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Creative Financing and Seller Financing

Ways to Buy Properties With No Money Down

1. Owner Financing.

The most common way to buy a property with no money down is to use owner

financing. This occurs when the current owner agrees to finance either all or some

part of the purchase price, instead of getting the cash now.

There are four types of owner financing to that you could ask for:

Type 1: Ask for the principal to be paid at a certain later date. If you notice, I

didn’t mention monthly payments for interest; only that the principal be paid

at a later date.

Type 2: Principal divided into monthly payments. Again no interest; you’re

paying off 100% principal. That’s a great deal for you!

Type 3: Ask for interest-only payments, with the principal to be paid off with a

“balloon” (also called “bullet”) mortgage in 5 years.

In this example, we offer 8% interest on $100,000 of owner financing.

Type 4: If the owner insists on getting principal and interest, then you would

structure the deal accordingly. Owner financing, $100,000, 8% interest,

amortized over twenty years with a five-year balloon the monthly principal and interest payments will be.

2. Borrow From A Private Lender For Down Payment.

If you’ve got a great deal, but don’t have the money for a down payment, find a

private lender. This is any individual that has extra money set aside that you can use

for your purchase.

This person can be a family member, friend, dentist, doctor, dry cleaner, a member

of your real estate investment club, etc. Private investors are everywhere; you just

need to start asking.

business will explode!

3. Signature Loan.

Take out a signature loan at your local bank for the down payment. Don’t use the

same bank that you used for your first mortgage on the property.

4. Subject To.

Just like single family houses, you can take over multi-family properties subject to

the existing mortgages. This means that the mortgage stays in the current owner’s

name, but the deed is transferred to your name.

5. Equity Share Investor.

This means you will share what equity is created in the property with an investor

who will give you the money for a down payment.

For example, an investor gives you 20% of the purchase price to put down on a

property. In return for this down payment, the investor will get 20% of the monthly

cash flow, and 20% of the profits upon the sale of the property.

Additionally, the 20% that is put down will be treated like private money. Private

money is a second mortgage on the property

6. Equity Share Owner.

You can also do an equity share with the owner. The owner transfers title to an

entity in which the two of you are partners. The property is refinanced for the

purchase price. The owner gets out as much of his equity as he can, and becomes an

equity partner for the rest.

7. Repair Allowance.

When using a repair allowance, you inspect the property and determine what needs

to be done in repairs. You add up the cost and have that money given back to you at

the closing.

8. Refinance With Seller Carrying Back A Second Mortgage.

This scenario is very similar to the Equity Share Owner situation but the owner does

not become an equity partner; he becomes a second mortgage holder.

This saves you a great deal of money in the long run, because you do not give up

20% of the profit and 20% of the equity!

9. Create Paper.

Write a note secured by a second mortgage on your house or other real estate in the

amount of the seller’s equity. One of the things that a seller thinks about when giving a second mortgage is that he will have to foreclose and would get the property back!

10. Trade.

Just as they did in the old west, you can barter the down payment for anything else

that you hold ownership to. This includes equity in other real estate, notes you own,

personal property, services...the list does not end.

11. Use Part of the Seller’s property as Collateral to Borrow Down


Many times you will buy a multi-family building that has several different parcels

associated with it. To get the down payment, get the property under contract and

coordinate the sale of one of the parcels to use as your down payment.

12. Sell off Dirt, Timber, or Plants.

Sell off the dirt to landscapers, sell the trees to lumber yards, and sell the plants to

nurseries. There is a lot of money in that dirt! Use it for your down payment.

13. Substitution of Collateral.

If you are purchasing a property below value (property A) and own a property that

is being used as collateral for the financing that is on it (property B), you may be

able to transfer the collateral from property B to property A. This would free up the

equity in property B to be used as the down payment.

14. Issue Stock.

Form a corporation and issue stock to sellers for their equity. It solves their

management problems and starts a real estate business for you. They get an equity

position in the company.

15. Acquire with future profits.

Acquire the property at an agreed price, with the seller’s equity to be paid out of

future profits as the project is turned around.

16. Tax Credits.

The government has a program that involves low-income housing tax credits.

These credits are like gold, because they allow you to get substantial reductions on

your taxes as long as you rent to a certain number of low- or moderate-income

tenants for a given period. You can even take those tax credits and sell them at a

discount to corporations that are looking reduce their taxes.

17. Hard Money.

When you’re investing in multi-family properties, hard money is also called

“mezzanine financing”. If the loan-to-value ratio is 65% or below, many mezzanine

lenders will finance you with no money out of your pocket.

18. Family Loan.

Do you have a family member with big bucks? Or a family member may have a lot

of equity in a property that they can loan you some money from. If you’re smart, you will make it worth their while: Either give them a decent interest rate on the money or (even smarter) give them some equity in the deal...perhaps 5%.

19. Acquire with a First and Second, Then Sell the First for Cash.

Buy a property with the seller carrying back both a first and second mortgage. Make

the closing contingent on locating a buyer for the first at an acceptable discount,

with the cash going to the seller as down payment.

20. Land Sale/Leaseback.

Offer to acquire the improved property, subject to finding a purchaser who will buy

the land under the building out of escrow, and lease it back to you subject to the

existing financing. Cash from the land sale goes to the seller as down payment. You

get depreciation on the improvements, and you can also deduct lease payments.

21. Assume the Mortgage; Seller Keeps the Land.

You buy the improvements and the seller retains ownership of the land, which you

lease from him. He gets out of the responsibility of management, and receives land-

lease income. You get income and depreciation with no down payment by assuming

the existing mortgage.

22. Pledge Future Income as Down Payment.

If you have a secure job or future investment income, negotiate with the seller to

have your bank deduct a specific amount from your checking account each month

until the amount the seller wanted as down payment is made. As additional security,

you can give the seller a mortgage on other property to secure your performance

under the agreement. You get immediate ownership and the seller eventually gets

the down payment.

23. Lease Interest as Down Payment.

When you are buying from a seller who is also a property user, offer one year’s

income in the form of free rental as down payment. The seller gets continued use

for one year in lieu of cash down. You get ownership with all its burdens and

benefits, but with no outlay of cash.

24. The Performance Second.

Used in variations involving cash as well as sometimes without cash, the

“performance second” is designed to test the seller’s faith in the value placed on the

property. Buy at the seller’s asking price with payments on the second mortgage

subject to the income on the property. If income is less than the seller has

represented, then the payments he receives on the second will be less than he would

like. But if the net income is greater, the payments increase. The second mortgage

amortization is consequently tied directly to property performance.

25. Broker as Lender.

If you are working with a successful broker, don’t count him out as a lending

source. Considering that he will receive a commission out of the down payment,

there is often the possibility that he might like to make a sound investment at a high

interest rate, using in part the cash he receives as commission; that’s cash he will

not receive if your deal doesn’t go through.

26. Line of Credit.

Take out a line of credit secured by you personally, your property, another property

you own, or—if you own a business—against the business or against your accounts


27. Seller Insures Buyer’s Loan.

When the seller has faith in the buyer but the lender doesn’t, arrange for the seller to

insure a portion of the buyer’s loan. The seller would guarantee the top 10% of the

loan by depositing that amount in the bank. When the buyer pays down the loan by

10%, the seller’s funds are automatically released.

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