No-Money-Down Real Estate – Does It Really Work?

“No one can possibly achieve any real and lasting success or ‘get rich’ in business by being a conformist.” – J. Paul Getty

Russ Whitney acknowledges that the promise that you can buy real estate with no money down draws a lot of skepticism. “But,” he says, “try telling that to my students — people like Karen Herrera, who owns more than 50 rental units, all purchased within the past three years without her putting a nickel down on any of them.”

And Karen Herrera isn’t the only Russ Whitney protégé who has made zero-down investing work. According to some snooping I’ve done, there are hundreds of people who have made millions of dollars buying up properties with no money down. I spoke to Russ about this the last time I saw him, and he acknowledged that it takes determination and hard work. “But,” he says, “if you know what to look for” (i.e., the right kinds of properties), you can begin a very profitable career in real estate this way.”

Here are six ways to structure no-money-down real-estate deals, according to Russ in “Millionaire Real Estate Mentor”:

1. Have the owner provide all of the financing. If the seller owns the property free and clear and is willing to hold the mortgage, he may also be willing to sell it without a down payment. You may suggest structuring the deal with two notes — one for 80% to 90% of the price over the long term and the other for 10% to 20% for the short term (which can essentially be your down payment).

2. Assume the first mortgage and have the seller finance the second. Show the seller an amortization schedule so he’ll clearly see that the total payoff of the second mortgage will be substantially more than if you had made a cash down payment.

3. Create a wraparound mortgage. The existing mortgage will continue to stand, but you create a new mortgage that wraps around that one. You make payments on the wraparound mortgage to the seller, and he continues to make payments on the original mortgage.

4. Obtain financing from a hard-money lender. This type of funding source lends at high interest rates based on the property’s value. He doesn’t care about the creditworthiness of the borrower. A hard-money lender usually won’t lend you the 80% to 90% you’d get from a bank, because he needs more collateral to feel safe with the loan. And he will charge you more for the money — typically three to 10 points more. And, in many cases, when you use a hard-money lender, you’ll also have to ask the seller to carry a second mortgage until you can arrange for new financing to replace both loans.

5. Arrange a lease option. Instead of buying the property outright, rent it with an option to buy after a specified period of time. A portion of your rent will be credited to the purchase price to create your down payment.

6. Obtain a new first mortgage from a community bank or through a mortgage broker and have the seller carry a second mortgage. This works only if you have a decent credit rating and the seller can manage without cash at closing.