While I firmly believe that you should have some Money saved up before you start looking to buy property, I know deep down what everyone wants: they want to know how to buy investment property with NO MONEY DOWN.  How nice would it be if you could just show up to the closing, get the keys to a multi-unit property, and not have to spend any of your own money?  While I still maintain that this is a very rare occasion, it is still, in theory, possible.  However, it is not likely to happen the way that a lot of those real estate infomercials or conventions claim.  I’ll show you based on my experience the steps you can take to give yourself the best chance to pull off this miracle.

Myths of Buying a Property with No Money Down

First, let me address some of the myths of buying property with no money down.

When I researched all the available info out there on buying property with no money down, I ran into a lot of people telling me to just borrow the money from my friends & family.  If I can’t do that, then find some investors and get them to let me borrow their money.  Wow.  First off, if you have friends & family with that typs of cash on them (and willing to loan it to you), chances are you are well aware of it, and don’t even need to read this.   You’ve already got this figured out.

As far as finding investors to let you borrow their money, try thinking about it from the investor’s perspective.  Say you have a lot of money and are looking for ways to invest it.  What would it take to loan your money to a complete stranger who wants to use your money to buy their first multi-unit property?  This is their first one, so they don’t have any experience deal with properties!  Chances are pretty slim on you giving them any of your money.

Next, I hear a lot about getting the Seller to finance the property.  That way, you just pay the seller a monthly mortgage, and you take control of the property.  The seller essentially becomes the bank, and you don’t have to spend any of your own money.  Why would a seller want to do this?  If a seller does this, they won’t get any money at closing, just an IOU from you.  They then have to rely on you pay them monthly, otherwise that have to go through the foreclosure process to get their home back!  That is a lot of risk to them with not a lot of benefit.  In the seller financing deals I have seen, the seller often asks for a large down payment in order to cover some of that risk.  Unless you cannot qualify for a normal loan for some reason, you are better off just going to a lender.

How to Actually Pull it off

Now, let me tell you the best way to try and purchase a building with as little money as possible.  First, you have to build up your credit.  If you aren’t going to pay the money, you have to get someone else to.  That person will most likely be a bank or a lender, who will not give you the money if your credit is not up to par.  Let’s face it, the bank isn’t going to give you hundreds of thousands of dollars if they see that you won’t even pay off the couple thousand dollars that you spent at target.

From there, it is actually pretty simple.  For the loan, you are going to need to use an FHA loan, which only requires a 3.5% down payment (which is about as low as you can get).  Now, we need to find a way to get someone else to pay for this 3.5% down payment, as well as the closing costs, which can be another 3% of the purchase price.  If you can do this, then you have bought a property with none of your own money!  Below are some ideas to do just that.

First, see if you can qualify for an IHDA grant.  In Illinois, IHDA (Illinois Housing Development grant) is offering a pretty nice grant to first time home buyers.  This also includes buying multi-unit property if you plan on living in the building (up to 4 units).  This grant is a great way to buy a property with none of your own money, and it is not as hard to qualify as you think.  If you want more info about this grant, feel free to contact me and I can direct you to some lenders I know who deal with this grant.

Another way you can get this money is to ask the seller to give you a closing cost credit.  As I mentioned earlier, sellers will most likely not want to do seller financing, because they will not get their money at the closing.  However, if you ask for the seller to give you a closing credit, they will get their money at closing, just like a normal real estate deal.  You just have to build it into the deal.  For example, instead of offering to buy the property for 200,000, you offer to pay 205,000 and ask for a 5000 closing credit.  The seller doesn’t really care, because they still get their 200,000 at closing!  Now, keep in mind that lender will only allow up to a 6% closing credit.  That 6% will pretty close to covering most of money you would need to bring to closing!

Now as a realtor, I have to give you the down side to doing all of this.  Since you are borrowing more money then in the average deal, your mortgage payments are going to be a lot higher than if you paid the down payment with your own money.  This means there won’t be as many profitable deals available to you compared to someone with more cash.  This is the main reason that cash is king in real estate.  The more you have, the easier all your real estate deals are.

Any questions or comments, please feel free to reach out to me.  Thanks and have a great day!

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