Buy Rental Property With No Money Down
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.
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.