Investing in real estate is possible in so many ways for individuals who are interested in becoming property owners. The basic concept we get from real estate investing is that it costs a lot of money, because purchasing a property nowadays is more expensive due to the housing market’s recovery. Many potential investors wonder how to buy a house with no money down and if it’s actually possible. To answer in brief: The concept of how to buy a house with no money down is not a complex process for existing and potential real estate investors to follow.
Many articles nowadays encourage real estate investing and describe its potential to make you rich. Believe it or not, you could still invest in real estate with almost no money, but before you do so, make sure to understand this industry very well. Knowledge can be achieved through taking on jobs as a real estate agent, an appraiser, an assistant to a real estate investor, a construction worker, or an intern. Once you have accumulated enough real estate investment knowledge, you can start answering your own question of how to buy a house with no money down.
The first step to answer the question “How to buy a house with no money down?” is to analyze your financial situation compared to the cheapest strategies available to you in the market. Choosing a strategy that you are comfortable with is as important as the financial planning of the investment process.
So, let’s take a look at how to buy a house with no money down for real estate investing:
Hard Money Lenders
The most popular course of action when wondering how to buy a house with no money down as a real estate investor is through the use of hard or private moneylenders. These loans are not given from banks, but rather individuals and businesses aimed at financing investments for a return. In addition, these loans are generally comprised of their own set of criteria, which also include more fees and higher interest rates to deal with.
Hard Money Lenders: Unlike private money, hard moneylenders set forth fees in the form of points. Ranging from three to five, these points represent an added, upfront percentage fee based on the borrowed amount; this is on top of the interest rates hard money lenders charge, which range between 10% and 18%. Fees and interest rates are not universal with hard/private moneylenders, so real estate investors need to do their due diligence.
Related: 7 Tools Modernizing Real Estate Investing
Real Estate Wholesaling
The concept of real estate wholesaling is that the middleman who is the wholesaler does not invest his/her money in the real estate property. He/she merely buys the contract under a contingency plan to have the chance to back out of the deal in case he/she can’t find a buyer before the closing date of the property. For example, a real estate wholesaler buys a contract of a property for $55,000. Let’s say that marketing the property and all other related expenses amount to $1,500. If he/she manages to sell the property for $60,000, then the wholesaler has made $3,500 in profit in a matter of days only without investing anything. The great thing about real estate wholesaling is that you don’t need to worry about repair costs, as with fix-and-flips.
The idea might sound lucrative and easy to execute. However, if you think about the required contacts that a wholesaler needs to perform these transactions, then you’ll be able to understand why this strategy is challenging. Real estate wholesaling requires a vast network of buyers, sellers, and real estate agents that are all vital to execute the transaction. This is exactly why most people fail at real estate wholesaling; it just requires too much work and too much experience to guarantee success.
But still, real estate wholesaling is on way to go about how to buy a house with no money down, though at the end you will have no house in your hands.
Related: Is Real Estate Wholesaling a Good Idea for Beginner Investors?
Lease to Own Option
Lease to own is a great option to answering the question of how to buy a house with no money down. The basic definition of a lease to own option is when an owner gives the tenant the option to buy the property at the end of the lease. Usually the tenant is given a time frame and a price at which the tenant has to buy the property. Most of the time, the lease payments can then be applied toward the purchase price. This is a beneficial strategy for buyers because they have the option to continue renting or buying, but the seller cannot sell the property to anyone else should the tenant decide to buy it.
Related: Lease to Own Option and its Pros and Cons for Buyers and Sellers
The advantages of lease to own option are plenty for the investor to think about, and the following is a list of pros for the buyer:
- A lease to own is an exciting prospect for a tenant who is short on cash and unable to qualify for a mortgage. This gives the buyer time to prepare a down payment or improve his/her credit ratings for a mortgage before the purchase date.
- A purchase price for the property is usually agreed upon at the signing of the agreement. This is a huge advantage for the buyer who will avoid additional costs of appreciation of the property after a number of years of renting have passed.
- Lease to own can act as a trial period for the buyer. If the buyer is new in town or relocating, then a lease to own allows him/her to test this particular location as an investment opportunity.
- If the buyer is relocating and waiting to sell a property of his/her own to fund the purchase of a new one, then lease to own is the perfect option. It gives the buyer the opportunity to get settled in his/her future home until being able to purchase it completely.
How to buy a house with no money down is a question many potential real estate investors ponder on. The ambition to become an investor while being limited by the resources you currently command is no longer a concern. The real estate investing world has become extremely diversified which has made it easier for almost anyone to become a real estate investor in one way or the other. Choosing a strategy that makes you own a house without money is not that simple though. Understand all strategies and choose the one that you are most comfortable with in order to make it work. How to buy a house with no money down is becoming a relevant topic, so be sure to understand how it can be done.
For more advice on real estate investing, keep reading Mashvisor.