tell people to start by tracking their monthly income and expenses to see whether they spend more or less than what they earn each month. If they are spending more, lifestyle adjustments need to be made, and if they are spending less, the excess should be applied toward paying down debt and saving for real estate investments.
I always tell people where not to find money for their down payment: credit cards. Never ever look to your credit card to finance any real estate or any other investment. It’s much too risky.
What if something goes wrong with your investment and you end up paying 18% interest on that $5,000, $10,000 or $20,000 you borrowed from your credit card for years to come? Do you want me to do the math on that?
If you’re close to retirement age, you should not be looking at your house as equity. However, if retirement is still some years away and you have the least $200,000 worth of home equity, you should consider using $50,000 of it toward a down payment for investment property. Before you do this, however, make sure you can afford the extra payments for a ‘just in case’ scenario if your investment doesn’t work out as planned.
On a good deal, your rental income should pay for the monthly payment increase that the additional $50,000 that the home equity loan will cost you, along with all of the other expenses on the rental property. In this case, I think that it’s a great source of money to use for a down payment on your first property.
Owner financing (or vendor take back financing) is a great way to find the extra money. Vendors are often happy to provide this as these types of loans are secured against the property itself and gives them a steady stream of income in their pocket every month. But before you go into this type of situation, you have to make sure that the vendor is willing to do it, and that you can handle the extra payments. This method shouldn’t be used, however, if you can only get 75% bank financing and have no down payment.
But be careful- we’ve learned the hard way that purchasing properties for no money down doesn’t mean that you won’t pay in other ways!
No money down real estate investing is VERY different than buying a property without using any of your own money for a down payment.
No money down deals are unbelievably risky because you borrow 100% of the price of the property. Sure, this may sound good, but if the market drops even by as little as 5%, you’re going to wind up owing more than the house is worth. Are you going to be able to find money to pay for it? Many families across North America are going through this right now.
It is very hard to find a property that will make you money if you’ve purchased it using 100% financing. On top of the purchase price of the house, you’ll also need to come up with 2-3% of the purchase price to pay for a lawyer, property inspector, taxes and things like that.
Therefore, the risk to no money down deals is very high because you would have no equity in the property and would not be making much income from the property due to the high monthly payments. If you’ve found the perfect property to invest in but have no money for a down payment, then there are some things you should try:
1. Start controlling your destiny by controlling your money. Get out of debt and start saving. You don’t necessarily need a lot of money, but no one will want to partner with a person who can’t handle their own finances.
2. If you have over 25% equity in your existing home and many more years before you were planning to retire, think about using part of that equity to get started in real estate investing.
3. Have no money and you are currently a renter or don’t have enough equity in your home? Find a great property – one where the rent will cover the costs with as little as 10% down. Get an accepted offer and then find a partner that has the money to invest in the property with you. Be prepared to sell yourself AND the property.
Trust us, between the two of ‘no money down’ and finding a partner, finding a partner is a much better way to purchase a property. We’ve done deals with no money down, and they’ve always ended in disaster. But on those occasions when we’ve found a good partner, those deals have all been huge successes. When you have a partner, they bring money for the down payment to the table; and what you bring to the table is the research and the promise to do the work involved with overseeing the property. Working with a partner enables you to buy good properties in good neighborhoods instead of wrecks in bad neighborhoods. This also gives you equity right from the beginning and lowers mortgage payments. When the property needs repair and the rental income won’t cover it, costs of the repair are divided with the partner 50-50. Ownership between us and the partner is also 50-50.
When we sell, our partner will get his down payment back first, then we split the rest of the proceeds. Maybe we gave up some equity to get the deal done but we also substantially reduced our risk!
Related posts:
Post a Comment