Purchase Real Estate with No Down Payment: Using Other People’s Money

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You don’t need to have money to begin real estate investing. There are several techniques you can use to purchase a property little to no money down, such as a “leveraged buyout”, or using leverage instead of your own cash to complete the transaction.

Techniques to Purchase Real Estate with Little to No Money

The techniques I’m about to cover will work in any market — markets when interest rates are high or markets when interest rates are low, during boom markets or down markets. These techniques are not however perfect for every situation. Each technique is unique and some will work better than others depending on the circumstances — such as the goals you’re trying to reach for that transaction, and the skill level of the investor.

Technique One: Have the Seller Finance Your Purchase

This type of funding is through the person selling the property. For this to work you must first ask the seller these questions:

  • Would you consider financing arrangements?
  • Will you take a promissory note?

Remember that the seller is the most invested party in making sure this deal takes place. Depending on how “motivated” the seller is they may become extremely interested when you mention that you’re willing to pay the asking price, in return for working with you to make sure the sale goes through.

Motivated sellers are people who do not only want to sell the property BUT need to sell the property. They may not have the patience or time to sell the property the traditional way, such as:

  • Listing the Property
  • Waiting for a Qualified Buyer
  • Negotiating the Price
  • Then Months Later Finally Selling the Property

A seller can be motivated to quickly sell the property for a variety of reasons, including:

  • Divorce
  • Foreclosure
  • Job Relocation
  • Death in the Family

When constructing a deal for this type of transaction it’s important to construct one that’s a win-win for both parties, the buyer and the seller.

How to Get the Seller to Finance the Deal

  1. See if the seller will consider holding a Second Mortgage, in place of a down payment. For example, go to a lending institution and receive a loan for 80 percent of the payment, and then ask if the seller will hold a second mortgage note for the remaining 20 percent.
  2. Negotiate for the seller to give you Credits for repairs at closing. For example, try to negotiate a $10,000 credit at closing for things like roof repairs and new carpet allowance. The credit will appear on the closing statement and you could even get the money back at closing.
  3. See if the seller would consider a Land Contract or Lease Option.
  4. See if the seller would be willing to trade services for a discount on the real estate property.

Technique Two: Use the Property to Help You Finance the Transaction

Real estate properties can have more value besides the actual value of the property itself. Things like trees and mineral rights can have cash value. A vacant lot next door or furniture that was left at the property could also have cash value.

You should educate yourself on the local code enforcement or zoning. Many times, a property’s value can be calculated by looking at the sales of similar properties in the area. You can conduct this research yourself or get professional help, such as having a realtor help you.

Technique Three: Find Investors

When compared to other investments like stocks, investing in real estate is usually a more sound and safe investment. Think about how often people put money into the stock market — which is difficult to predict, risky, and many times influenced by human emotion instead of actual fundamentals. Now, rental properties on the other hand can be predicted fairly easily, you can predict what you’ll get for rent and what your expenses will be in the future.

Many investors simply do not have the time to set up real estate deals themselves, but they do have the cash to invest in these type of deals. They can loan cash to you, in exchange, for a good rate of return or choose to receive a percentage of the profits when the property is resold.

If an investor wants to only loan to you a portion of the purchase price, take some time before constructing the deal to find out what their requirements are.

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Technique Four: Find Partners for Funding

Partners will purchase the real estate property WITH you, instead of just giving you a loan. Before entering into a partnership, be sure all agreements are clearly stated in writing to avoid conflicts down the road.

Technique Five: If Possible, Borrow the Brokers Commission

This is unique technique, what you do is borrow the real estate broker’s commission and use it as the down payment. They delay their commission, and in exchange, you give them a note for an even larger amount than what their commission would be.

Technique Six: Use Your Own Resources, Skills, and Services as Negotiating Tools

If the property requires expensive repairs that you can repair yourself — negotiate a credit to be paid to you at closing as reimbursement for doing those repairs. The credit will appear on the closing statement which can decrease the amount of cash you’ll need at closing or increase the amount of money you’ll receive back at closing. When you negotiate repair credits into the deal, those credits can be enough to cover your down payment when it’s time to close.

Technique Seven: Lease Option

A lease option is simply a contract between the buyer and seller giving the buyer tenancy in the property and legal right to purchase the property at an agreed upon price in the future.

When you enter into a lease option with the seller you’re committing to leasing the property for a specific period of time while making monthly payments on the lease. In exchange, if you decide you want to purchase the property in the future, the seller has to sell you the property under the terms stated in the lease option agreement.

As a buyer, one of the main reasons for doing a lease option with the seller is because you believe the value of the property, when it comes time to exercise your option, will be higher than the agreed upon purchase price. You can use lease options for both residential properties and commercial properties.

Lease option contracts can include multiple options for the buyer and seller, including:

  • A “Sandwich Lease” – lease optioning a property for the purpose to sublease to another party with a purchase option
  • Lease optioning and then transferring or selling your position to an additional party
  • Lease optioning a property that requires some repairs and fixing up, with the intent to sell the property or keep as a rental unit


1 thought on “Purchase Real Estate with No Down Payment: Using Other People’s Money”

  1. I agree…I thought real estate lead software take on this was really good. I’ve been investing in real estate for 5+ years and never considered thinking about the value of the materials that make up the house.


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