ReiJournal.com

You’ve seen all the commercials on TV describing how you can buy properties with no money down. But can you really? And are they a good deal?

There is some good news and some bad news.

First the good news. Buying real estate with no money down is quite possible and with a bit of skill in sniffing out the right deals, can be quite easy to accomplish. But you must understand that no money down really means little or no cash out of your pocket. The deal still requires money but it does not have to be cash out of your pocket.

• A home equity line of credit against your house
• Your credit cards
• A personal loan
• Loans from relatives or friends
• The seller taking back a mortgage on the house
• A combination of traditional financing that equals 100% of the purchase price
• A 97% FHA loan with a 3% grant created by the seller through one of the many grant programs out there.
• A hard money or private money lender will give 100+% on the right deal

There are many others but this is a good starter list to get the mind thinking about ways to get the cash needed to do a no money down deal.

And remember that to truly do the deal no money down, you will have to come up with a way to cover the closing costs too. If the seller is motivated, these can often be covered by the seller giving a credit at closing to cover these costs. Or else you will just have to borrow a bit from a private source like your credit cards to cover those fees.

Now the bad news. Just because you can get a piece of real estate for no money out of your pocket, does that make it a good deal for you? For a deal to be good, the financials for the property need to make sense.

For instance, if you are rehabbing a property for later resale, you need to be sure that the purchase price/costs plus the repair costs plus the holding cost plus the cost of sale are covered. And after all those costs are covered, you need to be sure that you make a profit for your efforts.

Or if you are purchasing a property to rent, you need to look at your monthly costs vs rental income. Will you be making enough to cover your mortgage payment plus taxes and insurance plus anticipated vacancies and occasional repair and cleaning costs.

If the numbers do not work, the no money down deal that you structured would be a bad investment. However, if the numbers work, it can be a great investment.

When you understand the outcome you desire on a particular house or apartment building, you can then work backwards to figure out how to structure a deal to ensure that your outcome is achieved. Only when you have a deal that can deliver that outcome should you move ahead with a purchase. And if you can structure the deal to be a no money down deal, that is just icing on the cake.