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Normally I would recommend putting at least 20% down for real estate. But there are ways to buy real estate for zero down that are almost as financially sound, making real estate affordable to people without tens of thousands of dollars (or more). In this post I will address how to buy real estate for zero down. These methods will be illustrated more for investors than owners though. Many of the methods I address may not be possible for strictly homeowners.
Wholesaling Real Estate
Wholesaling real estate is a common business and real estate practice to make profits in real estate. How wholesaling works is you set up a contract with a real estate owner. Then you try to sell the contract to a buyer. The idea of how you could make money from this is that the buyer will pay more for the contract than you would pay for it. You would then pocket the difference.
In order for this to be a profitable enterprise you need a buyer set up quickly. If you do not have ways to quickly obtain buyers, you are essentially a middleman for real estate deals. Then you would have to develop inventory for the real estate. You would be more of a real estate investor than a real estate wholesaler. If you do not have the money to buy the contract quickly, the seller may find ways to sell the real estate without you. If you want to go the real estate wholesaling route, you cannot settle on being less than the best. The best will obtain almost all of the contracts and iBuyers can easily do the same job as most mediocre real estate wholesalers.
But if you put in the effort to be one of the best wholesalers, you would have a solid business. The business provides people with quick means to sell their houses. You can make profits by selling these houses to people who want discounts from the difference of the sale. Wholesalers can make hundreds of thousands off a single deal in these businesses.
Note: being a real estate wholesaler is very tricky. I am not an expert on the matter. I know there are many legal hurdles you must know about in order to be a wholesaler. Make sure to learn more about real estate wholesaling before diving in to make sure you do not have to buy real estate for more than zero down.
100% Finance Deals
This is where you can truly buy real estate for zero down and own the real estate fully. For real estate you would have to pay forward fully in cash. That or you could take out a mortgage where a lender gives you money for the property while you have to make a down payment for collateral and risk mediation. Neither of those two things are buying real estate for zero down.
Can you convince your lender to lend you more money? Not really. Ever since 2008 there are next to no 100% finance deals you can make with a single lender with very few exceptions. The very few exceptions include USDA loans and VA loans. (By the way, these loans are usually only for personal houses). You should be happy about that, it was those predatory practices that led to the crash of 2008. But wait, did I not just say that you can obtain 100% finance deals? Yes I did, but not from a SINGLE lender.
Where To Find More Lenders
A single lender will only lend you so much money. You must find other lenders. One of the best lenders you could find is the owner of the real estate themselves. A real estate owner has some equity in the real estate. But they also have to pay the mortgage to their lender who MAY have the deed to the house. It is a very complicated debt system with many people tied to one mortgage. What would one additional person be?
Instead of you, the buyer, taking out a new mortgage to help pay off the mortgage of someone else why not make a deal with the real estate owner? You could convince the seller that you can make a finance deal with them so you will pay them as you own the real estate. This is called seller financing.
This is less difficult to obtain than a traditional mortgage. It may take less time. Closing costs are lower sometimes even non-existent because the financing was made without an institute. However, buyers who typically try to make these deals have fewer means to obtain a traditional mortgage. Therefore, the seller may ask for a higher interest rate that may negate returns of investment. This is expected though, these deals are risky. A seller may not be able to chase you down if you stop payments. Plus, they still have their own mortgage to pay.
If you are not for seller financing you will need to find people who would be willing to give you money to put down for the mortgage. These people are numerous. I would know because I am one of them. I have invested in a REIT. The reason I have done this is because I want to invest in real estate without the debt. You can find real estate investors who could provide money for financing your real estate purchases using less conventional platforms such as in person networking. Many would prefer to invest in real estate more in person without taking on debt.
Note: if you want to find in-person investors to provide you with money to buy properties they will put their money on the line. They will also try to make sure you are putting their money where you say you will. If you do not obtain results or if they want their money back they may borderline harass you.
It is possible to buy real estate for zero down legally. However, going the real estate wholesaling route or 100% finance deal route have some downsides. For real estate wholesaling, especially with iBuyers spreading throughout the US, you will have to be among the best wholesalers. You cannot do your 9 to 5 day job on top of trying to be a real estate wholesaler. At least, not if you need more than 4 hours of sleep each night. I obtained my PhD in biochemistry in only 4 years, was published multiple times, and started a personal finance blog with about 6 hours of sleep each night. Just to put that in perspective.
As for the 100% finance deals, these are possible to obtain. But keep in mind you either need to be the best or prove that you will be. If you are already a successful investor, why do you not have the money to obtain typical financing? That is one of the simplest questions that sellers and investors will ask you if you are looking for 100% financing. If you don’t have a good answer, you may have no deal.
That being said, there are many who are looking for the best deals or solid money making investments. While these methods may not be the first thing they line up for, there are many circumstances that make these methods more favorable. You may find opportunities that just cannot be passed on immediately. If you are right, buyers, sellers, and investors will flock to these opportunities and provide you with your own opportunity to start in real estate with zero down. As soon as you have happy sellers, buyers, and investors, you are on the way to forge your wealth. If you continue growing as a real estate success, you will become a beacon to show people that they can forge their own success from nothing.