What is no money financing and does it really work?

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Answered by: David, An Expert in the Investing in Real Estate Category
No money down financing means that you buy a piece of real estate without using any of your own money for a cash down payment, but before you even think about how to buy property with no money down, you should ask yourself why you want to buy the property and what you plan to do with it. Owning a piece of property is not a guarantee of profit. It is a responsibility. You have mortgage payments, property taxes and maintenance expenses. Therefore, the only reason you want to buy a piece of investment property, is because you can either sell it for a quick profit, or you can rent it and get a positive cash flow. Therefore, before you get into buying a property using no money down financing, you want to look at all the angles and make sure you’re really going to make money on the deal.

The most common form of no money down financing, is when the seller carries all or part of the financing. Many sellers with equity in their properties like the idea that they will get a monthly income and high interest carrying the financing. Others sellers just want to make it easier to sell the property. But, sellers usually want at least some cash down payment, so when a seller is willing to accept no money down financing, either they are desperate to sell, or they are asking a higher price for the property, or a high interest rate on the financing, or both. You need to know and understand the seller’s motivation before you decide whether you really want to buy the property.

If the seller is desperate to sell, you have to ask “why?”. There are good reasons - things that affect the seller, like losing his job, getting transferred to a new job of town, needing money to start a business or pay off debts, etc., but don’t affect the property or your ability to profit from it. and bad reasons - ie., the property is in bad shape, or it is overpriced, or it is in a bad area, known for high crime and unemployment, or just in an area with too many properties on the market and not enough interested buyers or renters, that will affect your ability to profit from the property. You always want to find sellers with good problems, that don’t affect the property. That’s how you get good deals, whether you’re using no money down financing, or traditional bank financing with a standard down payment.

Now let’s say the seller simply wants more money. Sometimes, it may be worth it to you to pay $220,000.00 for a $200,000.00 house, if you have a plan in mind to sell or rent it for a profit, even after paying $220,000.00. It may also be worth it to you to pay a high rate of interest to buy that property with no money down financing, if you have a definite plan to make a profit in spite of that high rate of interest.

You can also buy property with no money down financing, by getting other people to put up the down payment money for you. No money down financing means that you don’t have to take any money out of your pocket. It does not necessarily mean that no down payment money changes hands. You can find the deals, then find investors to put up the money and split the profits, either from selling the property, or renting it for a positive cash flow. This can give you more leverage in dealing with sellers and you can get more deals and better deals, than if you only look for sellers willing and able to accept no money down financing. The more flexible and creative you are, the more money you will make.

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