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"Zero Down Real Estate Investing does NOT Require 100% Financing!"


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Many self-proclaimed gurus will tell you the "secret" of zero down real estate investing...for a price! Well, I'm here to tell you that there is no secret.

The key is to secure an 80% LTV, 30-year fixed rate loan by financing the 20% down payment from a secondary source. Doing this will minimize your upfront out-of-pocket expense as well as your monthly mortgage payment (since you'll generally get the best rate, while at the same time avoiding PMI). Can you say: "best of both worlds"??

Ok, so you like the concept of no money down real estate. But how, you ask, can the down payment be funded with no out-of-pocket cash? Well, you have 4 primary options.


OPTION #1: GET A HELOC


If you've read other pages of this site, then you already know that I like leveraging built-up equity to enable zero down real estate investing. It's how I got started and heck, it worked for me!

A home equity line of credit (HELOC) puts a secondary lien on your home, and functions like a line of credit that you use checks to draw against on an as-needed basis. You'll have to apply for this as you would a regular mortgage, but assuming you have good credit, there are usually minimal-to-no fees or costs involved.

A HELOC is typically tied to the Prime Rate and periodically adjusts. Yes, on my property mortgage page I described the evils of adjustable rate loans, but in this case since the adjustable piece is limited to the amount of the down payment, the risk is greatly reduced (said another way, I'd rather have 20% of the loan fluctuate than 80%).

Like I said, using a HELOC is the exact method I used to get started in this business. That first HELOC made no money down real estate a reality for me, and I have since obtained HELOC products on several of my rental properties to fund future acquisitions.

If you have any equity at all in some real estate, obtaining a HELOC is probably something you should do as soon as you can. Since you do not pay interest unless you tap the line of credit, you can simply hold the HELOC in preparation for your next acquisition, or as an emergency fund.

Now, one word of caution is that leveraging your own home can be risky if you aren't careful – yes, you really could lose your home! So, even though I am advocating this strategy to execute zero down real estate investing, doing so requires careful thought and is a highly personal decision.

That said, as long as you purchase rental properties at reasonable prices, conduct a thorough investment analysis, and coordinate a property inspection, you can manage and greatly reduce your risk.


OPTION #2: GET A PIGGYBACK LOAN


One high LTV option that avoids PMI is a "piggyback" or 80/20 loan. However, it's nearly impossible to find one of these in today's market.


OPTION #3: GET A LOAN AGAINST YOUR 401K


This option is somewhat risky, but can be effective in situations where you expect to refinance rental property within a relatively short period of time. Click for the scoop on 401K investing.



OPTION #4: BORROW FROM A FRIEND OR RELATIVE


If you finance 80% of the purchase price, and borrow the other 20% for the down payment from a friend, you've accomplished zero down real estate investing. You can do this by drafting a formal mortgage agreement between you and the other party. Or, you could arrange a profit-sharing agreement whereby the other party gets a cut of your monthly property income and/or your post-sell profit.



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6 Responses to Zero Down Real Estate Investing does NOT Require 100% Financing!

  1. bbobbo says:

    regarding getting helocs on rental properties, to fund more purchases, to whom is the heloc issued–you, or the llc?

    i would think that the heloc is issued to the llc since it owns the underlying rental property; however, you mentioned that banks almost never issue mortgages to llcs, which is why you have to buy the property with a personal mortgage and then quitclaim it to the llc.

    do the banks care less about who is on the heloc?

    thanks, and sorry for peppering you with so many questions.

    legal note: i understand that anything you write does not constitute legal advice, and i absolve you of any liability regarding my own financial decisions.

    • alank856 says:

      Banks will not issue a mortgage or HELOC in the name of your LLC even if you personally guarantee the loan. Although I would love to have my mortgages in the name of my LLC, it’s not possible; you must get the loan in your personal name. Even after transferring the property title to the LLC, this has no impact on the mortgage. This only imacts the title. The mortgage must always be in your name unless you get a commercial loan which is generally not feasible for small-time investors. The important thing is that the title is in the name of your LLC.

  2. Jimmy D says:

    Hey all – For those of you who don’t know, bankrate.com is an excellent site for finding zero down loans. The site has a chart that shows property mortgage rates for various lenders, and you can then either apply to them online or call them up. Yes zero down real estate investing is definitely still possible!

  3. Paul says:

    Is it only me or does it look like some of the responses look as if they are coming from brain dead folks? 😛

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