Low Money Down: You Don’t Need to be Rich
There is a common myth in real estate investing: “Real estate investing is only for the rich” or “you need a lot of money to buy real estate.” This argument is flawed, and that is due to ignorance of the concept of using other people’s money. I know…the “other people’s money” mantra has nearly become a running gag for 3am infomercials and radio advertisements. “No money down” investing has saturated the airwaves with the likes of Carlton Sheets and other well known real estate marketers making you think it’s EASY to buy real estate with no money down.
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Unfortunately, this creative marketing and “get rich quick” mentality has given the “no money down” concept a bad name. The truth is, you certainly can buy properties with very little money down, sometimes none at all. It’s not easy like your late night TV would like you to believe, but it’s possible. What you aren’t being told is that there is risk to the “no money down” idea and it’s certainly not a get rich quick scheme. It is simply a mindset to bring multiple real estate assets for flipping or holding into your existence. It is to be used as part of a long term investment strategy of financial independence. Instead of saying “I can’t afford real estate,” you should be asking yourself, “how can I afford real estate?”
The easiest way to purchase a property with only a small amount of your money is simply through your bank. Just as the bank lends you money for your home, it will also loan you money for an investment property. Depending on the type of property you are looking to purchase, the down payment can range from 15-25%. In other words, if you buy a $100K property, you will need to come up with $15-25K. The beauty here is that you are controlling a $100K asset without having to come up with the full amount. That is the power of leverage!
Now, you might be saying “well I don’t have that kind of money lying around. Maybe I don’t have to be rich or have a lot of money, but $20K is a lot of money to me!” I agree…hell, $20K is a lot of money to nearly all of us. In order to get past that up front committment, you will need to transcend to the next stage where you are paying very little to no money down. This can be a bit more complex–one common way (and easiest way) it is done is by taking over the seller’s mortgage payments when you purchase the property. There are motivated sellers out there every day who do this when they need to get rid of their property. This is called a “Subject To”, which is subject to the existing financing. If the seller has very little equity, handing over the coupon book is not going to put them at too much of a loss.
When it comes to getting ahold of money to invest, the simplest and most straightforward way is to go to your bank, but sometimes, even that won’t pan out. You may have difficulty with financing or you might just be borrowing more than your bank allows. In that case you may want to consider hard money lending to help you buy low or no money down.
Wikihow: Get a Hard Money Loan Approval
Private money lending is another angle where lenders have money burning a hole in their pockets, mattresses, or Certificates of Deposits. Rather than getting 0-2% interest on this money, they find that they could get much more just by lending this money to hopeful real estate investors. Use that to your advantage by helping the lender get more for their money and securing your next investment property.
Wikipedia: Private Money Lending
Note that hard money and private money lending are not the same thing. Dave Lindahl on CRE Online does a great job of explaining the differences.
No matter which way you choose, rest assured that you do not need to come up with a great deal of money to get involved in your first real estate deal. Often, your first property is much closer than you think!
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Before you leave:
Disclaimer: The information presented does not consider your particular investment objectives or financial situation and does not make personalized recommendations. This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, AssetRover recommends consultation with a qualified tax advisor, CPA, Financial Planner or Investment Manager.
Don't forget to check out our free rental property calculator. This will be a valuable tool in your arsenal as you analyze your existing or potential rental properties.
Thank you for your ongoing support and happy investing!
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