Can I Buy Real Estate With NO MONEY?

When looking to purchase real estate, we’re usually told we need to bring money into the deal as a down payment as well as some reserves. This is especially true when purchasing a personal residence, and for those that are using their W2’s for qualifying.

When starting out in real estate a few years back, the business plan included the following:

1. Save enough money for a down payment

2. Buy a Single Family Home

3. Work a few more months/years, collect rents and save more money

4. Buy another SFH

5. Repeat steps 3 & 4

At the time it sounded like a great idea and seemingly the ONLY way one could achieve owning a portfolio of properties.

Needless to say, it didn’t take long to realize that in order to pull off that BRILLIANT business plan, I’d have to wait a long time and work many more years.

Certainly not what I had in mind and soon realized the plan was flawed so back to the drawing board it was.

It’s not a death sentence to not have money available for a real estate deal. Conversely,

when starting out, it may not be as easy to pull off a particular transaction if you’re not well versed in what you’re doing.

There are many ways to acquire a property when one doesn’t have sufficient funds to deploy towards a transaction.

Some of the most popular ways that are utilized to acquire properties can be very useful, but when enough due diligence is not done it can make for a really bad situation.

Seller Financing

One of the simplest ways to get a deal done is to have the seller put up all or most of the funds required to purchase a particular property. This works especially well when a property has been paid off and one is able to have the current owner put up all the funds required to sell the property.

In this case, the seller and buyer would work on a mutually agreeable contract for the sale of property in exchange for particular terms of repayment for the note on the property.

The biggest benefits are the flexibility of terms as well as the low closing costs of the transaction. In many cases, the buyer can offer full price on the property if the numbers work out on the purchase.

This is also beneficial for the seller as they can defer gains on the sale of the property as well as enjoy a steady cash flow once the property has been transferred to the buyer.

One of the major drawbacks is finding owners/sellers that are willing to take on this type of deal. This method is certainly not typical so in many cases, owners/sellers need to be educated on benefits/drawbacks before they agree to enter into an agreement.

Hard Money Loan

Many hard money lenders require some sort of down payment from buyers, BUT with enough research, you can find hard money lenders that will lend on your project based on the After Repair Value (ARV) of the property.

As enticing as this may be, you need to be cautious of a few things that will throw off your plans very quickly.

Unlike traditional financing, these loans have a much higher interest rate and a shorter amortization period since they’re meant to be short-term loans.

There are also many fees associated with these types of loans which are paid upfront upon closing on the property.

It’s not uncommon for people to use this type of loan especially if you’re looking at a property that requires some work with a much higher ARV yield at the end.

Again, doing your homework on the property value and making sure the math makes sense is key in this option.

Investors and Partners

One of the most common ways for someone to build a portfolio of properties is to either partner with someone or utilize investors’ funds to come up with the down payment for the property.

In the case of a partnership, one can enter into a partnership agreement with someone that has the necessary capital to take down a deal.

An example of a partnership can be as simple as a split in the equity and cash flow. The split can be anything that the two parties agree to, but generally, the splits are either 70/30 or 80/20 in favor of the person bringing the capital.

In most cases, the person that’s not bringing the capital will be the one that has sourced the deal and will work towards closing and operating the property. This is the value that is provided in exchange for equity and/or cash flow split into a deal.

Similarly, utilizing investor capital can be an advantageous way to build one’s portfolio of properties without bringing in any (or very little) of their own capital.

Depending on the size of the deal, you can choose to partner with someone or syndicate a deal utilizing other investors’ capital via a General/Limited partnership agreement.

As mentioned before not having money to put down on a deal should not discourage someone from pursuing the purchase of a property. There are many resources available to investors that can help structure a deal based on the ability of the investor.

Just like any investment opportunity, there are risks associated with real estate investments and they need to be built into the calculations when identifying which method to use for property acquisition.

It is easy to get lost in different ways a deal can be structured so it’s important to stay diligent and not lose focus on what’s the ultimate goal of the investment.

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As always, we’re here to help shed some light on different ways real estate investing can augment one’s investment portfolio. Our business model is geared towards light value-add multifamily properties in higher class locations across the United States.

If you’re interested in learning more about our business and potentially working together on a future deal, please be sure to reach out to us via the below links.

Sam Khairi

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