By Ken Wayne, ArrowRiver.com
So, can you really buy a home with no money down? The short answer is yes, you can if you're willing to put fourth a little extra effort.
Let me explain: Several years ago I saw a home study course advertised on television, it claimed to be able to show you how you can use creative techniques to purchase real estate for little to no money down. I was much younger than I am now and naive enough to believe that something like that would actually work, so I purchased the program.
This program was my first experience with anything educational that taught me how to deal with financial situations and how to create my own business. Over the years I have studied many other programs and courses including Carleton Sheets, Robert Kiyosaki, and Dave Ramsey just to name a few.
My favorite author of all is without a doubt Dave Ramsey, I think the very best way to purchase a house is to pay cash for it if you can. And if you already own a home and are considering getting into the rental market, you should definitely consider paying your home off first before diving into rental properties.
But if you are bold enough (I think Dave Ramsey would say stupid enough, Robert Kiyosaki would probably use the word bold), you can buy properties using OPM (Other People's Money).
The techniques I have used to buy properties in the past with no money down can be used for a first time home buyer, a rental property, or even vacant land.
The first thing you must do to purchase a property with no money down is to be creative and think outside the box.
It is only human nature for most people to want to be told what to do, and to have a desire to follow the rules. So when you ask most people (especially your banker), they will tell you there is only one way to buy a piece of property. You must get a bank loan, pay 10% to 20% down or more on the house, you must have good credit, a good job, and plenty of money in the bank.
This is all good advice on how to buy properties, but contrary to what people will tell you, this is absolutely not the only way. If you study entrepreneurs and big business, you will learn this is not how they typically buy real estate. They will almost always employ creative financing techniques.
According to ATTOM Data Solutions, 34% of all homes in America are paid for. That's right, over 1 in 3 households do not have a mortgage on them and are owned free and clear.
And what about the homes that do have a mortgage on them? Fourteen million American homeowners, roughly one of every four owners with a mortgage, owe less than 50 percent of their current home value.
So what do these statistics mean to you? Why are these numbers important in utilizing creative financing techniques?
What if I told you that many of these properties are rental properties or properties involved in an estate sale. Many of these houses are properties that people need to get rid of for one reason or the other. Divorce, loss of a job, taking a new position in another location and moving. These are just a few examples of why people need to sell their property.
Now imagine for a moment that you own five rental properties that are paid for, you are now in your late 60's or older, and you're tired of dealing with renters, but you still want to make a good return on your investment. A young couple looking to buy their first home, or a real estate entrepreneur approaches you and offers to buy one of the rental properties from you.
For whatever reason, this young couple or this real estate entrepreneur either cannot or is not willing to get a bank loan to try to buy the property from you. There are several ways you could sell the property to them without getting a bank involved and still make an excellent return on investment for your real estate.
The first option would be to rent to own or lease to own the property to them. This would be where a portion of their monthly rent would go toward the purchase of the home, it could later be used as the down payment for a conventional bank loan, or you could rent the property for the entirety of the loan until it is paid for.
A second option would be to take back a mortgage on the property, they would sign mortgage documents that would be prepared by your attorney and filed at the local courthouse. You could charge a higher interest rate than banks typically offer for providing a mortgage to them directly. The buyer could pay on this mortgage for several years while they establish their credit and then refinance the property paying you in full the remainder that is owed on the mortgage. Also, if you're willing to finance a property in this manner, it is often customary for you to get the full asking price for the property that you are selling to them.
A third option could be for the buyer to get a first mortgage and the seller to take the down payment in payments over several years in the form of a second mortgage. This is exactly how I bought my first rental property. I purchased the property for the asking price of $40,000. I got a loan from the bank for $30,000, and the seller took back the $10,000 down payment in the form of a second mortgage paid over the next 10 years. The house was paid for, so the seller walked away with $30,000 in his pocket and guaranteed monthly payment for the next 10 years.
As you can see these techniques that I have used to purchase property is a win-win situation, both for the buyer and the seller.
Keep in mind I am not saying that this is for everybody, the older I get, the more risk-averse I become. Therefore, it is my strongest recommendation that you follow a program like Dave Ramsey and pay cash for your rental properties. But if you are a first-time home buyer, or an entrepreneur looking for a way to bring on another rental property without using any money down, these techniques could work for you.