How to Buy a Cash Flowing Rental Portfolio with Little (or no) Down Payment
I often get the question, “Is it really possible to buy property with no down payment?” The answer is always the same. Of course you can, but you have to get creative. There are many ways to accomplish this and some strategies are obviously better than others for different investors. If your goal is to create wealth with real estate you can easily acquire rental properties with little or no down payment with a simple 4 step process:
Find a deal in a great rental area that needs repaired
One of the key things for this process to work is to find a deal where you can buy and repair the property for 70% of the after repaired value. I say 70% because that is the number most hard money lenders will lend up to. This insures that it is a good enough deal that your lender is comfortable loaning you the money to buy it and fix it.
You also want this property to be in an area that rents well. Meaning that there is not too high of a vacancy and the purchase price to rent ratio is solid. There are areas in my market where you can buy a house that is worth $130,000 that will rent for $1,250. You can also go to areas that you will buy a house worth $250,000 that will rent for $1,400. It is easy to see from this example which area you will want to be looking at. I am not saying buy in the war zones but these are typically the lower income areas.
This is going to be the hardest piece of this whole process. It is going to take some work and making several offers to get a deal that will work for what you are trying to accomplish.
Fund the deal with hard or private money
Many hard money lenders will lend 100% of your costs up to 70% of the after repaired value. I would start calling the hard money lenders in your area to see if they will loan 100%. If not than you will want to start talking to individuals that might be interested in funding your deal. You will sell it to them by explaining that they are secured with 30% equity and that they can issue the money for the repairs in draws to be sure that you actually do repair the property. www.BiggerPockets.com is a great way to start looking for hard money lenders. There is preferred vendor section or you can just get on the forum and ask for a referral.
Fix it up and get a tenant
You will want to get it fixed and a tenant in there as quickly as possible. Often times I will start marketing the rental before the project is complete. I personally use a leasing agent to lease my properties for half a month rent in a fee. Once I have the tenant I manage my own properties.
Refinance the hard money loan
This is the last and riskiest piece of the process. Your hard money or private money lender will want their money back sooner than later, so you want to get this refinance done quickly. It will also save you a ton in interest since the interest rate on the hard money will be high.
It is best to get this loan lined up BEFORE you buy the house. Be sure you are talking to your mortgage broker or bank throughout the entire process. Finally, although you can do this with little or no money that does not mean you don’t need money. You will always want to have reserves in case something goes wrong, so if you have no money this is not a great strategy for you. There are some pitfalls with this strategy like the appraisal coming in low with your refinance so you need to have some funds to handle unforeseen problems.
Thousands of successful investors are using this strategy and setting themselves up for financial freedom. Maybe it is time to jump on the bandwagon and start the process towards real estate wealth.
Pine Financial Group, Inc