Zero down doesn't really mean that there is no down payment. If a seller is going to help with financing, most of the time they need a down payment. Most banks won't give you a loan for the full amount of an investment property purchase. Zero down just means that you won't have to pay for the down payment. So, where do you plan to get it? Can you really make money in real estate if you don't have any money?
The clear answer is yes. One investor told me the other night at our local investors' meeting that he had just found a fixer-upper but couldn't get the money to buy it. What did he do? He sold the contract for $6,000 to a different investor. In other words, all he put into the deal was a $500 "good faith" deposit and his time, and he made $6,000 from it. The word for this is "flipping."
He didn't even need to buy the property to make money. He didn't even need a down payment. There was enough money to be made by fixing up and selling the house that other investors were happy to pay to take his place. He knew how to find a good deal, and his offer included the right to give the contract to another investor if he wanted to.
Now, if he had put the $500 deposit on a credit card, he wouldn't have had to spend any of his own money on it, except for gas to look at houses. He would have had to pay a cash-advance fee of 3% and an interest rate of 18% per year for a month. This would have taken $22.50 off of his profit. Yes, you can make money with no money down.
More ideas for a zero down payment
What if you want to actually buy, fix up, and sell the property without putting any of your own money down at any point? It can be done in a lot of different ways. Find a partner is one way. In fact, I have a meeting with an investor tomorrow who wants to use my money to finish a profitable home renovation. I want a piece of that money. Trust me, if the deal is good, there will be people who want to invest in it.
Here's an example of how you might combine a few different ways to invest so that you end up with nothing. Let's say you find an owner who doesn't want to be a landlord anymore. He wants $80,000 for a house that is in bad shape. You look at it and see that it could sell for $116,000 if it was cleaned up and fixed for $4,000. All the costs will add up to about $9,000, which leaves a possible profit of $27,000. You don't have any cash.
How about giving more than what the seller wants? Offer him $85,000 and use a $500 cash advance on your credit card as a good-faith deposit. The offer, on the other hand, is for $5,000 down and no payments, with the rest of the balance due in full within a year at 7% interest. He should say yes, but why?
You tell him that he will get more than he asked for, and that he might even get a few thousand dollars more in interest. His collateral won't be in danger because, unlike his renters, you'll put money into fixing up the place. He will have a first mortgage on a home that will soon be worth much more than what he owes on it.
If he agrees, you find a person who wants to invest about $15,000 in the deal. This will be enough for the down payment, repairs, and other costs, with a little extra for any other costs that come up. In exchange, he will get his money back and half of the money made. If you finish the house quickly and on budget, you'll each get more than $10,000.
The buyer pays more than the seller wants. The other investor makes a lot of money on his money. You make at least $10,000 without putting any money in. The best way to make a deal work with zero down is to make sure that everyone wins.
