January 21, 2008
No Money Down Real Estate Investing: Is It Really Possible?
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A reader, Simone, recently asked:
"Is it really possible to get started with no money down? I want to get started but I have no money. What should I do?"
Let me start by giving you a definitive "yes, it is possible". I know it's possible because I've done it myself but it's not necessarily as easy as many of the gurus would have you believe. Let's examine why and what to do about it.
The first thing we need to discuss in answering this question is the definition of "no money down". Money is nearly always needed for a real estate transaction to take place so I think most people's understanding of "no money down" is that you, as an investor, don't need to contribute any of YOUR OWN money towards the down payment on the property.
Now, there are actually many different ways in which this can be accomplished. Robert Allen has put together a list of FIFTY no money down techniques here which you should definitely check out. But the interesting thing is I guarantee you there are even more techniques than these.
As such, what's more important than the fifty techniques is the thinking process in creating such a list. Creativity in putting together a deal is an invaluable quality for a real estate investor. So in Robert's article, I'd suggest that the list of 10 possible sources of money at the top is actually the thing you should focus on.
The lesson here is to start thinking with a problem solving mindset and asking yourself good questions:
- how can I invest with no money down?
- where might I be able to get the down payment?
And Robert Allen has given a pretty thorough answer to that second question:
1. The Seller
2. The Buyer
3. The Realtor
4. The Renters
5. The Property
6. Hard Money Lenders
7. Underlying Mortgages
8. Investors
9. Partners
10. Options
Now, at the beginning of this article I said no money down isn't necessarily as easy as some people would have you believe and yet some of these techniques are quite simple. So where is the problem? Some of you may not like this but the difficulty lies in your own belief.
For example, my first nothing down deal involved the use of an investor but when you are just starting out it can seem like a super-human feat to convince someone else to give you some money to invest in a property.
So, the trick is to "dumb-down" the process to match your belief levels until your confidence rises to a point that you can apply something more advanced. For instance, my first investor just happened to be my brother - now that's a little easier for a beginner to believe, right? Convincing your brother to invest isn't quite as scary as convincing some hot-shot investor.
Okay, for some it will still be too scary and for others they won't have a brother who can invest. So what else can you do? You must find a technique that you can honestly see yourself doing; that matches your self-belief. At the most basic level you could consider something like bird-dogging.
Bird-dogging is where you find good real estate deals and take them to a seasoned investor and he pays you a finders fee. Some people would say that's not "no money down investing" but so what - it's a way to get started earning some money (and experience) in real estate with NOTHING DOWN.
And if you don't know anyone who will pay you such a finders fee - get creative. Advertise the deal you find online - Yahoo Groups, a classifieds site, or a multitude of other places. See how it's all about trying things you've never done before. Just don't quit if it doesn't work out the first time. Try something, learn from it, ask questions of others, and try again.
If you have any questions just add a comment below.
To your success,
Scott Roemermann.
Filed under Financing, Getting Started by Scott Roemermann
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Comments on No Money Down Real Estate Investing: Is It Really Possible? »
Hi Scott - I just came across your blog via Twitter… I'm currently in a Mike Watson Institute seminar - are you familiar with him? He's fairly "out there" in his techniques! And he's like the Tony Robbins of real estate. lol
Mari, No I've never seen Mike speak but if he's the Tony Robbins of real estate it is surely an experience.
My name is Telly and I am curious about your first time buying a home. Was it easy? Were you nervous? And how did you do it?
Telly, maybe I should do a blog post on this topic for you but in the meantime I can tell you, yes, I was extremely nervous. I was a relatively young 26 year old which surely contributed to it but I'm sure that buying your first house has enough uncertainty to make the average person pretty anxious. Was it easy? Yes and no. Nothing about the transaction or the process afterwards is particularly difficult. For me the hard part was simply making the decision to do that first deal. How did I do it? I spent in excess of $6,000 going to a real estate investing bootcamp which I think is more than I'd spent on any other single purchase in my life at that point. That motivated me! REALLY motivated me. I needed to make that money and some so I bought my first house within 2 weeks of that bootcamp and decided to figure it out as I went. The biggest hurdle I had with that deal was trying to find a tenant. It sat vacant for a few weeks before I decided to hire a management company. I still had little idea what I was doing but as I had "planned" I figured it out as I went along. And I encourage others to do much the same. Don't be stupid about it, but find the courage, believe in your ability to solve issues as they arise and do that first deal. The one proviso I'd add relates to my comment about not being stupid. DO YOUR NUMBERS. Make sure you invest based on a solid analysis rather than just going and buying a property on gut feel or bad numbers. If you don't know how to do an analysis, start with a spreadsheet of all your expected income and expenses and start figuring it out and always include some margin for error.
One thing I always like to tell beginning investors when discussing "no money down" deals is that just because a deal is "no money down" doesn't make it a good deal.
Determine your buying criteria and stick to it. The last thing you ever want is to take on a seller's problem because you think since you can get into it for little to nothing down, that is makes sense to do.
Yeah, great additional comments there Patrick. Very good point. Thanks.
"No money down" is one possible tool when you consider the financing of a deal. You should conduct a financial analysis considering different financing alternatives and if you NEED it to be a "no money down" deal you may want to consider leaving it alone.
Great post and some good links on no money down investing. I still think you should always have some money before investing in any property set aside in case you need it fast. You never know what might come up and needs to be fixed.