Buy Rental Property With No Money Down

Oct 1, 2011 by     7 Comments    Posted under: How to buy rental property

The concept of buying rental property with no money down is clearly dependent on finding an extremely motivated seller. A motivated seller is one who faces  circumstances that don’t  allow him the  flexibility  to achieve full market value  for his property. For sure, a certain number of motivated sellers exist  in any market.

The late 2000s downturn in the  real estate market may seem a perfect opportunity to explore the  benefits of putting less  money down  to purchase a property.  The reality is that most lenders are no longer in the  creative financing business after  being  burned by the  stated income or “no doc” and  similar subprime loans in which the  buyers have  no vested interest and  were  counting on unsustainable appreciation to create equity.

 

There are also  fewer sellers with significant equity in their properties so the margin for seller financing is diminished. Low money down  and/or instalment sales are much more likely and  feasible when  you have  a seller with plenty of equity. However, many  of the  most motivated current sellers are owners of properties in which they  owe as much or more than the  property’s current market value.

buying-rental-property-with-no-money-down

The stock market is a relatively liquid  market where buyers and  sellers can enter or leave  the  market quickly  with broad knowledge of current pricing. In contrast, real estate assets are illiquid — it can take  a relatively long time to enter or leave  the  real estate market. Real estate is also  unique: A share of your  favourite stock always represents the  same investment; not  so with real estate. This creates the  opportunity to profit from pricing inefficiencies between one property and  another. Also, the  ability to complete a real estate transaction quickly  provides an additional factor that can affect the  price.

 

The following  are examples of motivated sellers who may be willing to sell rental property with no money down:

 

  • A seller who’s relocating and needs to sell  in a hurry: An owner who’s leaving  the  area may need to quickly  sell his home so he can buy a replacement home in his new location. In order to complete the  sale in a timely  manner, he may be willing to lower  the  price to somewhat below the  full market value (the price he could have  received if he were  not  in such a hurry). Finding  a seller in a hurry is one of the  most reliable ways to buy real estate with little or no money down.
  • A seller who’s desperate to sell  and exasperated by the effort: The owner of a property that has  been vacant for an extended time period or that requires extensive renovation may be desperate to sell. The property may have  a deadbeat tenant, or maybe it’s vacant after  being destroyed by the  last  tenant and  the  owner lacks  the  cash to make the significant investment in repairs. This type  of seller may be willing to offer generous seller financing terms or even  pay you to remove him from his liability.

 

But even  when  sellers find themselves in such positions, who will stamp “Desperate to Sell” on their forehead? Trying  to determine a seller’s motivation always takes work.

 

Although, clearly, such real estate owners exist,  they’re not as common as some of the  real estate investment gurus would  have  you believe. There are always anecdotal stories about an amazing success story, but  there are many more untold stories of cocky  novice real estate investors who found out the hard way that you get what  you pay for. Although it is possible I don’t recommend you try and buy rental property with no money down to get started. 

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