No money down! Low to no money real estate investing, we’ve all seen the ads and heard the pitch from someone selling their training or their book. So, how real are these options? Can you actually buy real estate with no money down?
The short, easy answer is yes, the real answer is it depends.
Some of these low or no money down approaches involved a much more active investment style. These are typically creative financing options: seller financing, subject to deals, etc.
In real estate investing you need some combination of:
- Money
- Connections
- Work
The more you have of one of them the less you need of the other two. The less you have of one the more you’ll need of the others. If you’re just starting out and have no money and no connections, investing in real estate is still a possibility, it’s just a whole lot more work.
Creative Financing
These deals can be seller financing, sub to deals, or rent or lease to own deals. These deals 100% exist, but they are either very competitive or very hard to find and require you to put in a lot of time and research. Pace Morbey preaches these methods and theywork, but they take time. Sometimes, a LOT of it.
Not only do they take a lot of time to find, but they have a huge learning curve that makes it tricky to try to do one of these deals on your own. Real estate in general has a learning curve (which is why we offer mentorship along with our online course!), but creative financing options are even more nuanced and tricky to operate and you definitely want someone who has done them multiple times showing you the ropes to structure one of these deals.
Upside: you can actually find a low to no money down deal that makes sense.
Downside: tends to be more like a fulltime job than an investment and there is a huge learning curve.
If you’re interested in these options the easiest path forward is to book a call with us and figure out your next steps otherwise you can start by joining the Creative Finance with Pace Morby Facebook Group or by getting a list of pre-foreclosures from a local title company. This is a good place to begin. I also like looking on Craigslist and Facebook Marketplace for seller finance and rent/lease to own options.
There are a couple other ways to find low to no money down options to start investing in real estate. We discuss a lot of these loan options in more detail in our post “How do I Fund my Real Estate Deal?” But we’ll briefly talk about them here:
VA loan
$0 down, you pay closing costs. You need to be a veteran, but if you are this could be a great option. However, you do need to occupy the property for at least a year with this loan type.
USDA Loan
$0 down, you pay closing costs. You need to buy a home in a rural area and make less than the median income for your region, but if you meet both of those criteria this could be a great option. Just like with the VA loan, you do need to occupy the property for at least a year.
Partnership
This is a potential option for funding your deal. If you can get investors or partners on board with a deal that you’ve found. This one also requires quite a bit more work setting up the deal to get a partner on board and networking to find a partner, but it is an option to get into a deal with low or no money out of your pocket.
The typical structure for these deals with be something like this:
Deal split: 50/50
Party 1: Provides 100% of the capital for the investment
Party 2: Finds the deal and manages the investment property
Another common structure:
Deal Split: 50/50 with 10% management fee
Party 1: Provides 50% of capital
Party 2: Provides 50% of capital AND manages the investment property. Receives a 10% management fee for their work.
Obviously, you can structure the partnership however you want to. These are just two of the most common partnership structures.
Local lenders:
Sometimes local lenders (usually credit unions) will have better programs that can require less money down for an investment loan. In Utah we have both used Mountain America Credit Union’s program that requires 10% down (with no PMI)!
Typically for a straight investment you will put 20%-25% down on a property, but programs like this can make investing in real estate a LOT more affordable.
I’ve heard of local lenders offering incredible loan products, some of which are 0% down for first time home buyers (we have a student in Arkansas who used this program).
The Norm
The overall amount you need for a property will vary a LOT depending on the market you’re investing in. We’ve invested a ton in the Utah market, specifically in quadruplexes. If we were putting 20% down (which we have) we would need to have well north of $100k to put down on one of these properties. Really, we would need almost $200k to purchase one of these properties. That’s a lot of money.
We do have a local lender who has a program which only requires 10% down so for our last couple purchases we’ve put between $60k-$90k down for these properties.
But $60k-$100k is still a lot of money. So is there a way to invest in real estate without it becoming a full time JOB, but still be able to get started with less money? Again the answer is yes.
This is where the market comes into play. You can read our post about “The Three Types of Real Estate Markets.” If you invest in growth markets (like Utah) it costs more money. Homes are more expensive and there is more upside with these investments so it makes sense that you will need to pay a premium to acquire properties in these markets.
In stable markets, you can often find deals for smaller properties that are much cheaper and therefore require a lot less capital up front, but how much less? In Detroit, which some consider one of the best cash flow markets in the US, you can buy a brand new duplex for $225k. Buying it as a straight investment property would be just under $50k out of pocket.
If we look at something a little older you can find a duplex in good shape for $170k which would be about $38k out of pocket. I could buy a single family home that needs a couple thousand dollars in repairs for $40k. That’s less than $10k out of pocket for financing and the repairs.
Do you get the picture? Your market will determine the general price range of the assets you’ll be purchasing, but then the quality of those assets have a large bearing on the purchase price and therefore, on the amount of money you need to get started.
Conclusion
Are there options for low to no money down? Yes. These typically take more work or only apply to specific situations. However, you have a little bit of control over the cash needed to get into an investment by your market and asset class selection.
If you have less money, but you want to get started (and you have a higher risk tolerance) you can choose a stable market and buy a lower quality asset that will need some work. If you have more money and don’t want the risk of buying a lower quality asset that’s okay too just know that it will cost more money.
