No Money Down Investing
Can You Buy With No Down Payment?
By
Oct 6, 2005, 12:50

When I give seminars on real estate investment, I often ask that how many people have ever bought a property with no down payment.

There are always a few people who raise their hands. Sometimes, with a hundred or more students in the room, as many as forty hands go up. The rest of the group looks dumbfounded.

Buy property with only a few dollars for closing costs – or perhaps no money at all? It sounds utterly impossible. Yet it is done every day.

Not by most people, of course. And seldom by one person over and over. Yet almost anyone can do it once in a while. When the right situation comes along, the would-be buyer just needs a little know how plus patience and persistence.

No-Down-Payment terms are not often advertised. Nor are sellers or brokers likely to hint that a down payment might be waived. The average seller needs and expects to get a reasonable hunk of cash. Not only must the seller figure on paying a commission and other sales costs, but he or she probably wants money for some other purpose – maybe another real estate purchase.

Even a seller who does not especially need cash at the moment may be unenthusiastic about turning over a valuable asset to someone who offers nothing more than a promise to pay over a period of years. Could this would be buyer be a phony? What happens if the promised payments are not forthcoming? What certainty is there that the payments will be forthcoming? What if this buyer just walks away from the property, perhaps leaving it in bad condition?

Suppose you are this would be buyer who hopes to acquire the property for no down payment. Even if you show an owner you have been investing successfully in real estate for many years, have plenty of assets, and a good credit rating, the owner is likely to prefer selling to someone who will make a reasonable down payment. In fact, his only reason for selling maybe to get his hands on some cash.

Still there are exceptions. Watch for them.

Some sellers don’t need cash, and realize they may come out ahead in the long run by selling for nothing down. Other sellers have let property run down so badly that a no cash buyer usually is the only kind who would be interested. Both types may yearn to free themselves from the work of managing their property. They would prefer the steady income from a long term trust deed or mortgage.

Then too, certain kinds of real estate – country acreage, desert land, and resort properties, for example, are often hard to sell at a good price unless the seller will waive most or all of the down payment.

Distress situations often similar opportunities. If an owner is awash in red ink, he is mainly concerned about cutting his losses. He will sometimes grudgingly pass up the down payment in order to get the problem off his hands. Likewise, lenders who have had to foreclose on a property they do not want will often be happy to rid themselves of it for nothing down and on generous terms.

Divorces, remarriages, illnesses, deaths, and job changes can often make people eager to sell as quickly as possible, with immediate cash a secondary consideration. In such circumstances, the steady income from payment of principal and interest on notes can often be more attractive than cash that would be immediately and heavily taxable.

Still other chances for no cash down purchases may crop up in FHA programs that enable responsible buyers to arrange 100 percent financing for the purchase and rehabilitation of housing for low income families. Then too, if you are a veteran with a reasonably steady income, you are probably eligible for a loan guarantee that may enable you to buy at least one residential or farm property without a down payment.

However, such situations are seldom visible to the casual shopper. Only when you draw the owner or broker into lengthy conversation will you become aware of them. From then on, your chance to buy without cash will depend heavily on your willingness to ask for such terms and negotiate for them. Ask, and it shall be given you; seek, and you shall find. Saint Matthew tells us in the New Testament – and this is just as true in real estate as in other fields.

When you suggest a no down payment purchase, brokers almost always look horrified and say that their client would not consider it. Remember that nay broker wants to know where the cash is coming from to pay his or her commission. But this is no reason to let a broker talk you out of submitting such an offer.

A broker must pass all offers along to the seller, no matter how outrageous or ridiculous they may seem. And the broker is not always in the seller’s confidence. Sellers sometimes are willing to sell on far more liberal terms than their brokers imagine. This is especially true when their property ahs been on the market for quite some time with no sale in prospect.

In persuading a seller not to insist on a substantial down payment, you can use various talking points.